**UNITED** **** **S** **TA** **TE** **S**
 **SECURITIE** **S** **** **AND** **** **EXCHANGE** **** **COMMISSIO** **N**
 **W** **ashington,** **** **D** **.C.** **** **2054** **9**
 
 **FORM** **** **20-** **F**
 o
                **REGISTR****A****TION********S****T****A****TEMENT********PURS****U****AN****T********TO********SECTION********12(b)********OR********(g)********O****F****THE********SECURITIES********EXCHANG****E********A****CT********OF********193****4****O****R**þ
                **ANN****U****AL********REPO****R****T********PURS****U****AN****T********TO********SECTION********13********OR********15(d)********O****F****THE********SECURITIES********EXCHANG****E********A****CT********OF********193****4****F****or********the********f****iscal********y****ear********ended********Ma****rc****h********31,********200****6****O****R**o
                **TRANSITION********REPO****R****T********PURS****U****AN****T********TO********SECTION********13********OR********15(d)********O****F****THE********SECURITIES********EXCHANG****E********A****CT********OF********193****4****F****or********the********transition********period********f****r****o****m _________**t****o
                    _________******O****R**o
                **SHELL********COM****P****ANY********REPO****R****T********PURS****U****AN****T********TO********SECTION********13********OR********15(d)********O****F****THE********SECURITIES********EXCHANG****E********A****CT********OF********193****4****Date********of********ev****ent********r****equiring********this********shell********company********r****epor****t**
  **Commission** **** **f** **ile** **** **number** **** **000-2216** **1**
 **Co** **r** **gi** **** **Inte** **r** **national** **** **Limite** **d**
 *(Exact* ** *name* ** *of* ** *R* *e* *gist* *r* *ant* ** *as* ** *speci* *f* *ied* ** *in* ** *its* ** *c* *harter* *)*
 **Hong** **** **K** **ong,** **** **S.A.R.,** **** **Chin** **a**
 *(* *J* *urisdiction* ** *of* ** *incorpo* *r* *ation* ** *or* ** *o* *r* *ganization* *)*
 **Unit** **** **10,** **** **16/** **F** **.** **,** **** **W** **a** **h** **** **W** **ai** **** **Cent** **r** **e,** **** **38-4** **0** **** **A** **u** **** **Pu** **i** **** **W** **an** **** **St** **r** **eet** **,**
 **Fo** **** **T** **an,** **** **Ne** **w** **** **T** **erritories,** **** **Hong** **** **K** **ong,** **** **S.A.R.,** **** **Chin** **a**
 *(Add* *r* *ess* ** *of* ** *principal* ** *e* *xecutive* ** *o* *ff* *ices* *)*
 **Securities** **** **r** **egiste** **r** **ed** **** **or** **** **to** **** **be** **** **r** **egiste** **r** **ed** **** **pursuant** **** **to** **** **Section** **** **12(b)** **** **of** **** **th** **e** **** **Act** **.**
 **T****itle********of********each********clas****s**
              **Name********of********each********exchange********on********which********r****egiste****r****e****d**AmericanDepositaryShares
              NasdaqGlobalMarket
 **Securities** **** **r** **egiste** **r** **ed** **** **or** **** **to** **** **be** **** **r** **egiste** **r** **ed** **** **pursuant** **** **to** **** **Section** **** **12(g)** **** **of** **** **th** **e** **** **Act** **.**
 Not  Applicable
 ( T itle  of  Class )
 **Securities** **** **f** **or** **** **which** **** **the** **r** **e** **** **is** **** **a** **** **r** **eporting** **** **obligation** **** **pursuant** **** **to** **** **Section** **** **15(d)** **** **of** **** **th** **e** **Act** **.**
 Not  Applicabl e
 ( T itle  of  Class )
 The
          number of the issuer’s ordinary shares outstanding at August 18, 2006 was
          10,176,943, of which 10,176,943 were represented
          by American Depositary Shares.
 Indicate
          by check mark if the registrant is a well-known seasoned issuer, as defined
          in
          Rule 405 of the Securities Act.   o Yes     
          þNo
 If
          this report is an annual or transition report, indicate by check mark if
          the
          registrant is not required to file reports pursuant to Section
          13 or 15(d) of the Securities Exchange Act of 1934.  oYes     
          þNo
 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.  þYes    
          oNo
 Indicate
          by check mark whether the registrant is a large accelerated filer, an
          accelerated filer or a non-accelerated filer. See definition
          of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange
          Act (check one):
 o Large
                    accelerated filer
                  o Accelerated
                    filer
                  þ Non-accelerated
                    filer
 Indicate
          by check mark which financial statement item the registrant has elected
          to
          follow. oItem
          17       þItem 18
 If
          this is an annual report, indicate by check mark whether the registrant
          is a
          shell company (as defined in Rule 12b-2 of the Exchange Act).   oYes     
          þNo






**CORGI** **** **INTER** **N** **A** **TIO** **N** **AL** **** **LIMITE** **D**




**INDE** **X** **** **TO** **** **ANN** **U** **AL** **** **REPO** **R** **T** **** **ON** **** **FORM** **** **20-** **F**


**FO** **R** **** **THE** **** **FISCA** **L** **** **YEAR** **** **ENDED** **** **MARCH** **** **31,** **** **200** **6**




**Page**PARTIItem3.
            KeyInformation
            3Item4.
            InformationontheCompany
            16Item5.
            OperatingandFinancialReviewandProspects
            24Item6.
            Directors,SeniorManagementandEmployees
            42Item7.
            MajorShareholdersandRelatedPartyTransactions
            49Item8.
            FinancialInformation
            51Item9.
            TheOfferandListing
            52Item10.
            AdditionalInformation
            53Item11.
            QuantitativeandQualitativeDisclosuresAboutMarketRisk
            60PARTIIItem13.
            Defaults,DividendArrearagesandDelinquencies
            61Item15.
            ControlsandProcedures
            61Item16A.
            AuditCommitteeFinancialExpert
            62Item16B.
            CodeofEthics
            62Item16C.
            PrincipalAccountantFeesandServices
            62PARTIIIItem18.
            FinancialStatements
            63Item19.
            Exhibits
            99Signatures
            
            102






1





**DEFINITIONS**
  Unless
        the context otherwise requires, references in this annual report on Form
        20-F
        (the “Annual Report”) to the “Company,”
        “we” or “us” refers to Corgi International Limited and the term “Group” refers
        to Corgi International
        Limited and its consolidated subsidiaries (including Corgi and Zindart
        Manufacturing, each as defined
        below). The term “Zindart Manufacturing” refers to Zindart Manufacturing Limited
        and its consolidated subsidiaries.
        The term “Corgi” refers to Corgi Classics Holdings Limited, its main operating
        subsidiaries, Corgi Classics
        Limited (“Corgi U.K.”), Corgi USA, Inc. (“Corgi U.S.”), and its other
        consolidated subsidiaries. The Company
        completed the sale of Hua Yang Holdings Co., Limited and its subsidiaries
        in May
        2004. Prior to October
        2005, the Company had been known as Zindart Limited.
  **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
        that may affect our 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, a history
        of
        losses, competition, acquisitions, mergers
        and/or dispositions, access to credit facilities, dependence on certain
        customers and vendors, market demand
        for our products, changes in general economic conditions, dependence on certain
        raw materials,
        impairment of goodwill, 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 us
        on the
        date of this Annual Report. We undertake 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”).




**N** **O** **TE** **** **REGARDING** **** **FI** **N** **ANCIAL** **** **PRESEN** **TA** **TIO** **N**


The
        financial data contained in this Annual Report were derived from our
        consolidated financial statements that have
        been
        prepared in accordance with U.S. generally accepted accounting
        principles.






2





**P** **A** **R** **T** **** **I**




**Item********3****.*****K******ey************Informatio******n***




**SELECTED** **** **FI** **N** **ANCIAL** **** **D** **A** **T** **A**




The
      selected consolidated statements of operations data for the years ended March
      31, 2006, 2005 and 2004, and selected
      consolidated balance sheets data as of March 31, 2006 and 2005, were 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, 2003 and 2002, and selected consolidated
      balance sheets data at March
      31,
      2004, 2003 and 2002 were derived from the consolidated financial statements
      of
      the Group previously filed
      with the SEC.


In
        May
        2004, we completed the sale of Hua Yang, the operations of which were reported
        as discontinued operations in the
        selected consolidated statements of operations data for the years ended March
        31, 2005, 2004, 2003 and 2002. As
        described in note 2 to our consolidated financial statements, Zindart
        Manufacturing’s operations were reported
        as discontinued operations as of March 31, 2005, and accordingly, the assets
        and
        liabilities associated with Zindart
        Manufacturing as of March 31, 2005 and the related results of operations
        were
        presented as discontinued
        operations in the previously reported selected consolidated statements of
        operations data. As of March
        31,
        2006, due to circumstances that previously were considered unlikely, Zindart
        Manufacturing’s operations no
        longer
        met the criteria to be classified as discontinued operations, and accordingly
        the results of operations associated
        with Zindart Manufacturing for each of the years in the four-year period
        ended
        March 31, 2005 have been
        reclassified to present Zindart Manufacturing as held and used for continuing
        operations. The assets and liabilities
        associated with Zindart Manufacturing as of March 31, 2006 were reclassified
        in
        the consolidated balance sheet
        data as held and used; however, corresponding amounts shown at March 31,
        2005
        were not reclassified. The following
        selected consolidated financial data should be read in conjunction with Item
        5
        and Item 18 of this Annual Report.






3






**YearEndedMarch31,****2006**
            
            
            **2005**
            
            
            **2004**
            
            
            **2003**
            
            
            **2002****(Inthousands,exceptsharedata)****ConsolidatedStatementsofOperations****Data:**Netsales
            
            $
            76,394
            
            $
            92,740
            
            $
            95,819
            
            $
            83,357
            
            $
            92,481Costofgoodssold
            
            
            (61,338
            )
            
            (69,160
            )
            
            (65,300
            )
            
            (52,413
            )
            
            (64,231
            )Grossprofit
            
            
            15,056
            
            
            23,580
            
            
            30,519
            
            
            30,944
            
            
            28,250Selling,general,andadministrative
              expenses
            
            
            (27,905
            )
            
            (30,965
            )
            
            (32,531
            )
            
            (27,729
            )
            
            (32,266
            )Amortizationofgoodwill
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (1,376
            )Impairmentlossongoodwill
            
            
            (18,782
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Impairmentlossonlong-livedassets
            
            
            (1,439
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Operating(loss)income
            
            
            (33,070
            )
            
            (7,385
            )
            
            (2,012
            )
            
            3,215
            
            
            (5,392
            )Other(expense)income:Interestincome
            
            
            85
            
            
            138
            
            
            39
            
            
            111
            
            
            240Interestexpense
            
            
            (1,038
            )
            
            (1,204
            )
            
            (905
            )
            
            (1,372
            )
            
            (1,997
            )Otherincome(loss)
            
            
            446
            
            
            104
            
            
            (130
            )
            
            (145
            )
            
            42(Loss)incomebeforeincome
              taxesandminorityinterest
            
            
            (33,577
            )
            
            (8,347
            )
            
            (3,008
            )
            
            1,809
            
            
            (7,107
            )Incometax(expense)benefit
            
            
            (1,907
            )
            
            612
            
            
            (121
            )
            
            (145
            )
            
            470(Loss)incomebeforeminority
              interest
            
            
            (35,484
            )
            
            (7,735
            )
            
            (3,129
            )
            
            1,664
            
            
            (6,637
            )Minorityinterest
            
            
            31
            
            
            (138
            )
            
            (298
            )
            
            (191
            )
            
            (210
            )(Loss)incomefromcontinuing
              operations
            
            
            (35,453
            )
            
            (7,873
            )
            
            (3,427
            )
            
            1,473
            
            
            (6,847
            )Income(loss)fromdiscontinued
              operations,netoftax
            
            
            -
            
            
            352
            
            
            (1,882
            )
            
            1,092
            
            
            (1,398
            )(Loss)incomebefore
              extraordinaryitems
            
            
            (35,453
            )
            
            (7,521
            )
            
            (5,309
            )
            
            2,565
            
            
            (8,245
            )Extraordinarygain,netofniltax
            
            
            98
            
            
            418
            
            
            -
            
            
            -
            
            
            -Net(loss)income
            
            $
            (35,355
            )
            $
            (7,103
            )
            $
            (5,309
            )
            $
            2,565
            
            $
            (8,245
            )







4






**YearEndedMarch31,****2006**
              
              
              **2005**
              
              
              **2004**
              
              
              **2003**
              
              
              **2002****(Inthousands,exceptsharedata)**(Loss)earningspercommonshare:


Basic:(Loss)incomefromcontinuing
              operations
            
            $
            (3.63
            )
            $
            (0.83
            )
            $
            (0.38
            )
            $
            0.17
            
            $
            (0.78
            )Income(loss)fromdiscontinued
              operations
            
            
            -
            
            
            0.04
            
            
            (0.22
            )
            
            0.12
            
            
            (0.15
            )Extraordinarygain
            
            
            0.01
            
            
            0.04
            
            
            -
            
            
            -
            
            
            -Net(loss)income
            
            $
            (3.62
            )
            $
            (0.75
            )
            $
            (0.60
            )
            $
            0.29
            
            $
            (0.93
            )Diluted:(Loss)incomefromcontinuing
              operations
            
            $
            (3.63
            )
            $
            (0.83
            )
            $
            (0.38
            )
            $
            0.16
            
            $
            (0.78
            )Income(loss)fromdiscontinued
              operations
            
            
            -
            
            
            0.04
            
            
            (0.22
            )
            
            0.12
            
            
            (0.15
            )Extraordinarygain
            
            
            0.01
            
            
            0.04
            
            
            -
            
            
            -
            
            
            -Net(loss)income
            
            $
            (3.62
            )
            $
            (0.75
            )
            $
            (0.60
            )
            $
            0.28
            
            $
            (0.93
            )Weightedaveragenumberofcommon
              sharesoutstanding:(1)Basic
            
            
            9,763,957
            
            
            9,487,129
            
            
            8,907,015
            
            
            8,834,125
            
            
            8,834,125Diluted
            
            
            9,763,957
            
            
            9,487,129
            
            
            8,907,015
            
            
            9,044,122
            
            
            8,834,125**Consolidated********Balance********Sheets********Data****:**Cashandcashequivalents
            
            $
            820
            
            $
            7,012
            
            $
            1,539
            
            $
            1,973
            
            $
            3,425Assetsofdiscontinuedoperations
            
            
            -
            
            
            29,243
            
            
            31,712
            
            
            -
            
            
            -Liabilitiesofdiscontinuedoperations
            
            
            -
            
            
            23,073
            
            
            18,068
            
            
            -
            
            
            -Workingcapital(2)
            
            
            (6,630
            )
            
            12,692
            
            
            (3,305
            )
            
            (1,022
            )
            
            (8,501
            )Property,plant,andequipmentand
              landuserights,net
            
            
            17,392
            
            
            7,933
            
            
            23,386
            
            
            30,709
            
            
            31,152Totalassets
            
            
            60,029
            
            
            98,644
            
            
            131,542
            
            
            125,821
            
            
            124,026Short-termdebt,currentinstallmentsof
              long-termdebtandobligations
              undercapitalleases
            
            
            11,412
            
            
            3,876
            
            
            12,480
            
            
            16,639
            
            
            26,586Long-termdebtandobligations
              undercapitalleases,excluding
              currentinstallments
            
            
            219
            
            
            -
            
            
            701
            
            
            3,588
            
            
            252Stockholders’equity
            
            
            27,487
            
            
            63,053
            
            
            68,190
            
            
            70,574
            
            
            66,504


(1)
              Stock
                  options outstanding for the years ended March 31, 2006, 2005 and
                  2004 werenot
                  included in computing diluted (loss) earnings per common share
                  since their
                  effectswere
                  anti-dilutive due to the net loss from continuing operations for
                  the year.
                  Thedifference
                  between basic and diluted weighted average number of common shares
                  for theyear
                  ended March 31, 2003 is due to the dilutive effect of stock options
                  outstanding byapplication
                  of the treasury stock method. Stock options and convertible note
                  outstandingfor
                  the year ended March 31, 2002 were not included in computing diluted
                  (loss)earnings
                  per common share because their effects were anti-dilutive due to
                  the net
                  loss fromcontinuing
                  operations for the year.
  (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 ofapproximately
                  $6.0 million as current liabilities as a result of our breach of
                  certainfinancial
                  covenants under our banking
                  facilities.






5







**RISK** **** **F** **A** **C** **T** **OR** **S**





**Risks** **** **Related** **** **to** **** **our** **** **Busines** **s**





***W*** ***e*** ****** ***have*** ****** ***incurred*** ****** ***losses*** ****** ***in*** ****** ***prior*** ****** ***periods*** ****** ***and*** ****** ***may*** ****** ***incur*** ****** ***losses*** ****** ***in*** ****** ***the*** ****** ***future*** ***.***




We
        have
        had a history of operating and net losses. We had an operating loss of $33.1
        million and a net loss of $35.4 million in the fiscal year ended March 31,
        2006,
        and an operating loss of $7.4 million and a net loss of $7.1 million in the
        fiscal year ended March 31, 2005. We cannot provide any assurance that operating
        profitability or net profitability can be achieved or sustained due to several
        factors including, but not limited to:
  •
                  as
                      we seek to achieve organic growth or growth through acquisitions,
                      additional investment in product development activities will
                      be
                      necessary;
  •
              product
                  costs and profit margins may be unfavorably impacted due to foreign
                  currencyfluctuations,
                  particularly appreciation of the Renminbi against the U.S. dollar
                  and the
                  Euro;
  •
              changes
                  in accounting standards such as recognition of compensation costs
                  relating
                  toemployee
                  stock option plan in accordance to Statement of Financial Accounting
                  Standards No.
                  123 (revised 2004), “Share Based Payment” will increase our operating
                  expenses;
  •
              competition
                  in the toy industry will continue to exert price pressure, unfavorably
                  impactingour
                  net sales;
  •
              we
                  may be required to record goodwill impairment charges relating
                  to our
                  previous orfuture
                  acquisitions, such as the $18.8 million goodwill impairment charge
                  taken
                  in the year ended
                  March 31, 2006;
  •
              ongoing
                  efforts to comply with the regulations promulgated under the
                  Sarbanes-Oxley Actof
                  2002 will continue to increase general and administrative
                  expenses;
  •
              we
                  may fail to achieve our current strategic initiatives to increase
                  market
                  awareness of thecompany,
                  our products and our brands.
  Many
        of
        our expenses are relatively fixed, and cannot be reduced quickly if actual
        revenues are lower than
        expected. As a result of such fixed expenses, revenue shortfalls could result
        in
        lower profitability or result
        in
        greater losses than anticipated for any given period.
  ***Our
        ability to operate as a going concern caused by a deterioration in our liquidity
        and the availability*** ***of
        trade credit on favorable terms.***




The
        consolidated financial statements included in Item 18 of this Annual Report
        were
        prepared on a going
        concern basis, which contemplates the realization of assets and the satisfaction
        of liabilities in the normal
        course of business. The realization of assets and the satisfaction of
        liabilities in the normal course of
        business are dependent on, among other things, our ability to operate
        profitably, to generate cash flows from
        operations, and maintain credit facilities adequate to support our working
        capital requirements. As discussed
        below, we have continued to suffer recurring losses from operations and generate
        negative cash flows
        that raise substantial doubt regarding our ability to continue as a going
        concern. Our plans in regard to
        these
        matters are also described below. The consolidated financial statements included
        in Item 18 of this
        Annual Report do not include any adjustments that might result from the outcome
        of this uncertainty.
 
 6
  We
          continue to face difficult market conditions, which have caused significant
          operating losses and placed considerable pressure on our liquidity. We
          have
          incurred significant operating losses and net losses in each of the three
          years
          in the three-year period ended March 31, 2006. As of March 31, 2006, we
          had an
          accumulated deficit of $15.8 million. As of March 31, 2006, we had cash
          and cash
          equivalents totaling $0.8 million, and available credit facilities of $15.3
          million of which $10.8 million were utilized as borrowings. As of March
          31,
          2006, our Corgi division had $4.4 million in available credit under our
          bank
          lines, and our Zindart Manufacturing division had $10.9 million in available
          credit under our bank lines. The available banking facilities of $15.3
          million
          reflected a temporary reduction of banking facilities from the Agricultural
          Bank
          of China (“ABC”) from $7.4 million to $3.3 million as of March 31, 2006 due to
          macro-economic controls in the PRC under which limits had been placed on
          ABC’s
          authority to lend to its banking clients. As of August 22, 2006, we have
          been
          repaying amounts drawn on our banking facilities in accordance with the
          repayment terms.
  As
          of
          March 31, 2006, we had breached certain financial undertakings in respect
          to our
          bank facilities with KBC Bank N.V. (“KBC”) and The Hongkong and Shanghai Banking
          Corporation Limited (“HSBC”). We did not meet minimum financial ratios related
          to consolidated tangible net worth, consolidated net borrowings to consolidated
          tangible net worth, current assets to current liabilities, interest coverage,
          and consolidated profits before interest and tax. The lenders have not
          notified
          us that we are in a state of default, and we have continued to maintain
          banking
          relationships with each of these financial institutions. For both facilities,
          the lenders have the right to demand payment of all amounts owed at any
          time,
          irrespective of whether we had complied with the financial undertakings.
          As of
          March 31, 2006, total outstanding borrowings under these two credit facilities
          amounted to $3.2 million.
  With
          respect to our facility with KBC, as of March 31, 2006, the lender had
          suspended
          further utilization of the credit facility. Total outstanding borrowing
          under
          this credit facility amounted to $1.3 million as of March 31, 2006. On
          April 24,
          2006, a repayment schedule was agreed with the lender whereby we have agreed
          to
          repay $150,000 per month, with the remaining balance to be repaid by November
          26, 2006.
  With
          respect to our facility with HSBC, the lender has revised the terms of
          the
          credit facility by reducing the available amount to be withdrawn from $2.6
          million to $2.1 million and requiring us to maintain a $1.0 million restricted
          cash deposit with the lender. As of August 22, 2006, we had not signed
          the
          revised agreement as we are still in negotiation with the lender with respect
          to
          the term requiring us to place a $1.0 million restricted deposit with the
          lender. As of March 31, 2006, the total amount outstanding under this facility
          amounted to $1.9 million.
  In
          April
          2006, we responded to the liquidity deterioration by issuing convertible
          notes
          and warrants in a private placement for aggregate proceeds amounting to
          $5.7
          million (see note 21 to the consolidated financial statements included
          in Item
          18 of this Annual Report) and, in June 2006, replacing our existing $4.4
          million
          overdraft facility with The Royal Bank of Scotland plc. (“RBS”) with an $8.7
          million receivable discounting facility with Coface Receivables Finance
          Limited.
          However, the utilization of the receivable discounting facility will depend
          on
          actual sales levels. The amount available for utilization under the discounting
          facility will be less than the amount available under the RBS overdraft
          facility
          to the extent actual sales are lower than historical sales. The proceeds
          of the
          private placement have been substantially utilized as required to fund
          working
          capital deficits.
  In
          the
          event that market conditions and demand for our products continue to deteriorate
          and decline, causing operating losses and negative cash flows from operations
          to
          continue and, despite our best efforts, we are unable to secure additional
          financing sources from lenders and/or other parties to fund our operations
          and
          obligations, we will be required to dispose of business units or assets,
          perhaps
          at a significant discount to the fair value thereof, seek bankruptcy protection
          or commence liquidation or other administrative
          proceedings.




7




***We
        plan to engage in acquisition or mergers, which may affect the profit, loss,
        revenues, profit margins, capital expenditures or other aspects of our
        business.***
  We
        plan
        to engage in acquisitions or mergers, which may affect the profit, revenues,
        profit margins, capital expenditures, or other aspects of our business. However,
        we can provide no assurances that we will be able to identify suitable
        acquisition targets or merger partners or that, if identified, we will be
        able
        to acquire these targets on acceptable terms or agree to terms with merger
        partners. In addition, we can provide no assurances that we will be successful
        in integrating any acquired company into our overall operations, or that
        any
        such acquired company will operate profitably or will not otherwise adversely
        impact our results of operations.
  We
        anticipate that additional financing will be required to support any such
        acquisitions or mergers. Such financings could result in dilution to existing
        shareholders or the related cost of the financings could adversely affect
        our
        business, financial condition and results of operations.
  ***We
        face intense competition.***
  Our
        business and operating results depend largely upon the appeal of our toy
        products. Consumer preferences, particularly among collectors of die-cast
        vehicle model products, change constantly. In addition, the toy industry
        experiences significant, sudden shifts in demand caused by “hit” toys and
        trends, which are often unpredictable. We compete with many other toy companies,
        both large and small, which means that our market position is always at risk.
        In
        branded toys and collectibles, we compete with numerous companies with large
        intellectual property portfolios located all over the world including, but
        not
        limited to, Mattel, Hasbro, Funrise, Dragon, Armour/Franklin Mint, IXO, Model
        Power, Forces of Valor, and Die Cast Promotions. These companies have greater
        resources to develop new products and market their existing
        products.
  Our
        ability to maintain and increase our current market share in each of our
        product
        categories, and establish market share in new product categories, will depend
        on
        our ability to satisfy consumer preferences, enhance existing products, develop
        and introduce new products, and achieve market acceptance of these products.
        In
        recent years there have been trends towards shorter life cycles for individual
        toy products, driven in part by an increasing use of more sophisticated
        technology in toys. As a result, we must also compete with many other companies,
        including the makers of consumer electronic products, to meet the entertainment
        demands of our customers. If we do not successfully meet the challenges outlined
        above in a timely and cost-effective manner, demand for our products could
        decrease and our revenues, profitability and results of operations may be
        adversely affected.
  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.
        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 our business, financial condition and results
        of
        operations.
  We
        do not
        believe that there are any significant barriers to entry into the light
        manufacturing business. We have no registered trademarks in respect of our
        manufacturing businesses. Accordingly, additional participants may enter
        the
        market at any time.


8




***Our
        business is seasonal and therefore our annual operating results will depend,
        in
        large part, on sales during the relatively brief U.S. and European winter
        holiday season. Improved inventory management by retailers resulting in shorter
        lead times for production and possible shipping disruptions during peak demand
        times may affect our ability to deliver our products in time to meet retailer
        demands.***
  Our
        business is subject to risks associated with the underproduction of popular
        toys
        and the overproduction of toys that do not match consumer demand. Sales of
        toy
        products at retail are seasonal, with a majority of retail sales occurring
        during the period from September through December. As a result, our annual
        operating results depend, in large part, on sales during the relatively brief
        traditional holiday season. Retailers are attempting to manage their inventories
        better, requiring us to ship products closer to the time the retailers expect
        to
        sell the products to consumers. This in turn results in shorter lead times
        for
        production. We believe that the increase in “last minute” shopping during the
        holiday season and the popularity of gift cards (which often result in purchases
        after the holiday season) may negatively impact customer re-orders during
        the
        holiday season. Shipping disruptions limiting the availability of ships or
        containers in Asia during peak demand times may affect our ability to deliver
        our products in time to meet retailer demand. These factors may decrease
        sales
        or increase the risk that we may not be able to meet demand for certain products
        at peak demand times, or that our own inventory levels may be adversely impacted
        by the need to pre-build products before orders are placed.
  Zindart
        Manufacturing 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, Zindart Manufacturing ceases production for a week during October
        due to Chinese National Day holiday.
 
 ***We
        depend on major vendors for a significant portion of our manufacturing
        requirements.***
  We
        utilize several OEM manufacturers, all based in the PRC, to produce our
        products. Our Zindart Manufacturing division produces almost two-thirds of
        our
        Corgi division products. Our OEM manufacturers may decide not to continue
        producing our products. Several quality manufacturing alternatives may be
        available in the PRC, but there can be no assurance that we will be able
        to find
        alternate producers on a timely basis, if at all. In addition, prices charged
        by
        the alternate vendors may be higher than charged by our current OEM
        manufacturers. The related price increases could unfavorably impact our
        financial results.
  One
        of
        our major vendors has determined not to produce products for Corgi beyond
        September 2006. An alternate vendor has been identified and only nominal
        delays
        are anticipated as a result of the move to the new vendor. Nevertheless,
        production delays can and may occur during the effort to transfer to the
        new
        vendor. In addition, other production delays have occurred during late fiscal
        year 2006 and during fiscal year 2007 that have served to delay sales of
        products to our customers. Such delays are not anticipated to continue beyond
        fiscal year 2007, but we can not assure that such delays will not
        continue.
  ***We
        have limited negotiating power with our customers, and if our costs increase,
        our financial results may be adversely affected.***
  We
        have
        little price negotiating power with regard to our mass-market toys, as several
        companies are competing to sell similar products to the same major retailers.
        Many substitutes to our toy products are available in the market. Moreover,
        the
        large mass retailers have low margins and are price sensitive. The toy industry
        is mature and retailers have access to and are able to evaluate market
        information. As a result, we are unlikely to offset cost increases by increasing
        the prices we charge our customers.






9





***The
        concentration of our business with a small customer base that make no binding
        long-term commitments means that economic difficulties or changes in the
        purchasing policies of our major customers, and the credit collection risk
        they
        pose, could have a significant impact on our business and operating
        results.***
  A
        small
        number of customers account for a large share of our net sales. In the year
        ended March 31, 2006, our five largest customers, four of whom were Zindart
        Manufacturing customers, accounted for approximately 42.6% of net sales.
        The
        concentration of our business with a relatively small number of customers
        may
        expose us to significantly decreased revenues and profits if one or more
        of our
        large customers were to significantly reduce purchases for any reason. Customers
        make no binding long-term commitments to us regarding purchase volumes and
        make
        all purchases by delivering one-time purchase orders. Any customer could
        reduce
        its overall purchases of our products, reduce the number and variety of our
        products that it carries and the shelf space allotted for our products, or
        otherwise seek to materially change the terms of the business relationship
        at
        any time. Any such change could significantly harm our business and operating
        results.
  Our
        most
        significant customers include Hallmark Cards, Inc. (“Hallmark”), Jada Toys, Inc.
        (“Jada”) and Mattel® Toys (“Mattel”), all of whom are customers of Zindart
        Manufacturing. Sales to Hallmark, Jada and Mattel represented 16.2%, 11.9%,
        and
        7.8%, respectively, of the total net sales for the year ended March 31, 2006.
        Our dependence on our major customers is expected to continue in the foreseeable
        future. The loss of any one of our major customers, particularly Hallmark,
        Mattel or Jada, would have a material adverse effect on our business, financial
        condition and results of operations. None of our major customers is obligated
        under a long-term purchase contract. Instead, sales transactions with all
        of our
        customers are based on purchase orders received by us from time to time,
        which
        purchase orders are subject to cancellation.
  In
        addition, our sales to customers are typically made on credit without
        collateral. Our five largest trade accounts receivable accounted for
        approximately 40.4% of our total gross trade accounts receivable as of March
        31,
        2006. Customers may not pay amounts due to us, or such payments may be delayed,
        because of bankruptcy or other factors beyond our control, increasing our
        exposure to losses from bad debts. In addition, if these or other customers
        were
        to cease doing business as a result of bankruptcy, or significantly reduce
        the
        number of stores operated, it could have a material adverse effect on our
        business, financial condition and results of operations.
 
 ***Our
        profitability depends on continued market acceptance of our products and
        on the
        strength of various foreign economies.***
  There
        can
        be no assurance that our existing or future products or our customers will
        continue to receive substantial market acceptance. In addition, because a
        significant portion of the products we manufacture and sell are sold in the
        United States and the United Kingdom, our profitability also depends on the
        strength of the U.S. and U.K. economies, which can affect U.S. and U.K.
        consumers’ spending habits on such items as die-cast collectibles. Any downturn
        in the U.S. or U.K. economies could have a material adverse effect on our
        business, financial condition and results of operations.




10




Our
        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 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
        our
        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 our existing or future products or our customers’ products
        will continue to receive substantial market acceptance.
  ***Disruption
        of access to our production facilities may unfavorably impact our
        profitability.***
  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 our 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
        our results of operations. In such event, we believe 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.
 
 ***We
        are dependent on certain raw materials.***
  We
        use
        zinc alloy and various plastic resins in our manufacturing operations. Our
        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, our cost of raw materials is subject to substantial increases and
        decreases over which we have no control except by seeking to time our purchases
        in order to take advantage of favorable market conditions. In the past, we
        have
        experienced significant increases in the price of certain raw materials,
        which
        resulted in increases in our production costs that we were not able to pass
        on
        fully to our 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 our business, financial condition and results of
        operations.
  We
        have
        no master agreements with any of our suppliers to secure a stable source
        of raw
        materials. No assurance can be given that we will be able to obtain sufficient
        quantities of such raw materials to meet our needs. We believe that we could
        continue to obtain needed raw materials in the event that we experience
        significant rapid growth, in light of the current availability of such raw
        materials on the world markets. Any lack of sufficient raw materials for
        our
        needs would have a material adverse effect on our business, financial condition
        and results of operations. However, to the extent we are 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 our business,
        financial condition and results of operations.




11




***The
        impairment of our goodwill may affect our financial
        results.***
  During
        the fiscal year ended March 31, 2006, we recognized $18.4 million of impairment
        to goodwill related to the acquisition of our Corgi division in July 1999.
        The
        impairment loss arises as the implied fair value of the goodwill of Corgi
        was
        $16.9 million, which was lower than the carrying amount of goodwill of $35.3
        million. The facts and circumstances leading to the goodwill impairment charge
        were primarily due to lower expected future cash flows as a result of poor
        customer reception of Corgi’s products in the weak retail environment in the
        United Kingdom, and reduced gross profit margins due to a shift in Corgi
        sales
        mix towards more low-margin mass-market products. In addition, in connection
        with the reclassification of Zindart Manufacturing as held and used, the
        Company
        recorded an impairment charge of goodwill of $414,000. After recording the
        impairment charge, the carrying amount of goodwill was $16.9 million as of
        March
        31, 2006. Any further deterioration of the expected future performance of
        the
        Corgi division may further reduce the estimated fair value of the reporting
        unit
        and lead to recognition of additional goodwill impairment.
  ***Recalls,
        post-manufacture repairs of our products, absence or cost of insurance, and
        administrative costs associated with recalls could harm our reputation, increase
        costs or reduce sales.***
  We
        are
        subject to regulation by the U.S. Consumer Product Safety Commission and
        similar
        state and international regulatory authorities, and our products could be
        subject to involuntary recalls and other actions by these authorities. Concerns
        about product safety may lead us to voluntarily recall selected products.
        We
        have experienced, and in the future may experience, defects or errors in
        products after their production and sale to customers. These defects or errors
        could result in the rejection of our products by customers, damage to our
        reputation, lost sales, diverted development resources and increased customer
        service and support costs, any of which could harm our business. Individuals
        could sustain injuries from our products, and we have in the past and may
        be in
        the future subject to claims or lawsuits resulting from these injuries. There
        is
        a risk that these claims or liabilities may exceed, or fall outside the scope
        of, our insurance coverage. Moreover, we may be unable to obtain adequate
        liability insurance in the future. Recalls, post-manufacture repairs of our
        products, absence or cost of insurance, and administrative costs associated
        with
        recalls could harm our reputation, increase costs or reduce sales.
  ***Failure
        to protect our proprietary intellectual property and information could have
        a
        material adverse effect on our business, financial condition and results
        of
        operations.***
  The
        value
        of our business depends to a large degree on our ability to protect our
        intellectual property, including our trademarks, trade names, copyrights,
        patents and trade secrets in the U.S., the U.K. and around the world. Any
        failure to protect our proprietary intellectual property and information,
        including any successful challenge to our ownership of our intellectual property
        or material infringements of our intellectual property, could have a material
        adverse effect on our business, financial condition and results of
        operations.
  ***Our
        operations are based in the PRC, where product piracy and counterfeiting
        activities are widespread.***
  Although
        we make significant efforts to prevent piracy and counterfeiting of our
        products, we can make no assurances that such activities will not occur,
        as
        certain of these activities may be beyond our reasonable control. We incur
        expenses related to policing and other prevention efforts against piracy
        and
        counterfeiting, and may lose legitimate sales of our product when and where
        pirated or counterfeited product has been sold. We do not believe that such
        activities have materially impacted our historical operating results, but
        can
        provide no assurance whether heightened piracy and counterfeiting activities
        may
        materially impact our future operating results.







12




***We
        are subject to potential costs and expenses related to environmental
        matters.***
  Our
        manufacturing operations involve the use of certain toxic substances, including
        plastic resins, oil-based paints and cleaning solvents. We are, and are likely
        to continue to be, subject to PRC national, provincial and local environmental
        protection laws and regulations. Such laws and regulations currently impose
        a
        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. We currently dispose of our waste substances
        in
        a manner we believe 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 we 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 our
        business, financial condition and results of operations. We are not aware
        of any
        claims related to environmental contamination, and have not accrued any amounts
        to cover such claims.
  ***If
        we fail to attract and retain qualified staff, our performance may
        suffer.***
  Our
        success is substantially dependent upon our executive management, as well
        as
        upon our ability to attract and retain qualified design, manufacturing and
        marketing personnel. The loss of any of our current executive management
        team
        for any reason could have a material adverse effect on our business, financial
        condition and results of operations. We are not the beneficiaries of any
“key
        person” life insurance policy on any such person.
  Substantially
        all of our 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 us
        for two to five years and then return to their communities. In addition,
        approximately 5%-10% of the production workers do not return each year after
        the
        Chinese New Year holiday, and we must hire replacements. If these production
        workers were able to earn similar wages in their home provinces or higher
        wages
        in other industries, we could experience labor shortages or could be required
        to
        increase salaries to meet our labor needs, either of which could have a material
        adverse effect on our business, financial condition and results of
        operations.
  Our
        employees are not unionized, and we have 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 our business, financial
        condition and results of operations.
  ***We
        rely on our manufacturing customers to comply with governmental regulations:
        we
        could be subject to substantial penalties and/or loss of business if such
        compliance is not maintained.***
  Our
        U.S.
        customers 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. We rely on our
        customers to design products that comply with such safety standards and to
        test
        the products to ensure compliance with applicable regulatory safety
        standards.





13




While
        we
        believe that our customers design and test the products we manufacture for
        compliance with regulatory standards, and we maintain quality assurance
        procedures, there can be no assurance that our products will not be found
        to
        violate applicable laws, rules and regulations, which could have a material
        adverse effect on our business, financial condition and results of operations.
        In addition, there can be no assurance that more restrictive laws, rules
        and
        regulations will not be adopted in the future, or that our 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 our business, financial
        condition and results of operations.
  ***Our
        exports to foreign countries may be limited by applicable tariffs and
        quotas.***
  Most
        of
        our products are shipped to customers in the U.S. and the U.K..  The U.S.
        and U.K. 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 our ability to continue to export products
        to the U.S. or U.K. at current or increased levels. We cannot predict what
        regulatory changes may occur, if any, or the type or extent of any financial
        impact on us that such changes may have in the future. In addition, various
        forms of protectionist trade legislation have been proposed in the U.S.,
        the
        U.K. and the European Union. Adverse changes in tariff structures or other
        trade
        policies could have a material adverse effect on our business, financial
        condition and results of operations.
  ***The
        title to a portion of our PRC land is impaired.***
  We
        have a
        50-year lease to land use for our PRC-based factory supported by four land
        use
        certificates. All such land use certificates are valid and enforceable; however,
        Land Use Certificate for State-Owned Land, Dongguan Government State-Owned
        (1993) No. 49. has not been registered properly by the local PRC land title
        registry. This defect impairs our ability to sell such land use rights until
        when and if the local PRC land title registry corrects the registration.
        We are
        currently working with the local PRC land title registry to effect the
        rectification process, but cannot provide any assurances of when or if such
        rectification can be completed. This defect impairs not only our ability
        to sell
        the specific land in question, but the buildings upon the land as
        well.
  **Country
        Risks**
  ***We
        have a significant investment in the PRC, and we may be negatively affected
        by
        political, social and economic instability in the PRC or
        elsewhere.***
  The
        political, social and economic environment in the PRC may have an adverse
        impact
        on our investment in the PRC. 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; however, there can be no assurance 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. 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 our business, financial condition and results
        of
        operations. In addition, a deterioration of political relations between the
        U.S.
        and the PRC or the U.K. and the PRC may adversely affect our
        business.




14




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.
  In
        addition, our administrative, finance and accounting activities are located
        in
        Hong Kong. Our 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. As a result, our business, financial condition and
        results of operations may be influenced by the general political, social
        and
        economic situation in the PRC, Hong Kong, the U.K. and the U.S. Accordingly,
        we
        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.
  ***Our
        business may be materially affected by changing regulations and policies
        in the
        PRC.***
  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. Our 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
        we believe that the present level of support from local, provincial and national
        governmental entities we enjoy benefits our 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
        our business, financial condition and results of operations.
  On
        July
        1, 1997, sovereignty over Hong Kong was transferred from 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
        our understanding of the Basic Law, we do not believe that the transfer of
        sovereignty of Hong Kong has had or will have a material adverse effect on
        our
        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.




15




On
        July
        21, 2005, the People’s Bank of China announced the end of the Renminbi (“RMB”)
        peg to the U.S. dollar. The bank increased the value of the RMB to 8.11 to
        one
        U.S. dollar - a 2.1% increase in its value - and decreed that henceforth
        the RMB
        would trade within a narrow band of 0.3% each day against a basket of
        currencies. Eliminating the dollar peg is seen by some economists as a first
        step toward a free-floating, and stronger, RMB. However, uncertainty exists
        as
        to whether the PRC’s new currency policy will support further appreciation of
        the RMB. Since we source most of our finished products in the PRC, the
        appreciation of RMB will increase our product costs and may reduce our sales,
        especially to U.S. and European distributors and retailers.
  **Risks
        associated with our American Depositary Shares**
  ***As a foreign private issuer, we have limited reporting
        requirements.***
  As
        a
        foreign private issuer, we are exempt from certain rules and regulations
        of the
        Exchange Act, including those prescribing the furnishing and content of proxy
        statements. Also, our 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, we are not required to publish
        financial statements as frequently, as promptly or containing the same
        information as U.S. companies.
  ***There is a limited and volatile public market for our
        ADSs.***
  The
        public trading volume of our ADSs is limited. We can provide 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 ours 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 our control.
  **Item
        4.** **** ***Information
        on the Company***
  **History
        and Development of the Company**
  ***Description
        of Business***
  Corgi
        International Limited was incorporated in Hong Kong as a limited company
        under
        the Hong Kong Companies Ordinance in July 1977. The Company’s ADSs have been
        listed on the Nasdaq Global Market (formerly known as the Nasdaq National
        Market) since February 1997. We have operated our Zindart Manufacturing
        division, which does business under the name “Zindart Manufacturing,” since the
        Company’s inception. We acquired the Corgi division, which does business under
        the name “Corgi” and “Corgi Classics,” in July 1999. We had also operated a book
        and paper division, Hua Yang, which we had acquired in February 1998 and
        had
        sold in May 2004.
  ***Registered
        Office***
  Our
        registered office is located at Unit 10, 16/F., Wah Wai Centre, 38-40 Au
        Pui Wan
        Street, Fo Tan, New Territories, Hong Kong, S.A.R., China and our telephone
        number is 2256-6000, country code 852.


16
   **Business
        Overview**
  ***Business
        Segments and Principal Activities***
  Our
          business operating segments consist of Corgi, which is primarily engaged
          in the
          design, marketing and distribution of die-cast products under proprietary
          brand
          names and Zindart Manufacturing, which engages in the manufacturing of
          die-cast
          and injection-molded plastic products under Original Equipment Manufacturing
          (“OEM”) arrangements. Net sales of our business operating segments are reflected
          in the table below. See note 19 to consolidated financial statements included
          in
          this Annual Report for additional financial information about our business
          operating segments.




**200****6**
            
            **200****5**
            
            **200****4**Netsalesconsistofthefollowing:Manufacturingofdie-castandinjection-molded
              plasticproducts
            
            $
            40,302
            
            $
            49,526
            
            $
            46,075Design,marketinganddistributionofdie-castproducts
              underproprietarybrandnames
            
            
            36,092
            
            
            43,214
            
            
            49,744$
            76,394
            
            $
            92,740
            
            $
            95,819





***Products,*** ****** ***Mar*** ***k*** ***ets*** ****** ***and*** ****** ***Mar*** ***k*** ***eting*** ****** ***Channel*** ***s***




*Co* *r* *gi* ** *p* *r* *oduct* *s*




Corgi,
      founded in 1956 and acquired by the Company in July 1999, is one of the oldest
      marketers of collectible
      die-cast models of trucks, buses, cars and airplanes in the world. We offer
      a
      broad portfolio of products
      ranging from special interest items to more popular, often license-based, items.
      Most of our product
      lines consist of highly detailed, authentic scale replicas of transport
      vehicles, produced in limited numbers
      and designed to appeal to a wide range of die-cast collectors. Increasingly,
      we
      are broadening our
      product lines to include more mixed-scale, lower-priced, die-cast lines that
      are
      sold in wider distribution channels.
      Our product portfolio is divided generally into the following categories: (1)
      collectible trucks, fire
      vehicles and other road transport vehicles; (2) collectible public transport
      vehicles; (3) collectible aircraft;
      (4) collectible metal figurines; (5) collectible military vehicles; and (6)
      traditional die-cast and plastic
      toy vehicles.


We
        hold a
        number of major brand licenses, including licenses for the production of
        James
        Bond, Marvel
        characters, DC Comics’ Batman, Star Trek, Postman Pat, and Little Red Tractor
        vehicles and
        figurines, in addition to licenses for the production of many famous vehicles.
        We have 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
        U.S..  We also own the Lledo
        brand and a number of sub-brands including The Aviation Archive, The Original
        Omnibus Company,
        Forward March, Corgi Collection, Heroes Under Fire, Forgotten Heroes, and
        Heavy
        Haulers.
  We
        serve
        our customers through a number of distribution channels, including wholesale,
        retail, direct marketing
        and the Internet. Our products are sold in 30 countries throughout the world.
        In
        addition to the U.K.
        and
        the U.S., important markets we serve include France, Germany, Japan, Canada
        and
        Australia.
  In
        the
        U.K., over 2,000 retail outlets stock our products, and of these there are
        more
        than 350 Gold Star
        and
        Approved Specialist Corgi collector retailers and 20 Premium Collector Centers,
        each of which carries
        a
        wide range of Corgi 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.






17




In
        the
        U.S., our Corgi products are distributed through more than 1,100 retail outlets,
        including 1,050 specialty retail outlets and 45 mass market and toy chains.
        Specialty retail outlets include stores specializing in selling hobby,
        collectible, comic, museum, military or similar special-interest products.
        Our
        mass retail and toy outlets include the U.S.’s five largest toy retailers. Corgi
        maintains a U.S.-based sales office in Chicago, Illinois.
  *Zindart
        Manufacturing products*
  Zindart
        Manufacturing, founded in 1978, manufactures a wide range of metal die-cast
        and
        injectionmolded 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
        highfeature 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 ultimately 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 on many years of sales experience, that many
        die-cast and injection-molded
        collectibles have enduring consumer appeal.
  Hallmark,
        regarded as a leading producer of greeting cards, distributes collectible
        holiday ornaments and giftware products. Zindart Manufacturing manufactures
        many
        of Hallmark’s Keepsake Ornaments, which consist of a variety of Christmas
        ornaments, holiday-themed pieces and other giftware both in diecast zinc
        alloy
        and plastic. Hallmark’s Keepsake Ornaments product line also includes
        freestanding decorations such as die-cast replicas of pedal cars. 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. These products typically retail in the
        U.S.
        for between $5 and $50. Many purchasers of Keepsake Ornaments consider these
        products to be valuable, collectible items. In addition to traditional holiday
        themes, many Keepsake Ornaments depict characters from storybooks and films
        such
        as the Wizard of Oz, Star Trek, Star Wars, Madam Alexandra, Peanuts and various
        wellknown Disney characters.





18




*Geographic
          Markets*
  Our
          business is managed on a worldwide basis, and we market and distribute
          directly
          in two principal geographic
          markets. The U.K. and U.S. accounted for approximately 31.8% and 58.8%,
          respectively, of our
          net
          sales for the year ended March 31, 2006. Net sales from operations by
          geographical location of customers
          are reflected in the table below (in thousands).




**200****6**
            
            **200****5**
            
            **200****4**Geographicalanalysisofnetsalesisasfollows:Manufacturingofdie-castandinjection-molded
              plasticproductsUnitedStatesofAmerica
            
            $
            37,486
            
            $
            48,716
            
            $
            45,397Europe
            
            
            -
            
            
            -
            
            
            616Others
            
            
            2,816
            
            
            810
            
            
            6240,302
            
            
            49,526
            
            
            46,075Design,marketinganddistributionofdie-castproducts
              underproprietarybrandnamesUnitedKingdom
            
            
            24,261
            
            
            32,370
            
            
            35,443OtherEuropeancountries
            
            
            2,164
            
            
            3,080
            
            
            3,083UnitedStatesofAmerica
            
            
            7,396
            
            
            6,441
            
            
            9,956Others
            
            
            2,271
            
            
            1,323
            
            
            1,26236,092
            
            
            43,214
            
            
            49,744$
            76,394
            
            $
            92,740
            
            $
            95,819




Our
        Corgi
        division serves its customers locally through a number of distribution channels,
        including wholesale, retail, direct marketing and the Internet. Outside of
        the
        U.K. and U.S. markets, distribution is accomplished primarily through local
        distributors specializing in either die-cast collectibles or mass-market
        toy
        distribution. Zindart Manufacturing serves its customers through its Hong
        Kong
        sales office.
  Sales
        to
        our five largest manufacturing customers accounted for approximately 42.6%,
        42.2% and 38.7%, respectively, of total net sales for the years ended March
        31,
        2006, 2005, and 2004. Our largest customers are Hallmark and Jada. Sales
        to
        Hallmark and Jada represented 16.2% and 11.9%, respectively, of our net sales
        for the year ended March 31, 2006 as compared to 12.9% and 7.2%, respectively,
        of our net sales for the year ended March 31, 2005.
  **Business
        Strategy**
  Our
        growth strategy is to be the leading developer, manufacturer and marketer
        of
        high-quality die-cast collectibles, as well as a significant participant
        in
        mass-market toy products that benefit from the use of the Corgi brand name.
        Our
        strategy calls for continuous strengthening of our relationships with our
        multi-national customers and increasing and diversification of our customer
        base. To achieve these goals, we have been focusing on the
        following:


•
              broadening
                  our unique line of collectible products in order to increase channels
                  of
                  distribution andacquire
                  a wider target audience of adult
                  collectors;
  •
              developing
                  a range of toy products for entry into mass-market distribution
                  channels
                  to increasesales
                  volume and re-launch the Corgi brand name into the mass market
                  after many
                  years of absence.This
                  strategy is also designed to increase the number of collectors
                  of Corgi
                  products as theyprogress
                  into their adult years.






19




***Brand
        Development***
  We
        seek
        to further develop our Corgi brand in the U.S. We have established a direct
        sales force for our collectible Corgi line of die-cast replica items in the
        U.S.
        along with strong associations with die-cast distributors and direct-to-consumer
        mail order and Internet customers. We expect to continue strengthening our
        marketing infrastructure and to advance our goal of worldwide growth and
        expansion in collectible and mass markets. We actively participate in five
        major
        toy shows in New York, Hong Kong and the U.K., which are convenient for major
        mass-market and specialty store buyers at key selling dates during the
        year.
  ***Additional
        Major Manufacturing Customers***
  We
        have a
        core group of large manufacturing customers, but also manufacture products
        for
        many other smaller customers. We expect that we may be able to develop several
        of these smaller customers into major customers as they become familiar with
        the
        benefits of our turnkey manufacturing service. We offer major customers a
        dedicated production team and dedicated production space, which can provide
        such
        customers with attractive advantages. For example, we can customize our
        production facilities to meet the specific needs of our 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. We believe
        that our ability to offer such dedicated production services has led to enhanced
        relationships with our core customer base.
  ***Diversify
        Product Offerings***
  In
        order
        to increase sales volume and the channels of distribution, we have been
        broadening the product line of collectibles and developing a range of toy
        products for entry into the mass-market. These strategies will also assist
        the
        business in acquiring a wider target audience of adult collectors and garner
        future collectors of Corgi products as they progress into their adult
        years.
  Our
        strategy to diversify and expand our product offerings has been focused along
        three fronts:
  *Collectibles*
  Collectible
        product offerings have been expanded to include new vehicles and figurines
        for
        Batman, James Bond, Star Trek and Marvel licenses to capitalize on stable
        perennial favorites and movie releases. In addition, new collectible categories
        have been launched, specifically a continuity line of fire equipment, a new
        collectible figure line consisting of military figures through the ages under
        the brand name Forward March. Additional figures and vehicle lines are scheduled
        to be distributed depicting famous licensed characters and vehicles through
        the
        years.
  *Traditional
        Toys*
  In
        order
        to capitalize on the Corgi brand name, increase sales volume and develop
        younger
        Corgi collectors, we have launched several products into the mass and specialty
        toy channels of distribution. Three major lines are:
  Streakerz
        and Twisterz
  Streakerz
        is a line of 48 mini vehicles that have been designed to operate at high
        speed
        around six distinct track sets. Each vehicle comes with a unique “tuning” knob
        so that the vehicle can function on different terrains. This line will be
        expanded with additional vehicles that contain lights, others that transform
        into different vehicles, and a line extension to Streakerz called Twisterz
        where
        two halves of a vehicle are wound up to provide a spring loaded propulsion
        system. Streakerz and Twisterz are designed to appeal to boys ages 3 to
        6.







20




Go
        Go
        Rollers
  Go
        Go
        Rollers is Corgi’s first entry into the preschool/infant market. This line is
        positioned as a child’s first vehicle that brings action and child development
        into toys targeted at little boys. This extensive line consists of 12 unique
        vehicles encapsulated in clear balls for little hands along with five play
        environments with lights and sound effects. Go Go Rollers is designed to
        appeal
        to boys ages 1 to 4.
  iCar
  The
        iCar
        is Corgi’s first unique high tech product that interacts with the widely
        distributed iPod and MP3 players. The iCar features collectible vehicles
        mounted
        on a speaker base which becomes animated when connected to an iPod, featuring
        rotating wheels, lights and dancing to the beat of the music played. This
        product is targeted to young men and adults ages 8 to 80.
  *Product
        Repositioning*
  We
        have
        an extensive tooling bank and active product lines that have been strictly
        positioned for sale to collectors. All of these lines have been repackaged
        and
        repriced for acceptance into higher volume mass retail markets without
        distracting from the core collector base. In addition, a new line of low
        priced
        die-cast vehicles has been sourced from Asia and distributed at very competitive
        prices relative to the competition.
  All
        of
        our mass-market products, whether lower priced collectibles or traditional
        toys,
        have been re-branded as “Corgi Wheelz,” which is prominently displayed on all
        new packaging to drive Corgi brand awareness at retail.
  ***Manufacturing
        Facilities***
  Our
        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 prototypescale 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 has converted from
        a
        contractual joint venture to a wholly owned foreign enterprise during the
        year.
        The factory buildings are built on land leased by Corgi International Limited.
        The land use rights, which are for a remaining period of 38 years, are in
        name
        of Corgi International Limited.
  The
        plants and equipment owned and operated or leased by Zindart Manufacturing
        are
        subject to comprehensive PRC laws and regulations that involve substantial
        risks.






21




***Seasonality***
  Our
        operating results in the past have fluctuated in part based on seasonal factors
        and this seasonality is likely to continue in the future. The introduction
        of
        Corgi’s mass-market licensed products will increase substantially in
        coordination with the launch of a related movie and sales of other toy products
        may increase substantially just prior to and during the holiday
        season.
  We
        normally cease 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,
        we
        cease production for a week during October due to Chinese National Day
        holiday.
  ***Intellectual
        Property***
  We
        own
        certain trademarks and other intellectual property rights associated with
        products marketed and sold by Corgi and our wholly owned subsidiary Lledo.
        Key
        trademarks are registered in the substantive territories in which we operate
        or
        distribute our products. Our key employees have entered into confidentiality
        agreements with us.
  ***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, our cost of raw materials is subject to substantial increases and
        decreases over which we have no control except by seeking to time our purchases
        in order to take advantage of favorable market conditions. In the past, we
        have
        experienced significant increases in the price of certain raw materials,
        which
        resulted in increases in our production costs that we were not able to pass
        on
        fully to our 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. We have no master agreements with any of our suppliers to secure
        a
        stable source of raw materials. 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 almost two-thirds
        of its
        finished products from Zindart Manufacturing’s die-cast manufacturing
        facilities.
  ***Competition***
  We
        face
        significant competition. In branded toys and collectibles, Corgi competes
        with
        numerous companies located all over the world including, but not limited
        to,
        Mattel, Hasbro, RC2, Funrise, Dragon, Armour/Franklin Mint, IXO, Model Power,
        Forces of Valor, and Die Cast Promotions.
  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.






22




We
        believe that several factors are associated with manufacturing competition,
        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. We believe that we can maintain
        our competitive advantage through the effective use of our expanded facilities.
        We also expect increased competition from other industry participants that
        may
        seek to enter one or more of our high margin product segments. Some existing
        and
        potential competitors have significantly greater financial, technical,
        manufacturing and marketing resources than us.
  We
        do not
        believe that there are any significant barriers to entry into the light
        manufacturing business. We have no registered trademarks in respect of our
        manufacturing businesses. Accordingly, additional participants may enter
        the
        market at any time. We own 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 we operate
        or
        distribute our products.
  In
        addition, certain of our 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 Zindart Manufacturing
        to
        another third party would have a material adverse effect on our business,
        financial condition and results of operations.
  ***Governmental
        Regulation***
  Our
        business activities are subject to various governmental regulations in countries
        in which we 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.
        Please refer to Country Risks as noted in the Risk Factors section of Item
        3
        above.
  ***Organizational
        Structure***
  Corgi
        International Limited is the parent corporation of the Group. A list of our
        subsidiaries and ownership thereof is set forth in Exhibit 8.1 to this Annual
        Report.
  ***Property, plant and equipment***
  We
        are
        headquartered in office spaces of the Wah Wai Centre building located in
        Hong
        Kong and occupy approximately 7,286 square feet of such building. The facilities
        are subject to a lease that expires in January 2007.
  Corgi
        U.K. 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 U.S. are located in Chicago, Illinois and occupy
        approximately 3,500 square feet under a lease that expires in May 2007. The
        Hong
        Kong Corgi office is located in Tsimshatsui, Hong Kong and occupies
        approximately 6,426 square feet under a lease that expires in October
        2006.
  Our
        manufacturing operations are conducted in the Dongguan Facility. See
“Manufacturing Facilities” above.




23




**Item
        5.** **** ***Operating
        and Financial Review and Prospects***
  **Overview**
  The
        overall focus of Corgi International Limited is brand, and converting brand
        value into shareholder value. As such, we have continued to develop our retail
        presence by development of more products for sale through mass-market retailers.
        Competition in toys amongst these retailers has 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. Mass-market retailers are
        less
        concentrated in the U.K., Corgi’s primary market, compared to the U.S.. The U.K.
        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
        concentration of retailers also leads to a general decline in manufacturers’
bargaining power. Therefore, we face 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.
  The
        toy
        industry has continued to provide opportunity for product sales through many
        different companies. Although the industry includes two prominent leaders,
        Mattel and Hasbro, we believe that room continues to be available for new
        companies with innovative products to thrive and that retailers continue
        to look
        for new product that will bring “foot traffic” into their stores.
  We
        continue to face difficult market conditions, which have caused significant
        operating losses and placed considerable pressure on our liquidity. We have
        incurred significant operating losses and net losses in each of the three
        years
        in the three-year period ended March 31, 2006. As of March 31, 2006, we had
        an
        accumulated deficit of $15.8 million. As of March 31, 2006, we had cash and
        cash
        equivalents totaling $0.8 million, and available credit facilities of $15.3
        million of which $10.8 million were utilized as borrowings. As of March 31,
        2006, our Corgi division had $4.4 million in available credit under our bank
        lines, and our Zindart Manufacturing division had $10.9 million in available
        credit under our bank lines. The available banking facilities of $15.3 million
        reflected a temporary reduction of banking facilities from ABC from $7.4
        million
        to $3.3 million as of March 31, 2006 due to macro-economic controls in the
        PRC
        under which limits had been placed on ABC’s authority to lend to its banking
        clients. As of August 22, 2006, we have been repaying amounts drawn on our
        banking facilities in accordance with the repayment terms.
  As
        of
        March 31, 2006, we had breached certain financial undertakings in respect
        to our
        bank facilities with KBC and HSBC. We did not meet minimum financial ratios
        related to consolidated tangible net worth, consolidated net borrowings to
        consolidated tangible net worth, current assets to current liabilities, interest
        coverage, and consolidated profits before interest and tax. The lenders have
        not
        notified us that we are in a state of default, and we have continued to maintain
        banking relationships with each of these financial institutions. For both
        facilities, the lenders have the right to demand payment of all amounts owed
        at
        any time, irrespective of whether we had complied with the financial
        undertakings. As of March 31, 2006, total outstanding borrowings under these
        two
        credit facilities amounted to $3.2 million.
  With
        respect to our facility with KBC, as of March 31, 2006, the lender had suspended
        further utilization of the credit facility. Total outstanding borrowing under
        this credit facility amounted to $1.3 million as of March 31, 2006. On April
        24,
        2006, a repayment schedule was agreed with the lender whereby we have agreed
        to
        repay $150,000 per month, with the remaining balance to be repaid by November
        26, 2006.




24




With
        respect to our facility with HSBC, the lender has revised the terms of the
        credit facility by reducing the available amount to be withdrawn from $2.6
        million to $2.1 million and requiring us to maintain a $1.0 million restricted
        cash deposit with the lender. As of August 22, 2006, we had not signed the
        revised agreement as we are still in negotiation with the lender with respect
        to
        the term requiring us to place a $1.0 million restricted deposit with the
        lender. As of March 31, 2006, the total amount outstanding under this facility
        amounted to $1.9 million.
  In
        April
        2006, we responded to the liquidity deterioration by issuing convertible
        notes
        and warrants in a private placement for aggregate proceeds amounting to $5.65
        million and, in June 2006, replacing our existing $4.4 million overdraft
        facility with RBS with an $8.7 million receivable discounting facility with
        Coface Receivables Finance Limited. However, the utilization of the receivable
        discounting facility will depend on actual sales levels. The amount available
        for utilization under the discounting facility will be less than the amount
        available under the RBS overdraft facility to the extent actual sales are
        lower
        than historical sales. The proceeds of the private placement have been
        substantially utilized as required to fund working capital
        deficits.
  In
        the
        event that market conditions and demand for our products continue to deteriorate
        and decline, causing operating losses and negative cash flows from operations
        to
        continue and, despite our best efforts, we are unable to secure additional
        financing sources from lenders and/or other parties to fund our operations
        and
        obligations, we will be required to dispose of business units or assets,
        perhaps
        at a significant discount to the fair value thereof, seek bankruptcy protection
        or commence liquidation or other administrative
        proceedings.
  **Operating
        Results**
  As
        described in note 2 of the consolidated financial statements in Item 18 of
        this
        Annual Report, our consolidated financial statements for the years ended
        March
        31, 2005 and 2004 reported Hua Yang as discontinued operations under Statement
        of Financial Accounting Standards (“SFAS”) No. 144, Accounting for the
        Impairment or Disposal of Long-Lived Asset (“SFAS 144”). In May 2004, we
        completed the sale of Hua Yang. Terms of the sale included cash consideration
        of
        $14,250,000, less 10% to be held by an escrow agent until the closing balance
        sheet had been audited and accepted by the buyer. In March 2005, we received
        the
        remaining consideration from the escrow agent and a gain on disposal of $984,000
        was recorded for the year ended March 31, 2005.
  In
        March
        2005, our board of directors resolved to sell Zindart Manufacturing and
        initiated an active program to locate a buyer. As at March 31, 2005, we had
        expected the sale of Zindart Manufacturing to be completed within the fiscal
        year ended March 31, 2006. Therefore, we had reported Zindart Manufacturing
        as
        discontinued operations under SFAS 144. However, due to circumstances previously
        considered unlikely, as of March 31, 2006, the disposal of Zindart Manufacturing
        had not been completed, and management did not believe that completion of
        a sale
        prior to March 31, 2007 was considered probable. During the year ended March
        31,
        2006, a transaction with a potential buyer was not completed due to certain
        procedures necessary to complete the sale were unexpectedly delayed and at
        the
        same time, market conditions had deteriorated that caused Zindart Manufacturing
        to be less attractive to the potential buyer at the price management marketed
        it
        for sale. Management has no plans to further reduce the selling price of
        Zindart
        Manufacturing to effect the sale. Accordingly, Zindart Manufacturing did
        not
        meet all of the criteria under SFAS 144 as assets held for sale, and the
        financial results have therefore been reclassified back as held and used
        for the
        year ended March 31, 2006. The results of operations and cash flows of Zindart
        Manufacturing for the years ended March 31, 2005 and 2004 have also been
        reclassified to continuing operations. In connection with the reclassification
        of Zindart Manufacturing as held and used, the Group recorded a $1.4 million
        impairment charge against property, plant and equipment and land use rights
        associated with Zindart Manufacturing for the year ended March 31, 2006 since
        the fair values of the assets were lower than the assets’ carrying amounts
        before the disposal group was classified as held for sale, adjusted for any
        depreciation and amortization expense that would have been recognized had
        the
        disposal group been continuously classified as held for use.





25
 
   The
          table
          below sets forth the consolidated statements of operation data for the
          years
          ended March 31,
          2006,
          2005 and 2004 (in thousands).





**Year****Ended****March31,****2006**
            
            **2005**
            
            **2004**Netsales
            
            $
            76,394
            
            
            100.0
            %
            
            $
            92,740
            
            
            100.0
            %
            
            $
            95,819
            
            
            100.0
            %Costofgoodssold
            
            
            (61,338
            )
            
            (80.3
            %)
            
            
            (69,160
            )
            
            (74.6
            %)
            
            
            (65,300
            )
            
            (68.1
            %)Grossprofit
            
            
            15,056
            
            
            19.7
            %
            
            
            23,580
            
            
            25.4
            %
            
            
            30,519
            
            
            31.9
            %Selling,general,andadministrativeexpenses
            
            
            (27,905
            )
            
            (36.5
            %)
            
            
            (30,965
            )
            
            (33.4
            %)
            
            
            (32,531
            )
            
            (33.9
            %)Impairmentlossongoodwill
            
            
            (18,782
            )
            
            (24.6
            )
            
            
            -
            
            
            -
            
            
            
            -
            
            
            -Impairmentlossonlong-livedassets
            
            
            (1,439
            )
            
            (1.9
            %)
            
            
            -
            
            
            -
            
            
            
            -
            
            
            -Operatingloss
            
            
            (33,070
            )
            
            (43.3
            %)
            
            
            (7,385
            )
            
            (8.0
            %)
            
            
            (2,012
            )
            
            (2.0
            %)Other(expense)income:Interestincome
            
            
            85
            
            
            0.1
            %
            
            
            138
            
            
            0.2
            %
            
            
            39
            
            
            -Interestexpense
            
            
            (1,038
            )
            
            (1.4
            %)
            
            
            (1,204
            )
            
            (1.3
            %)
            
            
            (905
            )
            
            (0.9
            %)Otherincome(loss)
            
            
            446
            
            
            0.6
            %
            
            
            104
            
            
            0.1
            %
            
            
            (130
            )
            
            (0.1
            %)Lossbeforeincometaxes
              andminorityinterest
            
            
            (33,577
            )
            
            (44.0
            %)
            
            
            (8,347
            )
            
            (9.0
            %)
            
            
            (3,008
            )
            
            (3.0
            %)Incometax(expense)benefit
            
            
            (1,907
            )
            
            (2.4
            %)
            
            
            612
            
            
            0.7
            %
            
            
            (121
            )
            
            (0.1
            %)Lossbeforeminorityinterest
            
            
            (35,484
            )
            
            (46.4
            %)
            
            
            (7,735
            )
            
            (8.3
            %)
            
            
            (3,129
            )
            
            (3.1
            %)Minorityinterest
            
            
            31
            
            
            -
            
            
            
            (138
            )
            
            (0.2
            %)
            
            
            (298
            )
            
            (0.3
            %)Lossfromcontinuingoperations
            
            
            (35,453
            )
            
            (46.4
            %)
            
            
            (7,873
            )
            
            (8.5
            %)
            
            
            (3,427
            )
            
            (3.4
            %)Income(loss)fromdiscontinued
              operations,netoftax
              (includinggainondisposal
              of$984in2005)
            
            
            -
            
            
            -
            
            
            
            352
            
            
            0.4
            %
            
            
            (1,882
            )
            
            (2.0
            %)Lossbeforeextraordinaryitems
            
            
            (35,453
            )
            
            (46.4
            %)
            
            
            (7,521
            )
            
            (8.1
            %)
            
            
            (5,309
            )
            
            (5.4
            %)Extraordinarygain,netofniltax
            
            
            98
            
            
            0.1
            %
            
            
            418
            
            
            0.5
            %
            
            
            -
            
            
            -Netloss
            
            $
            (35,355
            )
            
            (46.3
            %)
            
            $
            (7,103
            )
            
            (7.6
            %)
            
            $
            (5,309
            )
            
            (5.4
            %)




***Years
        Ended March 31, 2006 and 2005***
  *Net
        Sales.* Our
        net
        sales were $76.4 million for the year ended March 31, 2006, a decrease
        of $16.3 million, or 17.6%, from $92.7 million for the year ended March 31,
        2005. The
        decrease in sales was largely due to a lack of acceptance of our toy products
        in
        the mass
        market that had been developed specifically for the mass merchandizing markets,
        as well
        as a
        continued lack of new Corgi collector products introduced to the market during the
        year
        ended March 31, 2006. We underestimated the demand for Corgi collector products, resulting
        in insufficient product availability. During fiscal year 2006, our management
        team focused
        on development of new products for fiscal year 2006 and beyond. We believe
        that sales
        of
        these new products will halt further decreases in net sales.






26


*Costs
          of Goods Sold, Gross Profit and Gross Margin.* Costs
          of
          goods sold are costs specifically related to products sold during the fiscal
          period. Gross profit is the difference between net sales and costs of goods
          sold. Gross margin is gross profit as a percentage of sales. Our costs
          of goods
          sold were $61.3 million for the year ended March 31, 2006, a decrease of
          $7.9
          million, or 11.4%, from $69.2 million for the year ended March 31, 2005.
          This
          decrease is attributable to lower net sales, offset in part by increasing
          costs
          of raw materials and product in the Corgi and Zindart Manufacturing operating
          segments.
  Our
          gross
          profit was $15.1 million for the year ended March 31, 2006, a decrease
          of $8.5
          million, or 36.0%, from $23.6 million for the year ended March 31, 2005.
          Gross
          margin was 19.7% for the year ended March 31, 2006 and 25.4% for the year
          ended
          March 31, 2005. The decrease in gross profit was due in part to lower net
          sales
          for the fiscal year ended March 31, 2006, as accompanied by a decrease
          in costs
          of goods sold (noted above) that was proportionally less than the decrease
          in
          sales. The proportionally higher costs of goods sold were primarily due
          to
          rising raw materials prices. The decrease in gross profit was also due
          to sales
          of Corgi inventory at discount prices, yielding lower than normal gross
          profit,
          in order to dispose of older or otherwise unmarketable products.
  We
          believe that increasing net sales of our Corgi products will yield associated
          increases in gross profit, but do not anticipate improvements in the gross
          margin on these sales, as Corgi will continue to focus on developing new
          mass
          market products, all of which will yield lower gross margins than the historical
          average. If we were to cease disposition of unmarketable product, yielding
          lower
          than target gross profits thereon, our average gross margin would increase.
          A
          majority of these old or unmarketable products have been disposed of during
          the
          year ended March 31, 2006; however, we are still in the process of disposing
          the
          remaining items. In addition, we expect implementations of new efficient
          management techniques and reduction of fixed overhead within Zindart
          Manufacturing to result in improvements to gross margins from the manufacturing
          division.
  *Selling,
          General and Administrative Expenses.* Selling,
          general and administrative expenses comprise operating expenses that are
          not
          directly allocable to the products being sold. Our selling, general and
          administrative expenses were $27.9 million and $31.0 million for the years
          ended
          March 31, 2006 and 2005, respectively. Selling, general and administrative
          expenses were 36.5% of net sales for the year ended March 31, 2006 and
          33.4% for
          the year ended March 31, 2005. The increase in selling, general and
          administrative expenses as a percentage of net sales was related to the
          decrease
          in net sales for the fiscal year ended March 31, 2006. Our selling, general
          and
          administrative expenses are mostly fixed in relation to anticipated changes
          in
          sales volume. The reduction in selling, general and administrative expenses
          from
          the prior year was attributable to management’s efforts to reduce overhead
          expenses and drive efficiency throughout the Group. Such efforts included
          reductions in overall headcount, cut-back on advertising expenses, and
          research
          and development costs. Additional reductions to selling, general and
          administrative expenses are anticipated as additional reductions and
          reallocations of resources are implemented. Such reductions will be partially
          offset by expenses related to the continued implementation of Sarbanes
          Oxley
          Section 404.
  *Interest
          Expense, Net.* Interest
          expense, net, includes interest expenses on our short-term debt balances
          and
          capital leases, net of interest income on cash balances. Our interest expense,
          net, was $953,000 for the year ended March 31, 2006, as compared to $1.1
          million
          for the year ended March 31, 2005. Average use of our borrowing facilities
          within the year ended March 31, 2006 did not vary significantly from use
          during
          the year ended March 31, 2005 (See Liquidity and Capital Resources
          below).
  *Other
          Income (Loss).* Other
          income and losses includes income and expenses from activities other than
          normal
          business operations, such as profits or losses from the sale of scrap materials.
          Our other income was $446,000 for the year ended March 31, 2006, as compared
          to
          other income of $104,000 for the year ended March 31, 2005. Other income
          for the
          years ended March 31, 2006 and 2005 was primarily related to the sale of
          scrap
          materials.
  27




*Goodwill
              impairment.* The
              fair
              value of our Corgi reporting unit is estimated on an annual basis and compared
              to its net book value, including goodwill, in order to determine whether
              a
              goodwill impairment charge
              is
              required. The fair value of the business is primarily determined based
              on the
              valuation performed by
              an
              independent valuer using the discounted cash flow methodology. During
              the fiscal
              year ended March
              31,
              2006, we recognized $18.4 million of impairment to goodwill in relation
              to the
              acquisition of the
              Corgi
              reporting unit in 1999, as a result of our annual goodwill impairment
              test. The
              facts and circumstances
              leading to the goodwill impairment charge were primarily due to lower
              expected
              future cash
              flows as a result of poor customer reception of Corgi’s products in the weak
              retail environment in the United
              Kingdom, and reduced gross profit margins due to a shift in Corgi sales
              mix
              towards more lowmargin mass-market
              product, and thus, causing a related reduction in the discounted cash
              flow
              valuation of
              the
              Corgi operation. In addition, in connection with the reclassification
              of Zindart
              Manufacturing as held
              and
              used, the Company recorded an impairment charge of goodwill of $414,000.
              Any
              further deterioration
              of the expected future performance of the Corgi reporting unit may
              further
              reduce the estimated
              fair value of the reporting unit such that an additional impairment
              of goodwill
              may be recognized.
  *Impairment
              of long-lived assets.* In
              connection with the reclassification of Zindart Manufacturing as held
              and
              used, we recorded a $1.4 million impairment charge on property, plant
              and
              equipment and land use
              rights associated with Zindart Manufacturing for the year ended March
              31, 2006,
              since the fair values of
              the
              assets were lower than the assets’ carrying amounts before the disposal group
              was classified as held for
              sale,
              adjusted for any depreciation and amortization expense that would have
              been
              recognized had the disposal
              group been continuously classified as held and used.
  *Income
              Tax (Expense) Benefit.* Our
              income tax expense was $1.9 million for the year ended March 31,
              2006,
              as compared to income tax benefit of $612,000 for the year ended March
              31, 2005.
              The income tax
              expense and benefit in 2006 and 2005 primarily resulted from Corgi’s U.K.
              operations. During the fiscal
              year ended March 31, 2005, Corgi’s U.K. operations experienced a tax loss. Under
              the U.K. tax law, a business
              is allowed to utilize current year tax losses against tax paid in immediate
              prior year; as a result, we recorded
              a tax benefit for the fiscal year ended March 31, 2005. In the year
              ended March
              31, 2006, Corgi’s
              UK operation experienced another year of tax loss. A full valuation
              allowance
              has been set up against
              the deferred tax benefit in relation to the tax loss carry forwards
              and other
              temporary differences as
              management considered that it is more likely than not that the deferred
              tax
              benefits will not be realized in
              the
              future.
  At
              March
              31, 2006, the Group has tax loss carry forwards of $28,346,000 to offset
              future
              taxable income,
              if any. Of this amount, $15,230,000 relating to the United States subsidiary
              expires from 2021 through
              2026 and $8,646,000 and $4,470,000 relating to the Hong Kong and U.K.
              operations, respectively, can
              be
              carried forward indefinitely.
  *Loss
              from continuing operations.* Our
              loss
              from continuing operations was $34.9 million for the year
              ended March 31, 2006, an increase in loss of $27.0 million, or 341.8%,
              compared
              to our loss from continuing
              operations of $7.9 million for year ended March 31, 2005. The increase
              in loss
              was primarily due
              to
              the impairment of goodwill, as well as the decrease in net sales and
              gross
              margin for the fiscal year ended
              March 31, 2006 as described above.
  *Income
              from discontinued operations, net of tax.* Since
              Zindart Manufacturing has been reclassified as
              continuing operations, we reported no income or loss from discontinued
              operations for the year ended March
              31,
              2006. The $352,000 gain from discontinued operations for the year ended
              March
              31, 2005 was related
              to the operations of Hua Yang and the gain recognized on the disposition
              thereof.
  *Extraordinary
              gain, net of nil tax.* We
              recognized $98,000 and $418,000 of extraordinary gains during
              the years ended March 31, 2006 and 2005, respectively. The extraordinary
              gains
              in both years were related
              to our acquisitions of minority interests in subsidiaries for less
              than the
              estimated fair value of the subsidiaries.
   28
  ***Years
              Ended March 31, 2005 and 2004***
  *Net
              Sales.* Our
              net
              sales were $92.7 million for the year ended March 31, 2005, a decrease
              of $3.1 million,
              or 3.2%, from $95.8 million for the year ended March 31, 2004. The
              decrease was
              largely due to a lack
              of
              new products introduced to the market during the year ended March 31,
              2005.
              Senior management of the
              Corgi
              division was replaced in late fiscal year 2004 and early fiscal year
              2005,
              resulting in decreased
              sales in most of Corgi’s markets.
  *Costs
              of Goods Sold, Gross Profit and Gross Margin.* Our
              costs
              of goods sold were $69.2 million for
              the
              year ended March 31, 2005, an increase of $3.9 million, or 6.0%, from
              $65.3
              million for the year ended
              March 31, 2004. This increase is attributable to higher costs of raw
              materials
              and product in both operating
              divisions.
  Our
              gross
              profit was $23.6 million for the year ended March 31, 2005, a decrease
              of $6.9
              million, or 22.6%,
              from $30.5 million for the year ended March 31, 2004. Gross margin
              was 25.4% for
              the year ended
              March 31, 2005 and 31.8% for the year ended March 31, 2004. The decrease
              in
              gross profit was due
              to
              lower net sales for the fiscal year ended March 31, 2005, as well as
              an increase
              in costs of goods sold
              (noted above) that was proportionally less than the decrease in sales.
              This is
              also attributable to sales of
              Corgi
              inventory at discount prices in order to dispose of older or otherwise
              unmarketable products, and a shift
              toward certain lower margin, mass market products.
  *Selling,
              General and Administrative Expenses.* Our
              selling, general and administrative expenses were
              $31.0 million and $32.5 million for the years ended March 31, 2005
              and 2004,
              respectively. Selling, general
              and administrative expenses were 33.4% of net sales for the year ended
              March 31,
              2005 and 33.9%
              for
              the year ended March 31, 2004. The decrease in percentage of selling,
              general
              and administrative expenses
              to net sales was related to the cost cutting effort in fiscal year
              ended March
              31, 2005.
  *Interest
              Expense, Net.* Our
              interest expense, net, was $1.1 million for the year ended March 31, 2005,
              as
              compared to $866,000 for the year ended March 31, 2004. The increase
              in our
              interest expense, net,
              was
              due to increased usage of Corgi’s Royal bank of Scotland revolving credit
              facility (See Liquidity and
              Capital Resources below).
  *Other
              Income (Loss).* Our
              other
              income was $104,000 for the year ended March 31, 2005, as compared
              to other loss of $130,000 for the year ended March 31, 2004. Other
              loss for the
              year ended March
              31,
              2004 included impairment loss on investments in securities of $127,000
              and loss
              on derivative instruments
              of $91,000.
  *Income
              Tax Benefit (Expense).* Our
              income tax benefit was $612,000 for the year ended March 31, 2005,
              as
              compared to income tax expense of $121,000 for the year ended March
              31, 2004.
              The income tax benefit
              and expense in 2005 and 2004 primarily resulted from Corgi’s U.K. operations. In
              the fiscal year ended
              March 31, 2004, Corgi’s U.K. operations had net taxable income and a tax expense
              was recorded accordingly.
              During the fiscal year ended March 31, 2005, Corgi’s U.K. operations experienced
              a tax loss. Under
              the
              U.K. tax law, a business is allowed to utilize current year tax losses
              against
              tax paid in prior years;
              as
              a result, we recorded a tax benefit for the fiscal year ended March
              31,
              2005.
  *Loss
              from Continuing Operations.* Our
              loss
              from continuing operations was $7.9 million for the year ended
              March 31, 2005, an increase in loss of $4.5 million, or 132.4%, from
              loss from
              continuing operations of
              $3.4
              million for year ended March 31, 2004. The increase in loss was primarily
              due to
              the decrease in net
              sales
              and gross margin realized thereon for the fiscal year ended March 31,
              2005.
   29
   *Income
              (loss) from Discontinued Operations, Net of Tax.* The
              $352,000 gain and $1.9 million loss from
              discontinued operations for the years ended March 31, 2005 and 2004
              were all
              related to the operations
              of Hua Yang including the gain recognized on the disposition thereof
              during the
              year ended March
              31,
              2005. In the fiscal year 2004, the loss was related to the operations
              of Hua
              Yang.
  *Extraordinary
              Gain, Net of Nil Tax.* We
              recognized $418,000 of extraordinary gain during the year ended
              March 31, 2005. The extraordinary gain was related to our acquisition
              of the
              minority interest in a subsidiary
              for less than the estimated fair value of the subsidiary.
  *Segment
              results relating to Corgi and Zindart Manufacturing are as follows
              (in
              thousands):*
  *(a)  
              Net sales*
 2006
                      
                      2005
                      
                      2004Net
                        sales consist of the following:Manufacturing
                          of die-cast and injection-molded
                        plastic
                          products
                      
                      $
                      40,302
                      
                      $
                      49,526
                      
                      $
                      46,075Design,
                          marketing and distribution of die-cast products
                        under
                          proprietary brand names
                      
                      
                      36,092
                      
                      
                      43,214
                      
                      
                      49,744$
                      76,394
                      
                      $
                      92,740
                      
                      $
                      95,819
  *(b)  
              Operating (loss) income*
  2006
                      
                      2005
                      
                      2004Manufacturing
                          of die-cast and injection-molded
                        plastic
                          products (note a)
                      
                      $
                      (5,101
                      )
                      $
                      455
                      
                      $
                      846Design,
                          marketing and distribution of die-cast products
                        under
                          proprietary brand names (note b)
                      
                      
                      (25,962
                      )
                      
                      (5,561
                      )
                      
                      (688
                      )Corporate
                        general and administrative expenses
                      
                      
                      (2,007
                      )
                      
                      (2,279
                      )
                      
                      (2,170
                      )Interest
                        income
                      
                      
                      85
                      
                      
                      138
                      
                      
                      39Interest
                        expense
                      
                      
                      (1,038
                      )
                      
                      (1,204
                      )
                      
                      (905
                      )Other
                        income (loss)
                      
                      
                      446
                      
                      
                      104
                      
                      
                      (130
                      )Loss
                        before income taxes
                      
                      $
                      (33,577
                      )
                      $
                      (8,347
                      )
                      $
                      (3,008
                      )
  (note
                      a)
                    The
                        amount includes impairment of long-lived assets of $1,439,000
                        and
                        impairment of goodwill of
                        $414,000.  (note
                      b)
                    The
                      amount includes impairment of goodwill of
                      $18,368,000.
  Sales
              generated by the Corgi segment decreased by $7.1 million, to $36.1
              million for
              the year ended
              March 31, 2006 from $43.2 million for the year ended March 31, 2005.
              Corgi
              recognized operating losses
              in
              both years, $26.0 million for the year ended March 31, 2006 and $5.6
              million for
              the year ended March 31,
              2005.
              The decrease in sales was largely due to the mass market’s failure to accept
              Corgi toy products that
              had
              been developed specifically for the mass merchandizing markets, as
              well as a
              continued lack of new
              Corgi
              collector products introduced to the market during the year ended March
              31,
              2006. The loss for the
              year
              ended March 31, 2006 included $18.4 million of losses related to the
              impairment
              of the goodwill allocated
              to the Corgi reporting unit.
   30
  Zindart
              Manufacturing sales for the years ended March 31, 2006 and 2005 were
              $40.3
              million and $49.5 million, respectively, reflecting a $9.2 million
              decrease in
              sales from year to year. Operating results recognized on such sales
              were a $5.0
              million loss and $455,000 of income for the years ended March 31, 2006
              and 2005,
              respectively. The effort to sell Zindart Manufacturing during the fiscal
              year
              ended March 31, 2006 was detrimental to our operating results, due
              to the
              disruption of our management and staff, suppliers and customers. The
              effects of
              such disruption are not directly measurable, but we believe the sale
              effort had
              the impact of reducing Zindart Manufacturing’s sales and increasing cost of
              goods sold, contributing to the segment’s loss for the year. In addition, in
              connection with the reclassification of Zindart Manufacturing as held
              and used
              during the year ended March 31, 2006, we recorded $1.4 million of impairment
              losses related to property, plant and equipment, and land use rights,
              related to
              Zindart Manufacturing. Sales generated by the Corgi segment decreased
              by $6.5
              million, to $43.2 million for the year ended March 31, 2005 from $49.7
              million
              for the year ended March 31, 2004. Corgi recognized operating losses
              in both
              years, $5.6 million for the year ended March 31, 2005 and $688,000
              for the year
              ended March 31, 2004. The decrease in sales was largely due to a lack
              of new
              products introduced to the market during the year ended March 31, 2005.
              The
              year-to-year increase in operating loss was directly related to the
              decrease in
              sales.
  Zindart
              Manufacturing sales for the years ended March 31, 2005 and 2004 were
              $49.5
              million and $46.1 million, respectively, reflecting a $3.4 million
              increase in
              sales from year to year. Operating income recognized on such sales
              were a
              $455,000 and $846,000 for the years ended March 31, 2005 and 2004,
              respectively.
              On a year-to-year comparison, operating income decreased while sales
              increased
              due to a decrease in margin related to increasing costs of utilities,
              labor and
              raw materials during the year ended March 31, 2005.
  ***Foreign
              Currency Fluctuations***
  Our
              functional currency is U.S. dollars as a substantial portion of our
              business
              activities is based in U.S. dollars. Our sales are primarily denominated
              in U.S.
              dollars, followed by Great Britain Pounds (“GBP”), Hong Kong (“HK”) dollars and
              Euros. The majority of our expenses are denominated in either U.S.
              dollars, HK
              dollars, RMB, GBP and Euros. Aggregate gains or losses from foreign
              currency
              transactions included in cost of goods sold for the years ended March
              31, 2006,
              2005 and 2004 were approximately gains of $656,000, losses of $28,000
              and losses
              of $310,000, respectively.
  We
              primarily use 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,
              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 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. At March 31, 2006, we had no outstanding foreign
              currency forward contracts. For the year ended March 31, 2005, the
              amount
              recognized in earnings due to ineffectiveness and the amount excluded
              from the
              assessment of hedge effectiveness were not material. Substantially
              all of the
              balance at March 31, 2005 was recognized within the year ended March
              31, 2006 as
              the anticipated transactions occurred.
  **Liquidity
              and Capital Resources**
  Cash
              and
              cash equivalents were $820,000 at March 31, 2006. Net cash used in
              operating
              activities was $1.9 million for the year ended March 31, 2006, a $2.0
              million
              decrease from net cash used in operating activities of $3.9 million
              for the year
              ended March 31, 2005. The decrease was primarily due to decrease in
              working
              capital as production activities slowed down towards the year-end in
              2006.
   31
  Cash
              used
              in investing activities for the year ended March 31, 2006 was $3.5
              million,
              compared to net
              cash
              provided by investing activities of $10.7 million for the year ended
              March 31,
              2005. The cash provided
              by investing activities during the year ended March 31, 2005 included
              the
              proceeds from the sale of
              Hua
              Yang, partially offset by $4.2 million of investment in plant and equipment,
              primarily consisting of tooling
              for new Corgi’s products, as well as certain fixed asset acquisitions within
              Zindart Manufacturing. In
              May
              2004, we completed the sale of Hua Yang for gross consideration of
              $24.3
              million, less indebtedness of
              $10.0
              million, resulting in net cash of approximately $14.3 million. The
              cash
              generated by the sale was used
              to
              reduce our reliance on short-term debt and support the growth of Corgi
              U.S.
              during the year ended March
              31,
              2005. The cash infusion from the sale increased our current assets
              relative to
              our current
              liabilities, decreased our consolidated debt outstanding, and decreased
              our
              ratio of debt to equity
              as
              of March 31, 2005. The cash used in investing activities during the
              year ended
              March 31, 2006 was
              primarily for purchases of plant and equipment.
  Cash
              provided by financing activities was $205,000 for the year ended March
              31, 2006,
              compared to net
              cash
              used by financing activities of $1.3 million for the year ended March
              31, 2005.
              The major uses of cash
              in
              financing activities for year ended March 31, 2006 was primarily for
              repayment
              of loans and capital
              leases of $1.1 million offset by $1.3 million of proceeds from the
              exercise of
              stock options. Source of
              cash
              provided in financing activities for the fiscal year ended March 31,
              2005
              included a $1.3 million net
              increase in borrowing and $1.1 million of proceeds from the exercise
              of stock
              options, offset by repayment
              of loans and capital leases of $2.9 million and $666,000 used to purchase
              additional interest in a
              subsidiary.
  Consistent
              with practice in industry, we offer payment terms to our customers.
              This
              practice creates working
              capital requirements that we generally finance through short-term borrowings
              and
              factoring arrangements.
  We
              have
              borrowings of $10.8 million as of 31 March 2006, all of which are due
              within one
              year. We have
              lines of credit with certain banks including: KBC, HSBC, ABC and RBS.
              At March
              31, 2006, we had banking
              facilities of approximately $15.3 million for overdrafts, trade financing,
              and
              term loan. Unused banking
              facilities at the same date amounted to approximately $4.5 million.
  As
              of
              March 31, 2006, we had breached certain financial undertakings in respect
              to our
              bank facilities with
              KBC
              and HSBC. We did not meet minimum financial ratios related to consolidated
              tangible net worth,
              consolidated net borrowings to consolidated tangible net worth, current
              assets
              to current liabilities, interest
              coverage, and consolidated profits before interest and tax. The lenders
              have not
              notified us that we
              are in
              a state of default, and we have continued to maintain banking relationships
              with
              each of these financial
              institutions. For both facilities, the lenders have the right to demand
              payment
              of all amounts owed
              at
              any time, irrespective of whether we had complied with the financial
              undertakings. As of March 31,
              2006,
              total outstanding borrowings under these two credit facilities amounted
              to $3.2
              million.
  With
              respect to our facility with KBC, as of March 31, 2006, the lender
              had suspended
              further utilization
              of the credit facility. Total outstanding borrowing under this credit
              facility
              amounted to $1.3 million
              as of March 31, 2006. On April 24, 2006, a repayment schedule was agreed
              with
              the lender whereby
              we have agreed to repay $150,000 per month, with the remaining balance
              to be
              repaid by November
              26, 2006.
  With
              respect to our facility with HSBC, the lender has revised the terms
              of the
              credit facility by reducing
              the available amount to be withdrawn from $2.6 million to $2.1 million
              and
              requiring us to maintain
              a $1.0 million restricted cash deposit with the lender. As of August
              22, 2006,
              we had not signed the
              revised agreement as we are still in negotiation with the lender with
              respect to
              the term requiring us to place
              a
              $1.0 million restricted deposit with the lender. As of March 31, 2006,
              the total
              amount outstanding under
              this facility amounted to $1.9 million.
  32
  The
              consolidated financial statements included in Item 18 of this Annual
              Report were
              prepared on a going
              concern basis, which contemplates the realization of assets and the
              satisfaction
              of liabilities in the normal
              course of business. The realization of assets and the satisfaction
              of
              liabilities in the normal course of
              business are dependent on, among other things, our ability to operate
              profitably, to generate cash flows from
              operations, and maintain credit facilities adequate to support our
              working
              capital requirements. We have
              continued to suffer recurring losses from operations and generate negative
              cash
              flows that raise substantial
              doubt regarding our ability to continue as a going concern. The accompanying
              consolidated financial
              statements do not include any adjustments that might result from the
              outcome of
              this uncertainty.
  In
              April
              2006, we responded to the liquidity deterioration by issuing convertible
              notes
              and warrants in
              a
              private placement for aggregate proceeds amounting to $5.65 million
              as described
              below and, in June 2006,
              replacing our existing $4.4 million overdraft facility with RBS with
              an $8.7
              million receivable discounting
              facility with Coface Receivables Finance Limited. However, the utilization
              of
              the receivable discounting
              facility will depend on actual sales levels. The amount available for
              utilization under the discounting
              facility will be less than the amount available under the RBS overdraft
              facility
              to the extent actual
              sales are lower than historical sales. The proceeds of the private
              placement
              have been substantially utilized
              as required to fund working capital deficits.
  In
              the
              event that market conditions and demand for our products continue to
              deteriorate
              and decline, causing
              operating losses and negative cash flows from operations to continue
              and,
              despite our best efforts, we
              are
              unable to secure additional financing sources from lenders and/or other
              parties
              to fund our operations and
              obligations, we will be required to dispose of business units or assets,
              perhaps
              at a significant discount
              to the fair value thereof, seek bankruptcy protection or commence liquidation
              or
              other administrative
              proceedings.
  On
              April
              28, 2006, we issued a private placement of convertible subordinated
              notes and
              warrants, with
              gross proceeds to the Group of $5.65 million, with certain institutional
              and
              individual accredited investors.
              The notes, in original principal amount of $5.65 million, mature in
              October 2008
              and will be exchangeable
              at the option of the holders into the Company’s American Depositary Shares at a
              conversion price
              of
              $2.00 per share. The warrants are exercisable for up to 988,750 of
              the Company’s
              American Depositary
              Shares for an exercise price of $0.07 per share if certain conditions
              are not
              met. We held an extraordinary
              general meeting and approved the underlying American Depositary Shares
              on June
              26, 2006.
              We
              have agreed to register for resale the American Depositary Shares issuable
              upon
              exchange of the notes
              and
              upon exercise of the warrants.
  The
              notes
              bore interest at a rate of 11% per annum until shareholder approval
              was obtained
              on June 26,
              2006,
              and bear a rate of 7.5% per annum thereafter. The warrants are exercisable
              if
              the Company fails to
              enter
              into a definitive agreement for a change of control transaction by
              June 27, 2006
              or (b) if the Company
              enters into a definitive agreement for a change of control transaction
              by such
              date, the Company fails
              to
              consummate such transaction by October 25, 2006. If a registration
              statement
              covering the notes is not
              filed
              with the SEC on or prior to a specified filing deadline date, the Company
              will
              issue Additional Warrants
              pro rata to each note purchaser, as liquidated damages and not as a
              penalty, in
              an amount equal to
              50,000
              ADSs (as adjusted for stock splits, combinations, reclassifications
              and the
              like) for each 30-day period
              or
              pro rata for any portion thereof following the filing deadline date
              for which no
              registration statement
              is filed. A waiver has been executed by a majority of the note holder
              amending
              certain of the above
              terms as follows:
  •
                    the
                        Warrants are exercisable if the Company fails to enter into
                        a definitive
                        agreementfor
                        a change of control transaction by August 31, 2006 or (b)
                        if the Company
                        entersinto
                        a definitive agreement for a change of control transaction
                        by such date,
                        suchagreement
                        is terminated prior to consummation of such change of control
                        transaction,
   •
                    all
                        of the notes will automatically convert into the Company’s AmericanDepositary
                        Shares immediately prior to closing of such change of control
                        transaction,
 33
   •
                    rights
                        to exercise the Additional Warrants are
                        waived,
   •
                    additional
                        time is granted with respect to the filing of the related
                        registrationstatement
                        with the SEC, and
 •
                    the
                        conversion price will be reduced if a private placement of
                        the Company’sAmerican
                        Depositary Shares prior to the change of control transaction is
                        completed at a price less than $2.00 per
                        share.
  We
              have
              accounted for the convertible subordinated notes in accordance with
              Emerging
              Issues Task Force
              (“EITF”) No. 00-27, Application of Issue No. 98-5 to Certain Convertible
              Instruments, which
              requires the proceeds received from the financing transaction to be
              allocated to
              the convertible instruments
              and the detachable warrants on a relative fair value basis. The embedded
              beneficial conversion
              feature was measured by allocating a portion of the proceeds in relation
              to the
              convertible instruments,
              equivalent to the intrinsic value of the embedded conversion option,
              using an
              effective conversion
              price. The discount resulting from recording the beneficial conversion
              option
              and the fair value
              of
              the warrants is recognized as a reduction to the carrying amount of
              the
              convertible debt, which
              is
              accreted from the date of issuance to the stated redemption date of
              the
              convertible instrument
              through a charge to earnings as interest expense. The fair value of
              the warrants
              was recorded
              as a liability with any changes in the fair value of the warrants at
              each
              reporting date being
              recorded through the Company’s statement of operations. We
              expect
              to incur significant additional
              interest expenses as a result of the issuance of the convertible notes.
  We
              have
              no legal or economic
              restrictions on the ability of subsidiaries to transfer funds to the
              parent in
              the
              form of cash dividends, loans or advances.
  Capital
              expenditure commitments were $937,000 and $835,000 as at March 31,
              2006 and
              2005, respectively .
  **Research
              and Development**
  Research
              and development costs are expensed as incurred. Corgi is continually
              involved in
              the development
              of new products, markets and manufacturing processes. Research and
              development
              costs incurred
              by the Group were $2.0 million, $2.6 million and $1.2 million for the
              years
              ended March 31, 2006,
              2005 and 2004, respectively.
  **Trend
              Information**
  Over
              the
              past several years, electronic toys have succeeded in replacing demand
              for
              low-tech style toys
              such
              as standard die cast and plastic toys that have no electronic features.
              This
              trend has not slowed during
              the past year, and is expected to continue into the future. We have
              attempted
              and partially succeeded maintaining
              sales volume by focusing on high-quality collectible products, many
              of which are
              targeted toward
              adult consumers. We will continue to focus in this area, while creating
              new
              products, some of which
              include electronic features, to attract consumers from the general
              mass market.
              One such product entered
              into the market this year is the iCar, introduced in Summer 2006. Also,
              we have
              introduced new versions
              of classic collectible die-cast products with added electronic features
              such as
              lights, sounds and limited
              movement. These products have proven to be popular among our traditional
              base of
              collector customers.
              We believe that introducing such products will yield reasonable profits
              while
              increasing awareness
              for the Corgi brand.
   34
  Mass
              retail in the United States has become more consolidated over the past
              several
              years, as larger retail
              chains such as Walmart successfully force smaller competitors out of
              business.
              This trend has not changed
              in the past year, and is expected to continue into the future. Due
              to this
              trend, our sales of massmarket products
              are steadily more concentrated through a smaller number of large retail
              merchandisers. We
              have
              attempted to broaden our sales base by focusing on the middle-tier
              department
              stores, and have seen
              reasonable success in the current year, as many of our products will
              be
              distributed through these smaller
              retail chains. We will continue this effort in order to maintain as
              broad of a
              distribution base as possible.
  Concentration
              of the mass-market distributors has served to increase the bargaining
              power and
              demands required
              by the large mass retailers. In the current year, we have noted that
              these
              retailers are issuing purchase
              orders later in the business year (i.e., closer to the holiday shopping
              season)
              in order to better manage
              their inventory. This has resulted in a delay in our sales cycle, such
              that
              sales originally planned for
              mid-summer months will now be generated in the early fall. This has
              the effect
              of postponing sales and
              the
              related cash inflow, while increasing our finished goods inventories,
              which
              requires increased usage
              of
              working capital. While we have maintained timely debt repayments to
              all
              financial institutions, we
              have
              increased amounts owed to our vendors due to the related working capital
              constraints. We do not see
              this
              trend changing in the near future.
  The
              costs
              of our raw materials, including but not limited to plastic and zinc,
              have
              increased substantially over
              the
              past year. While our customers absorb a portion of these increased
              costs, we are
              also forced to absorb
              a
              portion of these costs, which reduces our gross profit margin. We have
              introduced additional
              efficient procedures in our manufacturing processes in order to reduce
              wastage
              and scrap, as
              well
              as reduce other variable costs of goods such as labor. Plastic is an
              oil-based
              product and the cost of
              plastic will increase or decrease with the cost of oil, although the
              timing of
              the impact lags. Due to
              current hostilities in the Middle East, we do not have a clear outlook
              for the
              future prices of oil, although
              many economists believe that prices will continue to rise over the
              near and long
              term. Prices for
              zinc
              have leveled off recently, and we do not expect additional increases
              in the
              short term; however, zinc
              prices are related to multiple economic pressures and can be
              volatile.
  The
              PRC
              regulates the minimum wages in China, and local municipalities determine
              independently when
              or
              if such minimum wage standards are implemented locally. This impacts
              the cost of
              production staff
              in
              our Zindart Manufacturing factory, as well as the costs of finished
              product that
              is purchased from other
              PRC-based manufacturing vendors. Note, almost all of our products are
              manufactured in the PRC. Minimum
              wages in Dongguan PRC, where our Zindart Manufacturing factory is based,
              are
              scheduled to increase
              20% in September 2006. As with increases in the cost of raw materials,
              we will
              continue to introduce
              new efficient manufacturing procedures in order to reduce the use of
              labor. A
              portion of the increased
              costs will be passed onto our customer.
  Factory
              capacity in the southern part of the PRC, specifically in the Guangdong
              province, has increased substantially
              over the past several years, causing significant price competition
              among
              manufacturers. Such
              price competition has begun to cause smaller manufacturers to incur
              losses such
              that they can no longer
              survive. Larger manufacturers such as Zindart Manufacturing can reduce
              overhead
              such that profitable operations
              are still possible; however, profit margins have been severely impacted.
              Also,
              US customers of these
              PRC-based manufacturing concerns have been requiring the manufacturers
              to take
              additional measures to
              ensure
              fair treatment of factory personnel such that costs to produce product
              are
              driven higher.
  The
              combination of over-capacity and pressure on PRC-based cost of sales
              has
              resulted in decreased value
              of
              China-based factories. We have observed such a decrease in the value
              of Zindart
              Manufacturing during
              fiscal year 2006, where we recognized a $1.4 million value impairment
              charge on
              certain property, plant
              and
              equipment and land use rights. We believe that such pressures will
              continue to
              drive down the value
              of
              PRC-based manufacturing concerns, and that some consolidation of the
              manufacturing industry will
              result.
   35
  **Contractual
              Obligations**
  **Payment
                        Due by Periods****Less
                        Than**
                      **1
                        Year**
                    
                    **1
                        - 3**
                      **Years**
                    
                    **3
                        - 5**
                      **Years**
                    ****
                    **More
                        Than**
                      **5
                        Years**
                    
                    **Total****(In
                        thousands)**On-Balance
                      Sheet:Short-term
                        debt
                    
                    
                    
                    $
                    10,777
                    
                    $
                    –
                    
                    $
                    –
                    
                    $
                    –
                    
                    $
                    10,777Obligations
                        under capitalleases
                    
                    
                    
                    
                    635
                    
                    
                    219
                    
                    
                    –
                    
                    
                    –
                    
                    
                    854Off-Balance
                      Sheet:Capital
                        commitment
                    
                    
                    
                    
                    937
                    
                    
                    –
                    
                    
                    –
                    
                    
                    –
                    
                    
                    937Licensing
                          commitment
                    
                    
                    
                    
                    605
                    
                    
                    362
                    
                    
                    9
                    
                    
                    –
                    
                    
                    976Operating
                          lease
                    
                    
                    
                    
                    777
                    
                    
                    719
                    
                    
                    392
                    
                    
                    731
                    
                    
                    2,619$
                    13,731
                    
                    $
                    1,300
                    
                    $
                    401
                    
                    $
                    731
                    
                    $
                    16,163
  For
              additional information related to interest on our short-term debt and
              capital
              lease, licensing and operating
              lease commitments, see notes 8 and 16 to the consolidated financial
              statements
              in Item 18 of this
              Annual Report.
  **Off-Balance
              Sheet Arrangements**
  At
              March
              31, 2006, Zindart Manufacturing had outstanding irrevocable letters
              of credit in
              the aggregate amounts
              of $115,000. Except for these letters of credit, we have no other outstanding
              off-balance sheet arrangements
              or guarantees.
  **Critical
              Accounting Policies**
  The
              preparation of financial statements in conformity with U.S. generally
              accepted
              accounting principles
              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 o n
              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, our management
              evaluates their 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 which 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 that are continuous in nature.
   36
  These
              critical accounting policies include:
  ***Allowances
              for Doubtful Accounts***
  The
              allowance for doubtful accounts is an adjustment to customer trade
              receivables
              for amounts that are
              determined to be uncollectible or partially uncollectible. The allowance
              for
              doubtful accounts is the management’s
              best estimate of the amount of probable credit losses in the existing
              accounts
              receivable in respect
              of the business environment, customer’s financial condition, historical trends
              and customer disputes. Any
              changes in the assumptions used to develop the estimate could have
              a material
              effect on selling, general
              and administrative expenses, net income and accounts receivable. We
              review our
              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.
 **2006**
                        
                        ******2005****(In
                            thousands)**Trade
                          accounts receivable
                        
                        $
                        10,421
                        
                        $
                        7,355Less
                            allowance for doubtful accounts
                        
                        
                        (360
                        )
                        
                        (776
                        )Trade
                            accounts receivable, net
                        
                        $
                        10,061
                        
                        $
                        6,579
  Movements
                of allowance for doubtful accounts are as follows (in thousands):
  ******2006**
                        
                        ******2005**
                        
                        **2004**Balance
                            at beginning of year
                        
                        $
                        776
                        
                        $
                        1,080
                        
                        $
                        1,786Adjustments
                            related to Zindart Manufacturing (note)
                        
                        
                        97
                        
                        
                        (97
                        )
                        
                        -Write-offs/written
                            back
                        
                        
                        (513
                        )
                        
                        (207
                        )
                        
                        (706
                        )Balance
                            at end of year
                        
                        $
                        360
                        
                        $
                        776
                        
                        $
                        1,080
 __________
 (note)
                      The
                          balance of allowance for doubtful accounts in relation
                          to Zindart
                          Manufacturing in 2005 was classified as discontinued operations
                          and was
                          reclassified back in 2006 when Zindart Manufacturing was
                          reclassified as
                          held and used.
 Credit
              limits and payment terms are established based on the underlying criteria
              that
              collectibility must
              be
              reasonably assured at the levels of credit being offered. Credit limits
              may be
              reduced or credit may
              be
              revoked based on the findings of the review.
   37
  ***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.
  We
              write
              down inventory for estimated obsolescence or unmarketable inventory
              as measured
              by the difference
              between the cost of inventory and the estimated selling prices, which
              require
              assumptions about
              future demand for our products and related market conditions. We believe
              this to
              be a critical accounting
              estimate as changes in the assumptions used to develop this estimate
              could
              materially affect cost
              of
              goods sold, net income and inventory. Change in consumer preferences,
              buying
              patterns and inventory
              management of customers could adversely affect the estimation of future
              demand
              for our products,
              resulting in the recognition of additional adjustments inventory provisions.
              Management records a write-down
              against inventory based on several factors, including expected sales
              price of
              the item and length
              of
              time the item has been in inventory. The loss in write down of inventory
              is
              recognized in cost of goods
              sold in the consolidated statements of operations and establishes a
              new cost
              basis for such inventories. The
              losses recognized were $637,000 for the year of March 31, 2006 and
              $544,000 for
              the year of March 31,
              2005.
              The write down in the value of inventory was necessary to reduce the
              inventory
              cost to market value
              as
              costs of production were high due to lower economies of scale as production
              volume was low in the
              years
              ended March 31, 2005 and 2006. If future production volume remains
              low and
              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**
  We
              assess
              the carrying value of long-lived assets including our intangible assets
              (other
              than goodwill) to
              be
              held and used with estimated useful lives, whenever events or changes
              in
              circumstances indicate that the
              carrying value of an asset or asset group may not be recoverable. Factors
              considered important that could
              trigger an impairment review include the following:
  •
                    significant
                        under-performance relative to expected historical or projected
                        future
                        operatingresults;
 •
                    significant
                        changes in the manner of our use of an
                        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, we
              test 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
              on
              the amount by which the carrying value exceeds the estimated fair value
              of the
              long-lived asset. Fair
              value is determined primarily using the anticipated future cash flows
              discounted
              at a rate commensurate with
              the
              risk involved.
  We
              report
              our long-lived assets that are held for sale based on the lower of
              its carrying
              amount or fair value,
              less costs to sell. The fair value is measured using the estimated
              selling
              prices that is expected to be realized
              from the sale to third party buyers or through other valuation techniques
              that
              emphasize relevant market
              inputs, including those derived from active markets. In connection
              with the
              reclassification of Zindart
              Manufacturing as held and used, the Group recorded a $1.4 million impairment
              charge against property,
              plant and equipment and land use rights during the year ended March
              31, 2006
              since the estimated
              fair values of the assets were lower than the assets’ carrying amounts before
              the disposal group was
              classified as held for sale, adjusted for any depreciation and amortization
              expense that would have been
              recognized had the disposal group been continuously classified as held
              and
              used.
   38
  ***Goodwill***
  Goodwill
              represents the excess of costs over the estimated fair value of identifiable
              net
              assets of businesses
              acquired. Pursuant to SFAS No. 142, Goodwill and Other Intangible Assets
              (“SFAS
              142”), goodwill
              is no longer amortized beginning with our fiscal year ended March 31,
              2003, but
              instead tested for
              impairment at least annually.
  We
              have
              undertaken goodwill impairment testing to determine whether the goodwill
              was
              impaired and
              the
              extent of such impairment, if any. To accomplish this, we are required
              to
              determine the fair value of
              each
              reporting unit and compare it to the carrying amount of the net assets
              of the
              reporting unit, including
              goodwill. In estimating the fair value of the reporting unit, we used
              the
              valuation performed by a
              third-party valuation firm, which involved the use of the discounted
              cash flow
              methodology. When available
              and as appropriate, market multiples were used to corroborate discounted
              cash
              flow results. In applying
              this methodology, we considered a number of factors, including actual
              operating
              results, future business
              plans, economic projections and market data.
  During
              the year ended March 31, 2006, we recognized $18.4 million of impairment
              to
              goodwill, as the
              fair
              value of Corgi had been determined to be less than the carrying amount
              of the
              net assets of the reporting
              unit, including goodwill. The facts and circumstances leading to the
              goodwill
              impairment charge were
              primarily due to lower expected future cash flows as a result of poor
              customer
              reception of Corgi’s products
              in the weak retail environment in the United Kingdom, and reduced gross
              profit
              margins due to a shift
              in
              Corgi sales mix towards more low-margin mass-market products. Based
              on these
              factors, sales estimates
              for future years have been decreased, causing a related reduction in
              the
              discounted cash flow valuation
              of the Corgi operation.
  There
              was
              no indication that goodwill allocated to the Corgi reporting unit was
              impaired
              at March 31,
              2005
              as the estimated fair value of the reporting unit (as determined using
              the
              valuation performed by a third-party
              valuation firm for the Corgi business segment) exceeded the carrying
              amount of
              the reporting unit
              (including goodwill).
  In
              connection with the reclassification of Zindart Manufacturing as held
              and used,
              the Company recorded
              an impairment charge of goodwill of $414,000 to reflect the decrease
              in the fair
              value of Zindart Manufacturing
              reporting unit due to the deterioration of the market conditions in
              which
              Zindart Manufacturing
              operates.
  ***Deferred
              Taxes***
  As
              part
              of the process of preparing our consolidated financial statements,
              we are
              required to estimate income
              taxes and tax bases of assets and liabilities in each of the jurisdictions
              in
              which we operate. This process
              involves estimating current tax exposure together with assessing temporary
              differences resulting from
              differing treatment of items for tax and accounting purposes and the
              amount of
              tax loss carry forwards.
              These differences result in deferred tax assets and liabilities, which
              are
              included in the consolidated
              balance sheets. We 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 is provided.
   39
  In
              assessing the realizability of deferred tax assets, we consider whether
              it is
              more likely than not that
              some
              portion or all of the deferred tax assets will not be realized. The
              ultimate
              realization of deferred tax
              assets is dependent upon the generation of future taxable income during
              the
              periods in which those temporary
              differences become deductible. We consider the scheduled reversal of
              deferred
              tax liabilities, projected
              future taxable income, and tax planning strategies in making this assessment.
              During fiscal year 2004,
              2005 and 2006, we recorded valuation allowance on the deferred tax
              assets
              relating to tax loss carry forwards
              of our business operations. For the year of March 31, 2004, the valuation
              allowance was related only
              to
              Corgi U.S. deferred tax assets arising from the tax loss carry forwards.
              For the
              year of March 31, 2005,
              a
              valuation allowance on the deferred tax assets arising from the tax
              loss carry
              forwards was recorded
              for both Corgi U.S. and our Hong Kong operations. For the year ended
              March 31,
              2006, a valuation
              allowance was recorded for Corgi’s U.K. and U.S. operations and our Hong Kong
              operations. Since
              inception of Corgi’s U.S. operations in fiscal year 2000, Corgi has incurred
              consistent losses. We assessed
              that until the Corgi U.S. operations can demonstrate an ability to
              produce
              consistent profitable operations
              to utilize the tax loss carry forwards, we will continue to record
              a valuation
              allowance against the
              deferred tax asset. Corgi’s U.K. and our Hong Kong operations have experienced a
              history of losses during
              the past three years. As of March 31, 2006, a valuation allowance was
              recorded
              to reflect our assessment
              that it is more likely than not that all of the deferred tax assets
              will not be
              realized.
  The
              valuation allowance was $1.5 million as of April 1, 2003. The valuation
              allowance increased by $1.0
              million and $2.3 million and $5.5 million for the years ended March
              31, 2004,
              2005 and 2006, respectively.
  ***Fair
              Value of Stock-based Employee Compensation Expense***
  We
              apply
              the intrinsic-value-based method of accounting prescribed by Accounting
              Principles Board ("APB")
              Opinion No. 25, Accounting for Stock Issued to Employees, and related
              interpretations including Financial
              Accounting Standard Board (“FASB”) Interpretation No. 44, Accounting for Certain
              Transactions involving
              Stock Compensation, an interpretation of APB Opinion No. 25, issued
              in March
              2000, to account
              for our 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 exceeds
              the
              exercise price. SFAS No. 123,
              Accounting for Stock-Based Compensation (“SFAS 123”), established accounting and
              disclosure requirements
              using a fair-value-based method of accounting for stock-based employee
              compensation plans.
              As
              allowed by SFAS 123, we have elected to continue to apply the
              intrinsic-value-based method of accounting
              described above, and have adopted only the disclosure requirements
              of SFAS 123.
              Under the fair
              value based method, compensation cost related to employee stock options
              or
              similar equity instruments is
              measured at the grant date based on the value of the award and is recognized
              over the service period, which
              is
              usually the vesting period. We determine fair value using the Black-Scholes
              model. Under this model,
              certain assumptions, including the risk-free interest rate, the expected
              life of
              the options and the estimated
              fair value of our ordinary shares and the expected volatility, are
              required to
              determine the fair value
              of
              the options. Expected future stock price volatility is estimated based
              upon
              historical stock price movements
              over the most recent period equal to the expected option life. Expected
              option
              life is based on the
              vesting period, the expected volatility of the underlying stock and
              on actual
              exercise activity related to previous
              option grants. Additionally, our share price on the date of grant influences
              the
              option value. Notwithstanding
              that the exercise price of options equals or is connected to the quoted
              market
              price of our stock
              on
              the grant date, the higher the share price the higher the option value.
              For
              purposes of determining the
              estimated fair value of our stock options, we believe expected volatility
              is the
              most sensitive assumption. Expected
              future stock price volatility is estimated based upon historical stock
              price
              movements over the most
              recent period equal to the expected option life. For our equity fixed-plan
              stock
              options issued in 2006,
              we
              used an expected volatility of 59.25%, resulting in an estimated weighted
              average fair value per option
              of
              $1.45. Changes in the volatility assumption could significantly impact
              the
              estimated fair values calculated
              by the Black-Scholes valuation model. The following pro forma information
              presents compensation
              cost as if it has been determined consistent with the requirements
              of SFAS 123
              (in thousands, except
              share data).
   40
 2006
                    
                    2005
                    
                    2004Reported
                      net loss
                    
                    $
                    (35,355
                    )
                    $
                    (7,103
                    )
                    $
                    (5,309
                    )Add
                        back total stock-based employee compensation
                      expenses
                        under APB No.25
                    
                    
                    -
                    
                    
                    211
                    
                    
                    -Deduct
                        stock-based employee compensation expense
                      determined
                        under fair-value-based method for all rewards
                    
                    
                    (794
                    )
                    
                    (735
                    )
                    
                    (159
                    )Pro-forma
                      net loss
                    
                    $
                    (36,149
                    )
                    $
                    (7,627
                    )
                    $
                    (5,468
                    )Loss
                      per common share:Basic
                        - as reported
                    
                    $
                    (3.62
                    )
                    $
                    (0.75
                    )
                    $
                    (0.60
                    )Basic
                        - pro forma
                    
                    $
                    (3.70
                    )
                    $
                    (0.80
                    )
                    $
                    (0.61
                    )Loss
                      per common share:Diluted
                        - as reported
                    
                    $
                    (3.62
                    )
                    $
                    (0.75
                    )
                    $
                    (0.60
                    )Diluted
                        - pro forma
                    
                    $
                    (3.70
                    )
                    $
                    (0.80
                    )
                    $
                    (0.61
                    )
  In
            December 2004, the FASB issued FASB Statement No. 123 (revised 2004),
            Share-Based Payment (“SFAS
            No. 123R”), which addresses the accounting for transactions in which an entity
            exchanges its equity
            instruments for goods or services, with a primary focus on transactions
            in which
            an entity obtains employee
            services in share-based payment transactions. This Statement is a revision
            to
            Statement 123 and supersedes
            APB Opinion No. 25, Accounting for Stock Issued to Employees, and its
            related
            implementation guidance.
            This statement requires the measurement of the cost of employee services
            received in exchange for
            stock
            compensation to be based on the grant-date fair value of the employee
            stock
            options. Public registrants
            are required to adopt SFAS No. 123R at the beginning of the fiscal year
            that
            begins after June 15,
            2005
            and accordingly, we have adopted this statement on April 1, 2006 under
            the
            modified prospective method
            of
            application. Under that method, we have recognized compensation costs
            for new
            grants of share-based
            awards, awards modified after the effective date, and the remaining portion
            of
            the fair value of
            the
            unvested awards at the adoption date.
   41
   **Item********6****.*****Directors,************Senior************Management************and************Employee******s***
  **Di** **r** **ectors** **** **and** **** **Senior** **** **Managemen** **t**
 
 The  foll o wing  table  sets  forth  our  current  directors  and  ex ecut ive  o ff icers,  and  their  ages  as  of  Marc h 31,  2006  (1) .
  ***Board*** ****** ***of*** ****** ***Directors*** ****** ***(the*** ****** ***“Board”*** ***)***
 **Nam****e**
                    **Ag****e**
                    **P****ositio****n**CarrickJohnClough(2)(3)
                    59
                    ChairmanLeoPaulKoulos(3)(4)
                    72
                    DirectorDanielWiddicombe(2)(3)(4)
                    39
                    DirectorCharles
                        Carroll McGettigan (1)(2)(4)
                    61
                    Director
  ***E*** ***x*** ***ecuti*** ***v*** ***e*** ****** ***O*** ***f*** ***ficer*** ***s***
 
 **Nam****e**
                  **Ag****e**
                  **P****ositio****n*****Corporat******e***GeorgeVolanakis
                  58
                  ChiefExecutiveOfficerKenFowler
                  46
                  ChiefFinancialOfficerCynthiaChan
                  32
                  InternalAuditDirector***Corg******i***TrevorHayes
                  59
                  VicePresidentofGlobalProductDevelopmentDavidTurner
                  55
                  ManagingDirectorU.K.ChrisFranklin
                  49
                  GeneralManager,FarEastOperationsand
                    SourcingDavidDavenport
                  58
                  GeneralManagerU.S.MarkSummerfield
                  46
                  SalesDirectorU.K.AdrianJones
                  40
                  FinanceDirectorU.K.***Zindart************Manufacturin******g***K.H.Li
                  48
                  SeniorVicePresidentofTechnicalServicesand
                    DevelopmentVicePresidentofTechnicalServicesandDevelopmentFrankiLee
                  48
                  VicePresidentofMarketingandSalesYimTo
                  53
                  VicePresidentofOperations
 
 ________________
 (1 ) Charles  Carroll  McGetti g an  w as  appointed  to  the  Board  o n  April  27,  2006 .
 
 (2 ) Member  of  th e Audit  Committee .
 
 (3 ) Member  of  the  Compensation  Committee .
 
 (4 ) Member  of  the  Nominating  and  Corporate  G ov ernance  Committee .
   42
 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.
  Daniel
              Widdicombe joined the Board in December 2004. Mr. Widdicombe served
              as Chief
              Financial Officer
              for Chinadotcom Corporation from late 2000 until mid 2004. From March
              2000 to
              November 2000,
              Mr.
              Widdicombe served as Chief Financial Officer, Executive Director &
Compliance Officer for I-Quest
              Corporation Ltd., an Asia-based hotel networking firm. Mr. Widdicombe
              spent over
              six years with Bear
              Stearns Asia Limited as Managing Director of its Asian Equity Research
              Department, and four years as
              an
              analyst with James Capel & Company Limited. Mr. Widdicombe received a First
              Class Honors Master
              of
              Arts in Mandarin Chinese from Edinburgh University.
  John
              Clough joined the Board in December 2004. Mr. Clough was Co-Founder
              and Managing
              Director of
              the
              CSSL Group, one of the largest mid-range software distributors and
              hardware
              resellers in Asia, for 16
              years.
              Mr. Clough is on the board of directors of Chinadotcom Corporation
              and serves on
              that company’s audit
              committee. In addition, Mr. Clough is a special advisor to General
              Atlantic
              Partners, LLC, one of the
              world’s leading direct investment firms. In the past, Mr. Clough has served
              on
              the boards of Synon Asia
              Ltd.
              and Kapiti Asia Ltd., and has served as director and chairman of the
              board of
              Cargonet/Arena Ltd.
              Prior to the formation of the CSSL Group, Mr. Clough held the position
              of
              General Manager in Asia for
              JBA,
              an Australian-based worldwide mid-range software distributor. Mr. Clough’s
              experience includes working
              as a consultant in the areas of ERP and Finance in the U.K. and Europe.
              Mr.
              Clough attended Waikato
              Technical Institute and Auckland Technical Institute.
  Charles
              C. McGettigan joined the Board in April 2006. Since 1988, Mr. McGettigan
              has
              served as a principal
              of McGettigan, Wick & Co., an investment banking firm co-founded by Mr.
              McGettigan. In addition,
              since 1991, Mr. McGettigan has served as a principal of Proactive Partners,
              L.P., a merchant banking
              fund specializing in investments in small public companies, which Mr.
              McGettigan
              also co-founded. Previously,
              Mr. McGettigan worked in corporate finance at Blyth Eastman Dillon
              in New York
              and San Francisco;
              Dillon, Read & Co. (San Francisco); Woodman, Kirkpatrick, & Gilbreath,
              and Hambrecht & Quist.
              Mr. McGettigan has served on the Boards of Directors of numerous small
              companies, and currently serves
              on
              the Boards of Directors of Cuisine Solutions, Inc., Modtech, Inc.,
              Onsite Energy
              Corporation and
              Tanknology, Inc. He serves as the chairman of the board of Modtech,
              Onsite and Tanknology.
              Mr. McGettigan received a Bachelor’s degree from Georgetown University and a Master’s
              degree in Business Administration from the Wharton School at the University
              of
              Pennsylvania.
  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 was Chairman of the Toy Industry of America from 1995 to
              1997. Mr.
              Volanakis began his career
              in
              the toy industry in 1969 with the Milton Bradley Co., where over a
              period of 15
              years he held positions
              of increasing responsibility including Vice-President of Sales and
              Marketing and
              Vice-President of
              Research and Development.
   43
  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 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 PriceWaterhouse
              (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.
  Cynthia
              Chan joined the Group as Internal Audit Director in February 2005.
              From June
              2002 to February
              2005, Ms. Chan had been Internal Audit Manager of Defond Electrical
              Industries
              Limited, where
              she
              established the internal audit department and oversaw all audit activities.
              From
              November 2000 to
              May
              2002, Ms. Chan served as Regional Financial Analyst at Exxon Chemical
              International Asia
              Limited. Ms. Chan began her career as an external auditor with KPMG
              in 1995. Ms.
              Chan is a member
              of
              the American Institute of Certified Public Accountants. Ms. Chan received
              a
              Master’s degree of
              Business Administration from City University in the United Kingdom
              and a
              Bachelor’s degree of
              Business Administration from the Chinese University of Hong Kong.
  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 U.S. as Director and later
              Vice
              President 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 – U.K. at Corgi. Prior to
              1984, Mr. Hayes held a
              variety
              of positions in design and development at Matchbox Toys U.K. 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 Bachelor’s degree in Industrial Management from Danbury College in
              Essex.
  David
              Turner joined Corgi in June 2004 as Managing Director Europe. Prior
              to this
              appointment, Mr.
              Turner had been a Senior Partner in a U.K.-based European Management
              Consulting
              business. Mr. Turner
              began his consulting career in 1997. Prior to Mattel’s acquisitions of Tyco Toys
              in 1997, Mr. Turner
              had been Managing Director of Tyco’s U.K. business, having built this business
              to record profitability levels
              over his two-year tenure. Since 1982, Mr. Turner has held other senior
              positions
              within the toy industry,
              when joining the General Mills Toy Division (later Kenner Parker).
              Prior to
              this, Mr. Turner had enjoyed
              a
              successful management career with Procter & Gamble.
  Chris
              Franklin joined Corgi in March 2000 and has served as Operations Director
              since
              October 2001.
              From 1986 to 2000, Mr. Franklin served as Production Manager of Lledo,
              now a
              subsidiary of Corgi.
              Mr. Franklin has 31 years of production and operational management
              experience
              and has a broad range
              of
              skill sets, including implementation of MRPII systems and introduction
              and
              production of the new
              Armed
              Forces Infantry Weapon System. Mr. Franklin received a Diploma in Management
              Studies. Mr.
              Franklin was named General Manager, Far East Operations and Sourcing,
              for Corgi
              International Limited
              and General Manager for Zindart Manufacturing Limited in October
              2005.
  David
              Davenport joined Corgi in December 2004 as General Manager, the Americas,
              for
              Corgi-U.S. Prior
              to
              joining Corgi, from 2000 to 2004, Mr. Davenport was President, Hasbro
              Canada
              Corporation, responsible
              for all aspects of the business. Previously, Mr. Davenport was Senior
              Vice
              President, Marketing, The
              Ertl
              Company, Dyersville, Iowa, a $250 million in revenue, 2,000 employee,
              consumer
              products firm that
              retails promotional toys, collectibles, model kits and hobby products.
              Mr.
              Davenport had been President of
              Tonka
              Canada as well as President of Golden Books Canada and Hardie Interactive,
              Dubuque, Iowa.
   44
  Mark
              Summerfield joined Corgi in October 2004 as Sales Director for Europe,
              Australia, Asia and Africa.
              Prior to joining Corgi, Mr. Summerfield spent thirteen years with the
              Newell
              Rubbermaid Group, serving
              the last seven years as Commercial and Sales Director for the Little
              Tikes
              division, responsible for
              all
              aspects of business in the U.K. and Ireland. Prior to Newell Rubbermaid,
              Mr.
              Summerfield worked at
              Hasbro
              from 1987 to 1992, where he developed the field sales business for
              the U.K.
              Prior to Hasbro, Mr.
              Summerfield worked at Mattel from 1983 to 1987, where he was responsible
              for
              developing sales distribution
              throughout the U.K. Before working in toy industry, Mr. Summerfield
              had a
              distinguished career
              in
              fashion retail and with Ben Sherman Shirt Company. He also played professional
              soccer for Leicester
              City Football Club. Mr. Summerfield was educated at Desford Collage,
              Leicester.
  Adrian
              Jones joined Corgi in October 1999 as Financial Controller and in May
              2004 was
              appointed Finance
              Director – Europe. Prior to joining Corgi, from 1993 to 1999, Mr. Jones worked
              for Speedo International
              Limited as Corporate Finance Manager, and 2 years at the Next Group
              PLC as
              Finance Manager.
              Mr. Jones earned a Bachelor of Science degree from the University of
              Nottingham
              in the U.K. and
              qualified as a Chartered Accountant with Grant Thornton in 1991.
  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 23
              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 Manufacturing as Vice President of Operation in 2003.
              A native of Hong
              Kong, Mr. Yim began his career in production 33 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 17 years experience
              in
              customer service and engineering
              of toys. Mr. Lee received a certificate of Mechanical Engineering from
              the Hong
              Kong Polytechnic
              University.
  **Compensation**
  ***Compensation
              of Directors and Executive Officers***
  For
              the
              year ended March 31, 2006, we paid an aggregate amount of compensation,
              including salary, bonus
              and
              other compensation, to our executive officers as a group equal to $2.2
              million.
              This figure includes
              no aggregate bonus payments because we did not pay bonuses to our executive
              officers in respect of
              fiscal
              2006 performance.
  Each
              non-employee director of the Company received a $30,000 fee for services
              as a
              Board member for
              the
              year ended March 31, 2006. Directors could elect to receive some or
              all of this
              fee in fully-vested options
              to purchase the Company’s ADSs with an exercise price equal to the then current
              market price. Such
              options were exercisable for that number of ADSs equal to the fee the
              director
              elected to receive in options
              divided by the per-share exercise 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, 2006. Effective
              September 26, 2005, the
              annual fee due to the non-executive chairman was increased from $30,000
              to
              $60,000 per year. During the
              year
              ended March 31, 2006, an aggregate of $100,000 was paid in to the non-employee
              directors as a group
              for
              board and committee service.
   45
  Directors
              who are employees of the Company do not receive any additional 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
              directors and executive officers.
  ***Certain
              Employment Contracts***
  Corgi
              U.K. entered into an employment agreement with George Volanakis on
              February 15,
              2004, which
              agreement was amended on September 26, 2005 and January 6, 2006. The
              employment
              agreement as
              amended provides that Mr. Volanakis will serve as the Chief Executive
              Officer of
              the Company. Upon termination
              of the employment agreement without cause, Mr. Volanakis is entitled
              to a
              severance payment equal
              to
              six months of his then current base salary. If the Company terminates
              Mr.
              Volanakis’s employment subsequent
              to an event in which the Company is sold, or a controlling interest
              of the
              outstanding shares of the
              Company is transferred to a third party (“Group Sale”), Mr. Volanakis shall be
              entitled to the greater of
              a
              severance payment equal to 12 months of his then current base salary
              or one
              percent of the transaction value.
              In
              addition, Mr. Volanakis shall receive a cash settlement equal to the
              product of
              200,000 and difference
              between than Company’s ADS price upon a Group Sale and the Company’s ADS price
              as at January
              1, 2006. In accordance with Mr. Volanakis’s employment agreement, the Company
              has agreed to issue
              35,000 American Depositary Shares; however, the Company’s directors have not yet
              received the required
              authority from the Company’s shareholders to issue these shares.
  The
              Company entered into an employment agreement with Ken Fowler on September
              25,
              2002, which
              agreement was amended on April 15, 2006. The employment agreement provides
              that
              Mr. Fowler will
              serve as the Chief Financial Officer of the Company and its consolidated
              subsidiaries. The employment agreement
              as amended has no fixed term and is terminable by three months’ notice from Mr.
              Fowler or twelve
              months’ notice from the Company.
  **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.
              We have 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
              our overall performance and oversees strategic planning. The Board
              also monitors
              our financial controls
              and reviews and ratifies the selection and compensation of senior executives.
              During the year ended
              March 31, 2006, the Board held 36 meetings. During the year ended March
              31,
              2006, each Board member
              attended 75% or more of the aggregate number of meetings of the Board
              held while
              he was a member
              of
              the Board. The Board has three standing committees: the Audit Committee,
              the
              Compensation Committee,
              and the Nominating and Corporate Governance Committee.
  The
              Audit
              Committee meets with our independent registered public accounting firm
              at least
              annually to
              review
              the results of the annual audit and discuss the financial statements;
              recommends
              to the Board the
              independent registered public accounting firm to be retained; oversees
              the
              independence of the independent
              registered public accounting firm; evaluates the independent registered
              public
              accounting firm’s
              performance; reviews our internal accounting procedures and reports
              to the Board
              with respect to other
              auditing and accounting matters, including the selection of our independent
              registered public accounting
              firm, the scope of annual audits, fees to be paid to our independent
              registered
              public accounting firm
              and
              the performance of our independent registered public accounting firm.
              The Audit
              Committee is currently
              composed of three members: Mr. Widdicombe, Mr. McGettigan and Mr. Clough.
              All
              members of
              the
              Audit Committee meet the independence and financial literacy requirements
              of the
              Nasdaq Stock Market
              (“Nasdaq”) and Mr. Widdicombe satisfies the applicable Nasdaq financial
              experience requirements.
   46
  In
              addition, the Board has determined that Mr. Widdicombe qualifies as
              an “audit
              committee financial expert”
              (as defined in the instructions to Item 16A of Form 20-F). The Audit
              Committee
              met eight times during
              the year ended March 31, 2006 and each member attended 75% or more
              of the
              aggregate number of
              meetings of the Audit Committee.
  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. Widdicombe and Mr. Clough. The Compensation Committee met
              once
              during the year ended
              March 31, 2006 and each member attended such meeting.
  The
              Nominating and Corporate 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 our management. The Nominating and Corporate
              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 Corporate Governance Committee is
              composed of three
              members: Mr. Koulos, Mr. Widdicombe and Mr. McGettigan. The Nominating
              and
              Corporate Governance
              Committee met once during the year ended March 31, 2006 and each member
              attended
              such meeting.
  **Employees**
  At
              March
              31, 2006, we employed 5,759 persons, of whom approximately 570 were
              administrative staff,
              32
              were sales and marketing staff, 421 were engineering and technical
              personnel,
              and the remainder were
              production staff. Employee information with respect to our business
              and
              geographical segments is presented
              below (in thousands):
  **Zindar****t**
                    **Manufacturin****g**
                  
                  **Corg****i**
                  
                  **Co****r****porat****e**
                  
                  **The********G****r****ou****p**PRC
                  
                  5,617
                  
                  -
                  
                  8
                  
                  5,625HongKong
                  
                  54
                  
                  4
                  
                  19
                  
                  77UnitedKingdom
                  
                  
                  -
                  
                  
                  40
                  
                  
                  -
                  
                  
                  40UnitedStatesofAmerica
                  
                  
                  -
                  
                  
                  16
                  
                  
                  1
                  
                  
                  175,671
                  
                  
                  60
                  
                  
                  28
                  
                  
                  5,759
   47
 
   **Sha** **r** **e** **** **Ownershi** **p**
  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 grants
                of
                stock options made during the year ended March 31, 2006 to the executive
                officers.
 **Nam****e**
                  
                  **Number
                      of**
                    **Options
                      Granted**
                  
                  **Exe****r****cise****Price********(1****)**
                  
                  **Expiration****Date********(1****)**DavidTurner
                  
                  
                  188,000
                  (2)
                  
                  
                  2.65
                  
                  
                  January6,2016DavidDavenport
                  
                  
                  144,000
                  (2)
                  
                  
                  2.65
                  
                  
                  January6,2016AdrianJones
                  
                  
                  95,000
                  (2)
                  
                  
                  2.65
                  
                  
                  January6,2016TrevorHayes
                  
                  
                  40,000
                  (2)
                  
                  
                  2.65
                  
                  
                  January6,2016
 
 (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
                      options vest with 25% of the ADSs subject to the options vesting
                      on
                      September 26, 2006, and the remaining
                      75% of the ADSs vesting in 36 equal monthly installments through
                      September
                      26, 2009.
 The
              following table sets forth, as of March 31, 2006, information concerning
              ADSs
              held by, and stock options granted to, the Company’s directors and executive
              officers.
 
 **ADS/Sha****r****e****Ownershi****p**
                  
                  **Options********Hel****d****Nam****e**
                  
                  **Number**
                  
                  **%
                      of outstanding**
                  
                  **Number**
                  
                  **Exe****r****cise****Price********($****)**
                  
                  **Expiration********Dat****e**LeoPaulKoulos
                  
                  
                  -
                  
                  
                  -
                  
                  
                  10,000
                  
                  
                  6.75
                  
                  
                  16-May-0710,000
                  
                  
                  6.75
                  
                  
                  15-Dec-0810,000
                  
                  
                  6.88
                  
                  
                  21-Jan-1019,481
                  
                  
                  1.54
                  
                  
                  4-Sep-1230,000
                  
                  
                  3.03
                  
                  
                  20-Jan-1325,000
                  
                  
                  5.02
                  
                  
                  14-Oct-14GeorgeVolanakis
                  
                  
                  -
                  
                  
                  -
                  
                  
                  100,000
                  
                  
                  5.50
                  
                  
                  29-Mar-14KenFowler
                  
                  
                  20,000
                  
                  
                  0.2
                  %
                  
                  75,000
                  
                  
                  1.51
                  
                  
                  25-Sep-12CynthiaChan
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -
                  
                  
                  -TrevorHayes
                  
                  
                  -
                  
                  
                  -
                  
                  
                  40,000
                  
                  
                  2.65
                  
                  
                  6-Jan-16DavidTurner
                  
                  
                  -
                  
                  
                  -
                  
                  
                  150,000
                  
                  
                  5.77
                  
                  
                  8-Jun-14188,000
                  
                  
                  2.65
                  
                  
                  6-Jan-16ChrisFranklin
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,000
                  
                  
                  1.56
                  
                  
                  11-Jan-1110,000
                  
                  
                  5.98
                  
                  
                  12-May-14DavidDavenport
                  
                  
                  -
                  
                  
                  -
                  
                  
                  50,000
                  
                  
                  5.10
                  
                  
                  6-Dec-14144,000
                  
                  
                  2.65
                  
                  
                  6-Jan-16MarkSummerfield
                  
                  
                  -
                  
                  
                  -
                  
                  
                  40,000
                  
                  
                  4.76
                  
                  
                  21-Jan-15AdrianJones
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,000
                  
                  
                  5.98
                  
                  
                  12-May-1495,000
                  
                  
                  2.65
                  
                  
                  6-Jan-16K.H.Li
                  
                  
                  -
                  
                  
                  -
                  
                  
                  5,000
                  
                  
                  6.75
                  
                  
                  15-Dec-085,000
                  
                  
                  6.88
                  
                  
                  21-Jan-107,500
                  
                  
                  1.56
                  
                  
                  11-Jan-11FrankiLee
                  
                  
                  -
                  
                  
                  -
                  
                  
                  15,000
                  
                  
                  4.87
                  
                  
                  19-Jun-13YimTo
                  
                  
                  -
                  
                  
                  -
                  
                  
                  15,000
                  
                  
                  6.82
                  
                  
                  12-Mar-14
   48
 
   **Item********7****.*****Major************Shareholders************and************Related************P******arty************T******ransaction******s***
  **Major** **** **Sha** **r** **eholder** **s**
  The
              following table sets forth beneficial ownership of the Company’s outstanding
              shares (in the form of
              American Depositary Shares) on June 29, 2006 by each person known by
              the Company
              to own beneficially
              more than 5% of the outstanding shares.
 **Name********of********Bene****f****icial********Owne****r**
                  
                  **Number********of********Sha****r****e****s**
                    **Bene****f****icially********Owne****d**
                  
                  **Per****centage********of********Sha****r****e****s**
                    **Outstanding********(%)********(1****)**Gruber&McBaineCapitalManagementLLCand
                    associatedentities(2)
                  
                  
                  3,524,020
                  
                  
                  30.2ChinaVestPartnersIVandassociatedentities(3)
                  
                  
                  1,839,384
                  
                  
                  18.1WSCapitalLLC,etal.(4)
                  
                  
                  1,577,800
                  
                  
                  14.1HeartlandAdvisors,Inc.(5)
                  
                  
                  1025,800
                  
                  
                  10.1HeartlandGroup,Inc.(6)
                  
                  
                  563,000
                  
                  
                  5.5
  (1)
                    Based
                        on 10,176,943 Shares outstanding on June 29,
                        2006.  (2)
                    Based
                        on the Quarterly Report on Form 13F for the quarter ended
                        March 31, 2006,
                        filed on May 9, 2006 by Gruber & McBaine Capital Management LLC
                        (“GMCM”). The address for GMCM is 50 Osgood Place, Penthouse, San
                        Francisco, California 94133. The number of Shares beneficially
                        owned
                        includes 2,024,020 Shares currently outstanding and 1,500,000
                        shares
                        assuming conversion of $3,000,000 of convertible notes at
                        $2.00 per share.
                        In the calculation of the percentage of Shares outstanding,
                        total Shares
                        outstanding includes 10,176,943 Shares outstanding on June
                        29, 2006 and
                        1,500,000 Shares assuming conversion of $3,000,000 of convertible
                        notes at
                        $2.00 per share.  (3)
                    Based
                        on SEC Form 5 filed on May 2, 2005, ChinaVest Partners IV
                        is the general
                        partner ofChinaVest
                        IV, L.P., the beneficial owner of 1,839,384 American Depositary
                        Shares of
                        the Group(“Shares”).
                        ChinaVest IV, L.P. is one of three affiliated venture capital
                        Funds.
                        ChinaVest PartnersIV
                        is also the general partner of one such other Fund, ChinaVest
                        IV-A, L.P.,
                        a Delaware limitedpartnership.
                        An affiliate of ChinaVest Partners IV, ChinaVest Management
                        Limited, a
                        Bermudacorporation,
                        is the general partner of the third venture Fund, ChinaVest
                        IV-B, L.P., a
                        Bermudalimited
                        partnership. ChinaVest IV-A, L.P. disposed of all of its
                        Shares by
                        distribution to its limitedpartners
                        on December 17, 2004, as timely reported on Form 4. ChinaVest
                        Partners IV
                        has thepower
                        to vote and dispose of the Shares legally and beneficially
                        owned by
                        ChinaVest IV, L.P.ChinaVest
                        IV, L.P. has ownership of 1,755,104 Shares of its outstanding
                        securities.
                        ChinaVestIV-B,
                        L.P. owns 84,280 Shares of our outstanding securities. However,
                        because
                        ChinaVestPartners
                        IV is the general partner of each of ChinaVest IV, L.P. and
                        ChinaVest
                        IV-A, L.P., andbecause
                        an affiliate of ChinaVest Partners IV is the general partner
                        of ChinaVest
                        IV-B, L.P., theShares
                        legally owned by ChinaVest IV-B, L.P. are reported as being
                        beneficially
                        owned byChinaVest
                        Partners IV and ChinaVest IV, L.P..  (4)
                    Based
                        on the Amendment to Statement of Beneficial Ownership on
                        Form 13G/A, filed
                        on May 4, 2006
                        by WS Capital LLC, et al. (“Walker Smith”). The address for Walker Smith
                        is 300 CrescentCourt,
                        Suite 1111, Dallas, Texas 75201. The Number of Shares Beneficially
                        Owned
                        includes 577,800shares
                        currently outstanding and 1,000,000 shares assuming conversion
                        of
                        $2,000,000 of convertiblenotes
                        at $2.00 per share. In the calculation of the Percentage
                        of Shares
                        Outstanding, total sharesoutstanding
                        includes 10,176,943 shares outstanding on June 29, 2006 and
                        1,000,000
                        sharesassuming
                        conversion of $2,000,000 of convertible notes at $2.00 per
                        share.
 49
   (5)
                    Based
                        on the Quarterly Report on Form 13F for the quarter ended
                        March 31, 2006,
                        filed on May15,
                        2006 by Heartland Advisors, Inc. The address of Heartland
                        Advisors, Inc.
                        is 789 North WaterStreet,
                        Milwaukee, Wisconsin 53202.  (6)
                    Based
                        on the Quarterly Schedule of Portfolio Holdings of Registered
                        Management
                        InvestmentCompany
                        on Form N-Q for the quarter ended March 31, 2006, filed on
                        May 22, 2006 by
                        HeartlandGroup,
                        Inc. The address of Heartland Group, Inc. is 789 North Water
                        Street,
                        Milwaukee, Wisconsin53202.
  The
              Company’s major shareholders do not have voting rights that are different from
              other shareholders. Of
              the
              10,176,943 shares outstanding at March 31, 2006, all were held in the
              form of
              ADSs, which are traded
              on
              the Nasdaq National Market under the symbol “CRGI.” At March 31, 2006, GMCM
              beneficially owned
              19.9% of the Company’s outstanding stock, and accordingly, may be viewed as
              having a significant 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**
  On
              April
              12, 2006, we executed an agreement with McGettigan, Wick & Co. to provide
              the Company with
              advisory services in respect to mergers and acquisitions activity.
              The agreement
              specifies fees equal to
              one
              percent of the transaction value upon closing of any merger or acquisition
              on
              which McGettigan, Wick
              & Co. advises the Company. On April 27, 2006, Mr. Charles Carroll
              McGettigan, a partner in McGettigan,
              Wick & Co., was appointed to the Company’s board of directors.
  As
              noted
              above under Liquidity and Capital Resources, on April 28, 2006, we
              issued a
              private placement
              of convertible subordinated notes and warrants, with gross proceeds
              to the Group
              of $5.65 million,
              with certain institutional and individual accredited investors. Mr.
              George
              Volanakis, CEO of the Company,
              purchased $100,000 of the notes. Mr. Charles Carroll McGettigan purchased
              $50,000 of the notes.
  On
              September 26, 2005, we executed an Executive Employment Agreement Amendment
              with
              Mr. George
              Volanakis. The material amendments therein included establishment of
              Mr.
              Volanakis’s position as CEO
              of
              the Group, an agreement by the Company to grant Mr. Volanakis 200,000
              stock
              options and
              revision of Mr. Volanakis’s termination benefits, specifically those related to
              a change of control of the
              Group. The share options have not been granted and on January 6, 2006,
              an
              additional Executive
              Employment Agreement Amendment was executed with Mr. George Volanakis,
              the
              primary purpose
              of which was to cancel the share options noted and further revise termination
              benefits related to a
              change
              of control of the Group, by paying a cash settlement upon
              termination.
  On
              April
              15, 2006, we executed an Employment Agreement Amendment with Mr. Kenneth
              B.
              Fowler. The
              primary purpose of the amendment was to revise the notice period that
              the
              Company is required to provide
              to Mr. Fowler upon termination of his employment.
  On
              December 6, 2005, we executed a revised Offer Letter to Mr. David Turner.
              The
              primary purpose of
              the
              revised letter was to revise the notice period that Corgi is required
              to provide
              to Mr. Turner upon te rmination
              of his employment.
  On
              November 15, 2005, we executed a revised Offer Letter to Mr. David
              Davenport.
              The primary purpose
              of the revised letter was to revise the severance terms effective upon
              Corgi
              USA’s termination of Mr.
              Davenport’s employment.
   50
   **Item********8****.*****F******inancial************In******f******ormatio******n***
  **Consolidated** **** **Statements** **** **and** **** **Other** **** **Financial** **** **In** **f** **ormatio** **n**
  See  Item  18  of  thi s Annual  Report,  the  contents  of  which  are  incorporated  herein  by  reference .
  **Legal** **** **P** **r** **oceeding** **s**
 
 We
              are
              involved in various legal proceedings arising out of our operations
              in the
              ordinary course of business.
              We do not believe that such proceedings, even if determined adversely,
              will have
              a material adverse
              effect on our business, financial condition, or results of
              operations.
  **D** **i** **vidend** **** **P** **olic** **y**
 While
              we
              may pay dividends in the future, we currently intend to retain substantially
              all
              of our earnings
              for expansion of our operations in accordance with our business strategy.
              We did
              not declare a cash
              dividend or other dividend during the year ended March 31, 2006. In
              accordance
              with the terms of the
              convertible notes issued in April 2006, we are not allowed to declare
              dividends
              while the notes are outstanding.
  **Recent** **** **D** **e** **velopment** **s**
 
 As
              disclosed in our Report of Foreign Private Issuer on Form 6-K filed
              on May 23,
              2006, on April 28, 2006,
              we
              issued a private placement of convertible subordinated notes and warrants,
              with
              gross proceeds to
              the
              Group of $5.65 million, with certain institutional and individual accredited
              investors. The notes, in original
              principal amount of $5.65 million, mature in October 2008 and will
              be
              exchangeable at the option
              of
              the holders into the Company’s American Depositary Shares at a conversion price
              of $2.00 per share.
              The warrants (the “Warrants”) are exercisable for up to 988,750 of the Company’s American
              Depositary Shares for an exercise price of $0.07 per share if certain
              conditions
              are not met. We
              held
              an extraordinary general meeting for the purpose of shareholders’ approval of
              the underlying said
              American Depositary Shares on June 26, 2006. We have agreed to register
              for
              resale the American
              Depositary Shares issuable upon exchange of the notes and upon exercise
              of the
              warrants.
  The
              notes
              bore interest at a rate of 11.0% per annum until shareholder approval
              was
              obtained on June 26,
              2006,
              and bear a rate of 7.5% per annum thereafter. The warrants are exercisable
              if
              the Company fails to
              enter
              into a definitive agreement for a change of control transaction by
              June 27, 2006
              or (b) if the Company
              enters into a definitive agreement for a change of control transaction
              by such
              date, the Company fails
              to
              consummate such transaction by October 25, 2006. If a registration
              statement
              covering the notes is not
              filed
              with the SEC on or prior to a specified filing deadline date, the Company
              will
              issue additional warrants
              pro rata to each note purchaser (the “Additional Warrants”), as liquidated
              damages and not as a penalty,
              in an amount equal to 50,000 ADSs (as adjusted for stock splits, combinations,
              reclassifications and
              the
              like) for each 30-day period or pro rata for any portion thereof following
              the
              filing deadline date for
              which
              no registration statement is filed. A waiver has been executed by all
              of the
              note holder amending certain
              of the above terms as follows:
  •
                    the
                        Warrants are exercisable if the Company fails to enter into
                        a definitive
                        agreement for achange
                        of control transaction by August 31, 2006 or (b) if the Company
                        enters
                        into adefinitive
                        agreement for a change of control transaction by such date,
                        such agreement
                        isterminated
                        prior to consummation of such change of control
                        transaction,  •
                    all of the notes will
                        automatically
                        convert into the Company’s American DepositaryShares
                        immediately prior to closing of such change of control
                        transaction,
   51
  •
                      rights
                          to exercise the Additional Warrants are
                          waived,
 •
                    additional
                        time is granted with respect to the filing of the related
                        registration
                        statement withthe
                        SEC, and
 •
                    the
                        conversion price will be reduced if a private placement of
                        the Company’s
                        American Depositary
                        Shares prior to the change of control transaction is completed
                        at a price
                        less than$2.00
                        per share.
  **Item
              9.*****The
              Offer and Listing***
  **Historical
              Share Price Information**
  The
              annual high and low market prices, respectively, for the Company’s American
              Depositary Shares for
              the
              fiscal year ended March 31, 2006 were $4.86 and $2.60, for the year
              ended March
              31, 2005 were $6.82
              and
              $3.92; for the year ended March 31, 2004 were $10.30 and $3.50; for
              the year
              ended March 31, 2003
              were
              $4.09 and $1.00; and for the year ended March 31, 2002 were $3.42 and
              $1.06.
              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, 2006 and
              2005.
 **Hig****h**
                  
                  **Low**YearendedMarch31,2006FirstQuarter
                  
                  $
                  4.54
                  
                  $
                  3.52SecondQuarter
                  
                  $
                  4.86
                  
                  $
                  3.13ThirdQuarter
                  
                  $
                  3.40
                  
                  $
                  2.65FourthQuarter
                  
                  $
                  3.50
                  
                  $
                  2.60YearendedMarch31,2005FirstQuarter
                  
                  $
                  6.82
                  
                  $
                  4.61SecondQuarter
                  
                  $
                  5.75
                  
                  $
                  4.01ThirdQuarter
                  
                  $
                  6.09
                  
                  $
                  4.50FourthQuarter
                  
                  $
                  5.24
                  
                  $
                  3.92
  The
              monthly high and low market prices, respectively, for the most recent
              six months
              for the year ended
              March 31, 2006 were $2.90 and $2.60 in March 2006, $3.50 and $2.62
              in February
              2006, $2.85 and $2.65
              in
              January 2006, $3.00 and $2.65 in December 2005; $3.39 and $3.00 in
              November 2005
              and $3.40 and
              $3.07
              in October 2005. The market prices on April 28 (the date we issued
              our
              convertible notes) and August
              22, 2006 were $2.54 and $1.84 respectively.
  **Markets**
  The
              Company’s ADSs have been listed on the Nasdaq Global Market since February
              1997.
              The ADSs are
              traded on the Nasdaq Global Market under the symbol “CRGI.”
   52
 
   **Item********10****.*****Additional************In******f******ormatio******n***
  **Memorandum** **** **an** **d** **** **Articles** **** **o** **f** **** **Associatio** **n**
 
 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.
  Nasdaq
              rules require any foreign issuer that follows home country practice
              in lieu of
              any qualitative listing
              requirement to disclose in its annual reports filed with the Securities
              and
              Exchange Commission that
              it
              does not follow such qualitative listing requirement and to describe
              the home
              country practice followed
              by the issuer in lieu of such requirement. In February 1997, the Company
              was
              granted an exemption
              from the minimum quorum requirement for meetings of the holders of
              the Company’s
              Ordinary Shares.
              Under the Company’s Articles of Association, the requirement for a quorum at
              shareholder meetings is
              the
              presence of at least two shareholders in person or by proxy. The Hong
              Kong
              Companies Ordinance, Section
              114AA (Cap. 32), provides that if a company has only one member, one
              member
              present in person
              or
              by proxy shall be a quorum of a meeting of the company.
  **Material
              Contracts**
  As
              of the
              date of this Annual Report, we are party to the following material
              contracts, copies
              enclosed in this Annual Report as exhibits:
  Employment
              Agreement, by and between Corgi International Limited and George Volanakis,
              dated February
              8, 2004.
  Executive
              Employment Agreement Amendment, by and between Corgi International
              Limited and George
              Volanakis, dated September 26, 2005.
  Executive
              Employment Agreement Amendment, by and between Corgi International
              Limited and George
              Volanakis, dated January 6, 2006.
  Employment
              Agreement, by and between Corgi International Limited and Kenneth B.
              Fowler,
              dated September
              25, 2002.
  Employment
              Agreement Amendment, by and between Corgi International Limited and
              Kenneth B. Fowler,
              dated April 15, 2006.
  Offer
              Letter, by and between Corgi USA, Inc. and David Davenport, dated November
              15,
              2005.
  Offer
              Letter, by and between Corgi Classics Ltd. and David Turner, dated
              December 6,
              2005.
  Note
              and
              Warrant Purchase Agreement, by and among Corgi International Limited
              and
              purchasers named
              therein, and the promissory notes and warrants issued thereunder, and
              all
              transactions contemplated thereunder,
              dated April 28, 2006.
  Receivables
              Finance Agreement, by and between Corgi Classics Ltd. and Coface Receivables
              Finance Limited,
              dated June 26, 2006.
   53
   **Exchange** **** **Cont** **r** **ol** **s**
  The
              Company was incorporated in Hong Kong as a limited company under the
              Hong Kong
              Companies Ordinance
              in July 1977. The Company is 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.
  Our
                shareholders rights and liabilities 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 our 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 “United Kingdom
              Taxation” generally
              summarizes the material United Kingdom taxes applicable to our 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 under state or local law or the laws of countries other
              than Hong
              Kong, the U.S. 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.
   54
   ***Hong*** ****** ***K*** ***ong*** ****** ***T*** ***axatio*** ***n***
  The  foll o wing  discussion  summarizes  the  ta x es  applicable  to  the  Group  and  our  shareholders  unde r Hong  K ong  l a w :
  *P* *r* *o* *f* *its* *T* *ax*
 
 We
              are
              subject to profits tax on profits (excluding capital profits) arising
              in or
              derived from the business
              we carry 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.
   55
   ***United*** ****** ***States*** ****** ***F*** ***ederal*** ****** ***Income*** ****** ***T*** ***ax*** ****** ***Consideration*** ***s***
 
 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
              our 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 allsubstantial
                        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 sotreated.
  We
              will
              be treated as a “passive foreign investment company” (a “PFIC”) for United
              States federal
              income tax purposes if 75% or more of our gross income consists of
              certain types
              of “passive” income
              or 50%
              or
              more of our assets are passive. Based on our current and projected
              income,
              assets, and activities, we
              presently do not believe that we are a PFIC. This is, however, a factual
              determination that is made on an
              annual
              basis.
  In
              addition, we 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 our equity.
              A “10%
              U.S. Holder”
              is a U.S. Holder who owns 10% or more of the voting power of our 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 we presently
              do 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 our control such as the identity
              of our
              shareholders, and in the
              case
              of our shareholders treated as pass-through entities for United States
              federal
              income tax purposes, the
              identity of the owners of such entities. Accordingly, we cannot assure
              U.S.
              Holders that we are not or will
              not
              become a CFC.
   56
  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.
  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 our 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
              our 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.
   57
  *PFIC
              Considerations*
  If
              we
              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 advisor regarding the potential tax consequences to
              it if we are
              or become 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
              we
              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 we pay 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%. Our production entity 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). 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.
  *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.
   58
 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 our investment
              in the
              U.K. under U.K.  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.
  **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 Global 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.
   59
  **Voting
              requirements**
  The
              Company is subject to the provisions of the Hong Kong Companies Ordinance,
              including its shareholder
              vote requirements. The shareholder vote requirements in the Hong Kong
              Companies
              Ordinance are
              generally more restrictive than the laws of most states of the United
              States and
              the shareholder vote listing
              requirements for the Nasdaq Stock Market. For example, the Hong Kong
              Companies
              Ordinance generally
              prohibits a Hong Kong corporation from issuing additional shares of
              its capital
              stock without the
              approval of its shareholders (unless the issue is pro rata to its existing
              shareholders), unless the shareholders
              of the corporation approve at its annual general meeting a resolution
              permitting
              the corporation’s
              board of directors to issue authorized but unissued shares of that
              corporation
              at such time and
              in
              such a manner as the board of directors of the corporation may, in
              its
              discretion, deem fit, in which case
              such
              general authorization automatically lapses at the corporation’s next annual
              general meeting. As permitted
              by Rule 4350(a)(1) of the Nasdaq Marketplace Rules, the Company has
              elected to
              follow the shareholder
              vote requirements of the Hong Kong Companies Ordinance in lieu of the
              shareholder vote requirements
              contained in Rule 4350(j) of the Nasdaq Marketplace Rules.
  **Item
              11.*****Quantitative
              and Qualitative Disclosures About Market Risk***
  **Interest
              Rate Risk**
  We
              had
              $10.8 million in variable rate debt outstanding at March 31, 2006.
              We do not
              currently hedge our
              interest rate exposure. Based on our current level of variable rate
              debt, we
              believe that our 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, our 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 hat
              we
              introduce to the market.
  **Foreign
              Currency Exchange Rate Risk**
  We
              are
              exposed to risk from changing foreign currency exchange rates. Our
              sales are
              denominated p rimarily
              in U.S. dollars, followed by GBP, HK dollars and Euros. Our expenses
              are
              denominated in U.S. dollars
              followed by HK dollars, RMB, GBP and Euros. We are subject to a variety
              of risks
              associated with changes
              in foreign currencies. For the years ended March 31, 2005 and 2004,
              we have
              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
              our expenses and therefore would have a material adverse effect on
              our business,
              financial condition
              and results of operations. We had no derivative financial instruments
              as of
              March 31, 2006.
  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 we are not aware of any intention
              of the Hong
              Kong government to
              abandon the link. On July 21, 2005, the People’s Bank of China announced the end
              of the RMB peg to the
              U.S.
              dollar. The bank increased the value of the RMB to 8.11 to one U.S.
              dollar – a
              2.1% increase in its
              value
– and decreed that henceforth the RMB would trade within a narrow band
              of 0.3%
              each day
              against a basket of currencies. Eliminating the dollar peg is seen
              by some
              economists as a first step
              toward a free-floating, and stronger, RMB. Uncertainty exists as to
              whether the
              PRC’s new currency
              policy will support further appreciation of the RMB. We source most
              of our
              finished products in the
              PRC.
              The appreciation of RMB will increase our product costs and may reduce
              our
              sales, especially to U.S.
              and
              European distributors and retailers.
   60
  **PART
              II**
  **Item
              13.*****Defaults,
              Dividend Arrearages and Delinquencies***
  **Breaches
              of Undertakings**
  For
              the
              year ended March 31, 2006, we have breached certain financial undertakings
              in
              respect to bank
              facilities provided by HSBC and KBC Bank N.V. (“KBC”). Specifically with regard
              to HSBC, we have
              not
              met minimum financial ratios related to consolidated tangible net worth,
              consolidated net borrowings
              to consolidated tangible net worth, current assets to current liabilities,
              interest coverage, and consolidated
              profits before interest and tax. Specifically with regard to KBC, we
              have not
              met the minimum financial
              ratio related to consolidated tangible net worth. Neither HSBC nor
              KBC have
              notified us that we are
              in a
              state of default, and we have continued to maintain banking relationships
              with
              each of these financial
              institutions.
  **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, 2005,
              our Executive Chairman
              and our Chief Financial Officer concluded that our disclosure controls
              and
              procedures were effective
              as of that date.
  We
              believe 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.
              Our 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.
  In
              January 2005, we began implementation of a detailed plan to achieve
              compliance
              with the Sarbanes- Oxley
              (“SOX”) Act’s – Section 404 requirements. We engaged Ernst & Young as a
              consultant for the SOX Section
              404 implementation project, and a Corgi SOX Steering Committee and
              related
              Project Management Office
              were formed. During the first quarter of calendar year 2005, we completed
              SOX
              training and performed
              a gap analysis of the existing internal controls versus the requirements
              stipulated in SOX Section
              404 for all business segments. In the second quarter of calendar year
              2005, we
              commenced review of
              internal control documentation within our Hong Kong and U.S. operations.
              We have
              postponed implementation
              of certain elements of the review effort while focusing on efforts
              related to
              mergers, acquisitions
              and dispositions; nevertheless, management has assessed that according
              to the
              current project progress,
              we should be able to meet the SOX Section 404 compliance deadline of
              March 31,
              2008.
  In
              early
              August 2006, the SEC announced further revisions to SOX Section 404
              implementation deadlines
              for non-accelerated filers such as Corgi. While the announcement extends
              the
              time before a
              report
              of independent registered public accounting firm will be required on
              our
              internal controls over
              financial reporting, it does not extend the time within which our management
              is
              required to report on
              the
              effectiveness of our internal controls over financial reporting. Therefore,
              based on this recent announcement,
              we do not anticipate any changes in our SOX Section 404 implementation
              plan.
   61
  **Changes
                in Internal Controls**
  There
                were no significant changes in our internal control over financial
                reporting
                during the period covered
                by this Annual Report that have materially affected, or are reasonably
                likely to
                materially affect, our
                internal control over financial reporting. We have refined, and intend
                to
                continue to refine, our internal
                controls on an ongoing basis with a view towards continuous
                improvements.
  **Item
                16A.*****Audit
                Committee Financial Expert***
  The
                Board
                has determined that Mr. Widdicombe qualifies as an “audit committee financial
                expert” (as
                defined in Part (b) of Item 16A of Form 20-F) serving on the Audit
                Committee.
  **Item
                16B.*****Code
                of Ethics***
  We
                have
                developed a Code of Conduct and Ethics Policy that applies to our
                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
                our Code of Conduct
                and Ethics Policy is available in the corporate gove rnance section
                of our
                website at www.corgi-international.com.
  **Item
                16C.*****Principal
                Accountant Fees and Services***
  **Year
                            ended**
                          **March
                            31,**
                          **(in
                            thousands)****2006**
                        
                        **2005**Audit
                            fees billed (1)
                        
                        $
                        462
                        
                        $
                        463Tax
                            fees billed (2)
                        
                        
                        34
                        
                        
                        48All
                            other fees billed (3)
                        
                        
                        –
                        
                        
                        75Total
                        
                        $
                        496
                        
                        $
                        586
  (1)
                      These
                          are fees for professional services performed by KPMG for
                          the audit of our
                          annualfinancialstatements
                          and services that are normally provided in connection with
                          statutory andregulatory
                          filings.  (2)
                      These are fees
                        for professional
                        services performed by KPMG with respect to tax compliance
and
                        tax advice.  (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 registered public accounting firm and
                associated
                fees prior to the engagement
                of the independent registered public accounting firm with respect
                to such
                services. The Audit Committee
                approved all of the audit and non-audit services relating to the
                fees listed
                above for the fiscal years
                ended March 31, 2006 and 2005.
   62
  **P** **A** **R** **T** **** **II** **I**
  **Item** **** **18** **.** ***F******inancial************Statement******s***
  **INDE** **X** **** **TO** **** **FI** **N** **ANCIAL** **** **S** **T** **A** **TEMENT** **S**
   **Page**ReportofIndependentRegisteredPublicAccountingFirm
                          64ConsolidatedBalanceSheets
                          65ConsolidatedStatementsofOperationsandComprehensiveLoss
                          66ConsolidatedStatementsofStockholders’Equity
                          67ConsolidatedStatementsofCashFlows
                          68NotestoConsolidatedFinancialStatements
                          69
 
   
 63
   **REPO** **R** **T** **** **OF** **** **INDEPENDENT** **** **REGISTERED** **** **PUBLI** **C** **** **A** **CCOUNTING** **** **FIR** **M**
  The  Board  of  Directors  and  Stockholder s
 Co r gi  International  Limited :
  Wehaveaudited
                    the accompanying
                    consolidated balance sheets of Corgi
                    International Limited (formerly
                    known
                    as “Zindart Limited”) and subsidiaries as of March 31, 2006 and 2005, and
                    the related consolidated statements of operations and comprehensive
                    loss,
                    stockholders’ equity, and cash flows for each of the years in the three-year
                    period ended March 31, 2006. These consolidated financial statements
                    are the
                    responsibility of the Company’s management. Our responsibility is to express an
                    opinion on these consolidated financial statements based on our
                    audits.
  We
                    conducted our audits in accordance with the standards of the
                    Public Company
                    Accounting Oversight Board (United States). Those standards require
                    that we plan
                    and perform the audit to obtain reasonable assurance about whether
                    the financial
                    statements are free of material misstatement. An audit includes
                    examining, on a
                    test basis, evidence supporting the amounts and disclosures in
                    the financial
                    statements. An audit also includes assessing the accounting principles
                    used and
                    significant estimates made by management, as well as evaluating
                    the overall
                    financial statement presentation. We believe that our audits
                    provide a
                    reasonable basis for our opinion.
  In
                    our
                    opinion, the consolidated financial statements referred to above
                    present fairly,
                    in all material respects, the financial position of Corgi International
                    Limited and subsidiaries as of March 31, 2006 and 2005, and the results
                    of
                    their operations and their cash flows for each of the years in
                    the three-year
                    period ended March 31, 2006, in conformity with U.S. generally
                    accepted
                    accounting principles.
  The
                    accompanying consolidated financial statements have been prepared
                    assuming that
                    the Company will continue as a going concern. As discussed in
                    Note 1 to the
                    consolidated financial statements, the Company has suffered recurring
                    losses
                    from operations and has net current liabilities that raise substantial
                    doubt
                    about its ability to continue as a going concern. Management’s plans in regard
                    to these matters are also described in Note 1. The financial
                    statements do not
                    include any adjustments that might result from the outcome of
                    this uncertainty.
  /s/
                  KPM G
 August  22,  2006  Hong  K on g
  
 64
   **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Consolidated** **** **Balance** **** **Sheet** **s**
 **Ma** **r** **ch** **** **31,** **** **2006** **** **and** **** **200** **5**
 **(US** **** **dollars** **** **in** **** **thousands,** **** **except** **** **sha** **r** **e** **** **data** **)**
 
 Note
                        
                        2006
                        
                        2005**ASSETS**Currentassets:Cash
                            and cash equivalents
                        
                        
                        
                        
                        $
                        820
                        
                        $
                        7,012Available-for-sale
                            investments
                        
                        
                        
                        
                        
                        -
                        
                        
                        25Trade
                            accounts receivable, net
                        
                        3
                        
                        
                        
                        10,061
                        
                        
                        6,579Inventories
                        
                        4
                        
                        
                        
                        10,272
                        
                        
                        6,864Prepaid
                            expenses and other current
                            assets
                        
                        
                        
                        
                        
                        3,852
                        
                        
                        3,341Income
                            taxes receivable
                        
                        11
                        
                        
                        
                        688
                        
                        
                        201Deferred
                            tax assets
                        
                        11
                        
                        
                        
                        -
                        
                        
                        260Assets
                            of discontinued operations
                        
                        2
                        
                        
                        
                        -
                        
                        
                        29,243Total
                            current assets
                        
                        
                        
                        
                        
                        25,693
                        
                        
                        53,525Property,
                          plant, and equipment, net
                        
                        5
                        
                        
                        
                        16,457
                        
                        
                        7,933Land
                          use rights, net
                        
                        6
                        
                        
                        
                        935
                        
                        
                        -Deferred
                          tax assets
                        
                        11
                        
                        
                        
                        -
                        
                        
                        1,874Goodwill
                        
                        7
                        
                        
                        
                        16,944
                        
                        
                        35,312Total
                            assets
                        
                        
                        
                        
                        $
                        60,029
                        
                        $
                        98,644****
                        ****
                        ****
                        ****
                        ****
                        ****
                        ****
                        ****
                        ****
                        ******LIABILITIES
                            AND STOCKHOLDERS’
                            EQUITY**Current
                          liabilities:Short-term
                            debt
                        
                        8
                        
                        
                        $
                        10,777
                        
                        $
                        3,876Current
                            installments of obligations under capital
                            leases
                        
                        9
                        
                        
                        
                        635
                        
                        
                        -Trade
                            accounts payable
                        
                        
                        
                        
                        
                        11,230
                        
                        
                        4,450Receipts
                            in advance
                        
                        
                        
                        
                        
                        1,298
                        
                        
                        464Accrued
                            expenses
                        
                        10
                        
                        
                        
                        8,016
                        
                        
                        2,800Income
                            taxes payable
                        
                        11
                        
                        
                        
                        367
                        
                        
                        -Liabilities
                            of discontinued
                            operations
                        
                        2
                        
                        
                        
                        -
                        
                        
                        23,073Total
                            current liabilities
                        
                        
                        
                        
                        
                        32,323
                        
                        
                        34,663Obligations
                          under capital leases, excluding
                          current installments
                        
                        9
                        
                        
                        
                        219
                        
                        
                        -Deferred
                          tax liabilities
                        
                        11
                        
                        
                        
                        -
                        
                        
                        235Total
                            liabilities
                        
                        
                        
                        
                        
                        32,542
                        
                        
                        34,898Minority
                          interests
                        
                        
                        
                        
                        
                        -
                        
                        
                        693Stockholders’
equity:Common
                            stock, $0.0646 (equivalent of HK$0.50) par value;
                          authorized
                            15,000,000 shares; issued and outstanding
                          10,176,943
                            shares in 2006 and 9,636,943 shares in 2005
                        
                        
                        
                        
                        
                        657
                        
                        
                        623Additional
                            paid-in capital
                        
                        
                        
                        
                        
                        41,506
                        
                        
                        40,229(Accumulated
                            deficit) retained
                            earnings
                        
                        
                        
                        
                        
                        (15,765
                        )
                        
                        19,590Accumulated
                            other comprehensive
                            income
                        
                        
                        
                        
                        
                        1,089
                        
                        
                        2,611Total
                            stockholders’ equity
                        
                        
                        
                        
                        
                        27,487
                        
                        
                        63,053Total
                            liabilities and stockholders’
                            equity
                        
                        
                        
                        
                        $
                        60,029
                        
                        $
                        98,644
   See  accompa n ying  notes  to  consolidated  f inancial  statement s
  65
  **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Consolidated** **** **Statements** **** **of** **** **Operations** **** **and** **** **Comp** **r** **ehens** **i** **ve** **** **Los** **s**
 **Y** **ears** **** **ended** **** **Ma** **r** **ch** **** **31,** **** **2006,** **** **2005** **** **and** **** **200** **4**
 **(US** **** **dollars** **** **in** **** **thousands,** **** **except** **** **sha** **r** **e** **** **data** **)**
  Note
                          
                          2006
                          
                          2005
                          
                          2004Net
                            sales
                          
                          
                          
                          
                          $
                          76,394
                          
                          $
                          92,740
                          
                          $
                          95,819Cost
                            of goods sold
                          
                          
                          
                          
                          
                          (61,338
                          )
                          
                          (69,160
                          )
                          
                          (65,300
                          )Gross
                              profit
                          
                          
                          
                          
                          
                          15,056
                          
                          
                          23,580
                          
                          
                          30,519Selling,
                            general, and administrative expenses
                          
                          
                          
                          
                          
                          (27,905
                          )
                          
                          (30,965
                          )
                          
                          (32,531
                          )Impairment
                            loss on goodwill
                          
                          
                          
                          
                          
                          (18,782
                          )
                          
                          -
                          
                          
                          -Impairment
                            loss on long-lived assets
                          
                          
                          
                          
                          
                          (1,439
                          )
                          
                          -
                          
                          
                          -Operating
                              loss
                          
                          
                          
                          
                          
                          (33,070
                          )
                          
                          (7,385
                          )
                          
                          (2,012
                          )Other
                            (expense) income:Interest
                              income
                          
                          
                          
                          
                          
                          85
                          
                          
                          138
                          
                          
                          39Interest
                              expense
                          
                          
                          
                          
                          
                          (1,038
                          )
                          
                          (1,204
                          )
                          
                          (905
                          )Other
                              income (loss)
                          
                          
                          
                          
                          
                          446
                          
                          
                          104
                          
                          
                          (130
                          )Loss
                              before income taxes and minority interests
                          
                          
                          
                          
                          
                          (33,577
                          )
                          
                          (8,347
                          )
                          
                          (3,008
                          )Income
                            tax (expense) benefit
                          
                          11
                          
                          
                          
                          (1,907
                          )
                          
                          612
                          
                          
                          (121
                          )Loss
                              before minority interests
                          
                          
                          
                          
                          
                          (35,484
                          )
                          
                          (7,735
                          )
                          
                          (3,129
                          )Minority
                            interests
                          
                          
                          
                          
                          
                          31
                          
                          
                          (138
                          )
                          
                          (298
                          )Loss
                              from continuing operations
                          
                          
                          
                          
                          
                          (35,453
                          )
                          
                          (7,873
                          )
                          
                          (3,427
                          )Income
                              (loss) from discontinued operations, net of tax
                            (including
                              gain on disposal of $984 in 2005)
                          
                          2
                          
                          
                          
                          -
                          
                          
                          352
                          
                          
                          (1,882
                          )Loss
                              before extraordinary items
                          
                          
                          
                          
                          
                          (35,453
                          )
                          
                          (7,521
                          )
                          
                          (5,309
                          )Extraordinary
                            gain, net of nil tax
                          
                          12
                          
                          
                          
                          98
                          
                          
                          418
                          
                          
                          -Net
                              loss
                          
                          
                          
                          
                          $
                          (35,355
                          )
                          $
                          (7,103
                          )
                          $
                          (5,309
                          )Other
                            comprehensive loss, net of tax:Foreign
                              currency translation adjustments
                          
                          
                          
                          
                          
                          (1,550
                          )
                          
                          324
                          
                          
                          2,948Unrealized
                              loss on available-for-sale investments
                          
                          
                          
                          
                          
                          -
                          
                          
                          (38
                          )
                          
                          -Reclassification
                              adjustment for realized loss on
                            available-for-sale
                              investments included in net loss
                          
                          
                          
                          
                          
                          38
                          
                          
                          -
                          
                          
                          -Reclassification
                              adjustment for derivatives instruments
                            included
                              in net loss
                          
                          
                          
                          
                          
                          (10
                          )
                          
                          398
                          
                          
                          -Net
                              unrealized gain (loss) on derivative instruments
                          
                          
                          
                          
                          
                          -
                          
                          
                          10
                          
                          
                          (398
                          )Comprehensive
                              loss
                          
                          
                          
                          
                          $
                          (36,877
                          )
                          $
                          (6,409
                          )
                          $
                          (2,759
                          )Loss
                            per common share:Basic:Loss
                              from continuing operations
                          
                          
                          
                          
                          $
                          (3.63
                          )
                          $
                          (0.83
                          )
                          $
                          (0.38
                          )Income
                              (loss) from discontinued operations
                          
                          
                          
                          
                          
                          -
                          
                          
                          0.04
                          
                          
                          (0.22
                          )Extraordinary
                              gain
                          
                          
                          
                          
                          
                          0.01
                          
                          
                          0.04
                          
                          
                          -Net
                              loss
                          
                          20
                          
                          
                          $
                          (3.62
                          )
                          $
                          (0.75
                          )
                          $
                          (0.60
                          )Diluted:Loss
                              from continuing operations
                          
                          
                          
                          
                          $
                          (3.63
                          )
                          $
                          (0.83
                          )
                          $
                          (0.38
                          )Income
                              (loss) from discontinued operations
                          
                          
                          
                          
                          
                          -
                          
                          
                          0.04
                          
                          
                          (0.22
                          )Extraordinary
                              gain
                          
                          
                          
                          
                          
                          0.01
                          
                          
                          0.04
                          
                          
                          -Net
                              loss
                          
                          20
                          
                          
                          $
                          (3.62
                          )
                          $
                          (0.75
                          )
                          $
                          (0.60
                          )Weighted
                            average number of common shares outstanding:Basic
                          
                          20
                          
                          
                          
                          9,763,957
                          
                          
                          9,487,129
                          
                          
                          8,907,015Diluted
                          
                          20
                          
                          
                          
                          9,763,957
                          
                          
                          9,487,129
                          
                          
                          8,907,015
   See  accompa n ying  notes  to  consolidated  f inancial  statement s
  66
 
  **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Consolidated** **** **Statements** **** **of** **** **Stockholder** **s’** **** **Equit** **y**
 **Y** **ears** **** **ended** **** **Ma** **r** **ch** **** **31,** **** **2006,** **** **2005** **** **and** **** **200** **4**
 **(US** **** **dollars** **** **in** **** **thousands,** **** **except** **** **sha** **r** **e** **** **data** **)**
  Common
                            Stock
                        
                        Additional
                        
                        Retained
                          Earnings/
                        
                        Accumulated
                          Other
                        
                        TotalNumber
                            of
                          Shares
                        
                        Amount
                        
                        Paid-In
                          Capital
                        
                        (Accumulated
                            Deficit)
                        
                        Comprehensive(Loss)
                            Income
                        
                        Stockholders’
                          EquityBalances
                          at March 31, 2003
                        
                        
                        8,834,125
                        
                        $
                        571
                        
                        $
                        38,634
                        
                        $
                        32,002
                        
                        $
                        (633
                        )
                        $
                        70,574Net
                            loss
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (5,309
                        )
                        
                        -
                        
                        
                        (5,309
                        )Foreign
                            currency translation adjustments
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        2,948
                        
                        
                        2,948Common
                            stock issued uponexercise
                            of stock options
                        
                        
                        188,443
                        
                        
                        12
                        
                        
                        363
                        
                        
                        -
                        
                        
                        -
                        
                        
                        375Net
                            unrealized loss onderivative
                            instruments
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (398
                        )
                        
                        (398
                        )Balances
                          at March 31, 2004
                        
                        
                        9,022,568
                        
                        
                        583
                        
                        
                        38,997
                        
                        
                        26,693
                        
                        
                        1,917
                        
                        
                        68,190Net
                            loss
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (7,103
                        )
                        
                        -
                        
                        
                        (7,103
                        )Foreign
                            currency translation adjustments
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        324
                        
                        
                        324Common
                            stock issued upon exercise
                            of stock options
                        
                        
                        614,375
                        
                        
                        40
                        
                        
                        1,021
                        
                        
                        -
                        
                        
                        -
                        
                        
                        1,061Stock
                            option compensation costs
                        
                        
                        -
                        
                        
                        -
                        
                        
                        211
                        
                        
                        -
                        
                        
                        -
                        
                        
                        211Net
                            unrealized gain and reclassification
                            adjustment on
                          derivative
                            instruments
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        408
                        
                        
                        408Unrealized
                            loss on available-for-sale investments
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (38
                        )
                        
                        (38
                        )Balances
                          at March 31, 2005
                        
                        
                        9,636,943
                        
                        
                        623
                        
                        
                        40,229
                        
                        
                        19,590
                        
                        
                        2,611
                        
                        
                        63,053Net
                            loss
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (35,355
                        )
                        
                        -
                        
                        
                        (35,355
                        )Foreign
                            currency translation adjustments
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (1,550
                        )
                        
                        (1,550
                        )Common
                            stock issued upon exercise
                            of stock options
                        
                        
                        540,000
                        
                        
                        34
                        
                        
                        1,277
                        
                        
                        -
                        
                        
                        -
                        
                        
                        1,311Reclassification
                            adjustment for derivatives
                            instrumentsincluded
                            in net loss
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (10
                        )
                        
                        (10
                        )Reclassification
                            adjustment for realized
                            loss on available-for-sales
                            investmentsincluded
                            in net loss
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -
                        
                        
                        38
                        
                        
                        38Balances
                          at March 31, 2006
                        
                        
                        10,176,943
                        
                        $
                        657
                        
                        $
                        41,506
                        
                        $
                        (15,765
                        )
                        $
                        1,089
                        
                        $
                        27,487
   See  accompa n ying  notes  to  consolidated  f inancial  statement s
 
 67
  **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Consolidated** **** **Statements** **** **of** **** **Cash** **** **Fl** **o** **w** **s**
 **Y** **ears** **** **ended** **** **Ma** **r** **ch** **** **31,** **** **2006,** **** **2005** **** **and** **** **200** **4**
 **(US** **** **dollars** **** **in** **** **thousands** **)**
  2006
                        
                        2005
                        
                        2004Net
                          cash (used in) provided by operating
                          activities (note 14)
                        
                        $
                        (1,935
                        )
                        $
                        (3,908
                        )
                        $
                        3,511Cash
                          flows from investing activities:Proceeds
                            from sale of property, plant and
                            equipment
                        
                        
                        19
                        
                        
                        552
                        
                        
                        3Purchases
                            of property, plant and
                            equipment
                        
                        
                        (3,535
                        )
                        
                        (4,150
                        )
                        
                        (5,035
                        )Proceeds
                            from sale of discontinued
                            operations
                        
                        
                        -
                        
                        
                        14,250
                        
                        
                        -Cash
                            advance to discontinued
                            operations
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (192
                        )Net
                            cash (used in) provided by investing
                            activities
                        
                        
                        (3,516
                        )
                        
                        10,652
                        
                        
                        (5,224
                        )Cash
                          flows from financing activities:Proceeds
                            from issuance of common
                            stock
                        
                        
                        1,311
                        
                        
                        1,061
                        
                        
                        375(Decrease)
                            increase in short-term
                            debt
                        
                        
                        (320
                        )
                        
                        1,323
                        
                        
                        3,408Repayment
                            of long-term debt
                        
                        
                        -
                        
                        
                        (2,208
                        )
                        
                        (4,082
                        )Repayment
                            of capital element of capital
                            leases
                        
                        
                        (786
                        )
                        
                        (687
                        )
                        
                        (517
                        )Dividends
                            paid by subsidiaries to their minority
                            shareholders
                        
                        
                        -
                        
                        
                        (155
                        )
                        
                        (70
                        )Purchase
                            of minority interests in a
                            subsidiary
                        
                        
                        -
                        
                        
                        (666
                        )
                        
                        -Net
                            cash provided by (used in) financing
                            activities
                        
                        
                        205
                        
                        
                        (1,332
                        )
                        
                        (886
                        )Effect
                          of translation adjustments on cash and
                          cash equivalents
                        
                        
                        (1,305
                        )
                        
                        420
                        
                        
                        2,946Net
                            (decrease) increase in cash and cash
                            equivalents from
                            continuing operations
                        
                        
                        (6,551
                        )
                        
                        5,832
                        
                        
                        347Cash
                            flows of discontinued operations (revised -
                            note 1(a))Operating
                            cash flows
                        
                        
                        -
                        
                        
                        -
                        
                        
                        5,671Investing
                            cash flows
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (4,532
                        )Financing
                            cash flows
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (866
                        )Net
                            cash provided by discontinued
                            operations
                        
                        
                        -
                        
                        
                        -
                        
                        
                        273Total
                            (decrease) increase in cash and cash
                            equivalents
                        
                        
                        (6,551
                        )
                        
                        5,832
                        
                        
                        620Cash
                          and cash equivalents at beginning of
                          year
                        
                        
                        7,012
                        
                        
                        1,539
                        
                        
                        1,973Cash
                          and cash equivalents re-classified to (from)
                          held and use
                        
                        
                        359
                        
                        
                        (359
                        )
                        
                        -Less
                          cash and cash equivalents at end of year of
                          discontinued
                          operations
                        
                        
                        -
                        
                        
                        -
                        
                        
                        (1,054
                        )Cash
                          and cash equivalents at end of
                          year
                        
                        $
                        820
                        
                        $
                        7,012
                        
                        $
                        1,539
   See  accompa n ying  notes  to  consolidated  f inancial  statement s
 
 68
  **CORGI
                  INTERNATIONAL LIMITED AND SUBSIDIARIES**
  **Notes
                  to Consolidated Financial Statements**
 **March
                  31, 2006, 2005 and 2004**
 **(in
                  US dollars, unless otherwise stated)**
  **(1)  
                  Summary of Significant Accounting Policies and Practices**
  ***(a)  
                  Description of Business and Basis of Presentation***
  On
                  October 26, 2005, Corgi International Limited (“the Company”) announced that it
                  had changed its corporate name from Zindart Limited to Corgi International
                  Limited to reflect the Company’s focus on its franchise for die-cast collectible
                  products and children’s toy lines. The Company was incorporated in Hong Kong as
                  a limited company under the Hong Kong Companies Ordinance in July
                  1977. The
                  Company’s 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
                  and the design,
                  manufacturing, marketing and distribution of die-cast products
                  under its
                  proprietary brand names. As of March 31, 2006, the operations of
                  the Group
                  consist of Corgi Classics Holdings Limited and its subsidiaries
                  (“Corgi”), whose
                  operations are primarily in the United Kingdom (“U.K.”) and the United States
                  (“U.S.”), and Zindart Manufacturing Limited (“Zindart
                  Manufacturing”) whose operations are primarily in Hong Kong and the People’s
                  Republic of China
                  (the “PRC”).
  In
                  May
                  2004, the Company 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 and
                  a gain on disposal of $984,000. The results of operations and cash
                  flows of Hua
                  Yang were presented as a discontinued operations in accordance
                  with the
                  provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144,
                  Accounting for the Impairment or Disposal of Long-Lived Asset (“SFAS No. 144”)
                  for the year ended March 31, 2004 in the accompanying consolidated
                  statements of
                  operations and comprehensive loss and cash flows and notes thereto.
                  For the year
                  ended March 31, 2004, the Group had previously reported the cash
                  flows
                  attributable to Hua Yang on a combined basis as a single amount,
                  rather than
                  separately disclosing the operating, investing and financing portions
                  thereof.
                  The accompanying statements of cash flows for the year ended March
                  31, 2004 have
                  been revised to separately disclose the operating, investing and
                  financing
                  portions of Hua Yang.
  As
                  of
                  March 31, 2005, Zindart Manufacturing was reported as a discontinued
                  operation
                  in accordance with SFAS No. 144, and accordingly, the assets and
                  liabilities
                  associated with Zindart Manufacturing as of March 31, 2005 and
                  the related
                  results of operations and cash flows were presented as discontinued
                  operations
                  in the Company’s previously reported 2005 financial statements. As of March 31,
                  2006, due to circumstances that previously were considered unlikely
                  (see note
                  2), Zindart Manufacturing no longer met the criteria to be classified
                  as a
                  discontinued operation under SFAS No. 144, and accordingly, the
                  results of
                  operations and cash flows associated with Zindart Manufacturing
                  for the years
                  ended March 31, 2005 and 2004 have been reclassified back to present
                  Zindart
                  Manufacturing as held and used or continuing operations. The major
                  classes of
                  assets and liabilities associated with Zindart Manufacturing as
                  of March 31,
                  2005
                  are disclosed in note 2.
  The
                  accompanying consolidated financial statements were prepared on
                  a going concern
                  basis, which contemplates the realization of assets and the satisfaction
                  of
                  liabilities in the normal course of business. The realization of
                  assets and the
                  satisfaction of liabilities in the normal course of business are
                  dependent on,
                  among other things, the Company’s ability to operate profitably, to generate
                  cash flows from operations, and the Company’s ability to maintain credit
                  facilities adequate to support its working capital requirements.
                  As discussed
                  below, the Company has continued to suffer recurring losses from
                  operations and
                  generate negative cash flows that raise substantial doubt regarding
                  its ability
                  to continue as a going concern.
 
 69
  **CORGI
                    INTERNATIONAL LIMITED AND SUBSIDIARIES**
  **Notes
                    to Consolidated Financial Statements — (Continued)**
 Management’s
                    plans in regard to these matters are also described below. The
                    accompanying
                    consolidated financial statements do not include any adjustments
                    that might
                    result from the outcome of this uncertainty.
  The
                    Company continues to face difficult market conditions, which
                    have caused
                    significant operating losses and placed considerable pressure
                    on the Company’s
                    liquidity. The Company has incurred significant operating losses
                    and net losses
                    in each of the three years in the three-year period ended March
                    31, 2006. As of
                    March 31, 2006, the Company had an accumulated deficit of $15,765,000.
                    As of
                    March 31, 2006, the Company had cash and cash equivalents totaling
                    $820,000, and
                    available credit facilities of $15,250,000 of which $10,777,000
                    were utilized as
                    borrowings. The available banking facilities of $15,250,000 reflected
                    a
                    temporary reduction of banking facilities from the Agricultural
                    Bank of China
                    (“ABC”) from $7,398,000 to $3,267,000 as of March 31, 2006 due to macro-economic
                    controls in the PRC under which limits had been placed on ABC’s authority to
                    lend to its banking clients. As of August 22, 2006, the Group
                    has been repaying
                    amounts drawn on its banking facilities in accordance with the
                    repayment terms.
  As
                    of
                    March 31, 2006, the Company had breached certain financial undertakings
                    in
                    respect to two bank facilities. The Company did not meet minimum
                    financial
                    ratios related to consolidated tangible net worth, consolidated
                    net borrowings
                    to consolidated tangible net worth, current assets to current
                    liabilities,
                    interest coverage, and consolidated profits before interest and
                    tax. The lenders
                    have not notified the Company that it is in a state of default,
                    and the Company
                    has continued to maintain banking relationships with each of
                    these financial
                    institutions. For both facilities, the lenders have the right
                    to demand payment
                    of all amounts owed at any time, irrespective of whether the
                    Company had
                    complied with the financial undertakings. As of March 31, 2006,
                    total
                    outstanding borrowings under these two credit facilities amounted
                    to
                    $3,241,000.
  With
                    respect to the first credit facility, as of March 31, 2006, the
                    lender had
                    suspended further utilization of the credit facility. Total outstanding
                    borrowing under this credit facility amounted to $1,322,000
                    as of March 31, 2006. On April 24, 2006, a repayment schedule
                    was agreed with
                    the lender whereby the Company has agreed to repay $150,000 per
                    month, with the
                    remaining balance to be repaid by November 26, 2006.
  With
                    respect to the other credit facility, the lender has revised
                    the terms of the
                    credit facility by reducing the available amount to be drawndown
                    from $2,564,000
                    to $2,051,000 and requiring the Company to maintain a $1,000,000
                    restricted cash
                    deposit with the lender. As of August 22, 2006, the Company has
                    not signed the
                    revised agreement as the Company is still in negotiation with
                    the lender with
                    respect to the term requiring the Company to place a $1,000,000
                    restricted
                    deposit with the lender. As of March 31, 2006,
                    the
                    total amount outstanding under this facility amounted to
                    $1,919,000.
  In
                    April
                    2006, the Company responded to the liquidity deterioration by
                    issuing
                    convertible notes and warrants in a private placement for aggregate
                    proceeds
                    amounting to $5,650,000 (see note 21) and replacing its existing
                    $4,400,000
                    overdraft facility with a $8,700,000 receivable discounting facility
                    in June
                    2006. However, the utilization of the receivable discounting
                    facility will
                    depend on actual sales levels. The amount available for utilization
                    under the
                    discounting facility will be less than the amount available under
                    the overdraft
                    facility to the extent actual sales are lower than historical
                    sales. The
                    proceeds of the private placement have been substantially utilized
                    as required
                    to fund working capital deficits.
   70
   **CORGI
                  INTERNATIONAL LIMITED AND SUBSIDIARIES**
  **Notes
                  to Consolidated Financial Statements — (Continued)**
  In
                  the
                  event that market conditions and demand for the Company’s products continue to
                  deteriorate and decline, causing operating losses and negative
                  cash flows from
                  operations to continue and, despite its best efforts, the Company
                  is unable to
                  secure additional financing sources from lenders and/or other parties
                  to fund
                  its operations and obligations, the Company will be required to
                  dispose of
                  business units or assets, perhaps at a significant discount to
                  the fair value
                  thereof, seek bankruptcy protection or commence liquidation or
                  other
                  administrative proceedings.
  Should
                  the Company be unable to continue as a going concern, adjustments
                  would have to
                  be made to reduce the value of assets to their liquidation amounts,
                  which may be
                  lower than the assets’ carrying amount, and to provide for liabilities which
                  might arise in connection with the liquidation and to reclassify
                  non-current
                  assets and liabilities as current assets and liabilities, respectively.
                  The
                  effects of these adjustments have not been reflected in the financial
                  statements.
  ***(b)  
                  Principles of Consolidation***
  The
                  consolidated financial statements include the financial statements
                  of the
                  Company and its subsidiaries. All significant intercompany balances
                  and
                  transactions have been eliminated on consolidation.
  ***(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 the date of purchase.
  ***(d)  
                  Available-For-Sale Investments***
  The
                  Company classifies its investment securities in one of three categories:
                  trading, available for sale, or held to maturity. Trading securities
                  are bought
                  and held principally for the purpose of selling them in the near
                  term.
                  Held-to-maturity debt securities are those securities in which
                  the Company has
                  the ability and intent to hold the security until maturity. All
                  securities not
                  included in trading or held to maturity are classified as
                  available-for-sale.
  Trading
                  and available-for-sale securities are recorded at fair value. Unrealized
                  holding
                  gains and losses on trading securities are included in earnings.
                  Unrealized
                  holding gains and losses, net of the related tax effect, on available-for-sale
                  securities are excluded from earnings and are reported as a component
                  of
                  accumulated other comprehensive income until realized. Realized
                  gains and losses
                  from the sale of investment securities are determined on a
                  specific-identification basis and included in other income.
  A
                  decline
                  in the fair value of an investment security below cost that is
                  deemed to be
                  other-than- temporary results in a reduction in carrying amount
                  to fair value.
                  The impairment is charged to earnings and a new cost basis for
                  the security is
                  established. In determining whether impairment is other-than- temporary,
                  the
                  Company considers whether it has the ability and intent to hold
                  the investment
                  for a reasonable period of time sufficient for a forecasted recovery
                  of fair
                  value up to (or beyond) the cost of investment and considers whether
                  evidence
                  indicating the cost of the investment is recoverable within a reasonable
                  period
                  of time outweighs evidence to the contrary. Evidence considered
                  in this
                  assessment includes the cause of the decline, the severity and
                  duration of the
                  decline, changes in value subsequent to year-end and forecasted
                  performance of
                  the investment.
  Dividend
                  and interest income are recognized when earned.
 
 71
 
   **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
  ***(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.
  Zindart
                    Manufacturing has entered into receivables purchase agreements
                    with a financial
                    institution whereby it transferred and sold eligible trade accounts
                    receivable
                    to the financial institution. Under the terms of certain agreements,
                    to the
                    extent the trade accounts receivable transferred are still unpaid
                    by specified
                    overdue dates, the relevant customers become insolvent or disputes
                    occur between
                    Zindart Manufacturing and the relevant customer in respect of
                    the relevant
                    sales, the financial institution has 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.
  None
                    of
                    the sale of receivables as of March 31, 2006 and 2005 satisfied
                    the above three
                    conditions and thus, none was accounted for as a sale. For sale
                    of receivables
                    for which Zindart Manufacturing did not surrender control over
                    the transferred
                    assets, including those with recourse provisions, the trade accounts
                    receivable
                    were not derecognized and the proceeds of the transfer were recorded
                    as
                    short-term debt, which amounted to $533,000 and $Nil as of March
                    31, 2006 and
                    2005, respectively.
  ***(f)  
                    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.
  ***(g)  
                    Derivative Instruments and Hedging Activities***
  The
                    Company accounts for derivatives and hedging activities in accordance
                    with SFAS
                    No. 133, Accounting for Derivative Instruments and Certain Hedging
                    Activities
                    (“SFAS 133”) as amended, which requires that all derivative instruments
                    be
                    recorded on the balance sheet at their respective fair values.
  72
   **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
  On
                    the
                    date a derivative contract is entered into, the Company designates
                    the
                    derivative as either a hedge of the fair value of a recognized
                    asset, liability
                    or 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
                    hedging relationships, the Company documents the hedging relationship
                    and its
                    risk-management objective and strategy for undertaking the hedge,
                    the hedging
                    instrument, the hedging 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 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 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 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.
  73
 
 **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
  ***(h)  
                  Property, Plant, and Equipment***
  Property,
                  plant, and equipment are stated at cost less accumulated depreciation
                  and
                  amortization. Plant and equipment under capital leases are stated
                  at the present
                  value of minimum lease payments less accumulated amortization.
                  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 2 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 and amortization on property, plant and equipment
                  for the
                  years ended March 31, 2006, 2005 and 2004 were $5,962,000, $6,677,000
                  and
                  $6,387,000, respectively.
  ***(i)  
                  Land Use Rights***
  Land
                  use
                  rights are stated at cost less accumulated amortization. Amortization
                  is
                  provided using the straight-line method over the land use lease
                  term of 50
                  years.
  ***(j)  
                  Goodwill***
  Goodwill
                  represents the excess of costs over fair value of assets of businesses
                  acquired.
                  The Company follows the provisions of SFAS No. 142, Goodwill and
                  Other
                  Intangible Assets (“SFAS 142”). 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.
                  The
                  Company evaluates the recoverability of goodwill using a two-step
                  impairment
                  test approach at the reporting unit level. In the first step, the
                  fair value of
                  the reporting unit is compared to its carrying value including
                  goodwill. The
                  fair value of the reporting unit is determined based upon a combination
                  of
                  multiple of earnings, discounted future cash flows and the projected
                  profitability of the market in which it operates. In the case that
                  the fair
                  value of the reporting unit is less than the carrying value, a
                  second step is
                  performed which compares the implied fair value of the reporting
                  unit’s goodwill
                  to the book value of the goodwill. In determining the implied fair
                  value of the
                  reporting unit goodwill, the fair values of the tangible net assets
                  and
                  recognized and unrecognized intangible assets are deducted from
                  the fair value
                  of the reporting unit. If the implied fair value of reporting unit
                  goodwill is
                  lower than its carrying amount, goodwill is impaired and is written
                  down to its
                  implied fair value.
  SFAS
                  142
                  also requires that intangible assets with estimable useful lives
                  be amortized
                  over their respective estimated useful lives to their estimated
                  residual values,
                  and reviewed for impairment in accordance with SFAS No. 144.
  ***(k)  
                  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 is recognized as income upon the delivery of the first lot
                  of products
                  produced using the molds.
  ***(l)  
                  Research and Development Costs***
  Research
                  and development costs are expensed as incurred. Research and development
                  costs
                  for the years ended March 31, 2006, 2005 and 2004 were $2,026,000,
                  $2,611,000
                  and $1,215,000, respectively and included as part of selling, general
                  and
                  administrative expenses.
   74
   **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
 ***(m)  
                    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, 2006,
                    2005 and 2004 were $4,540,000, $5,408,000,
                    and $6,997,000, respectively.
  ***(n)  
                    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 carry forwards. 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.
  ***(o)  
                    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 Financial Accounting Standard
                    Board
                    (“FASB”) Interpretation No. 44, Accounting for Certain Transactions
                    involving
                    Stock Compensation, an interpretation of APB Opinion No. 25,
                    issued in March 2000,
                    to
                    account for its fixed-plan stock options. Under this method,
                    compensation
                    expense is recorded on the date of grant only if the current
                    market price of the
                    underlying stock exceeds 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 the alternate disclosure requirements
                    of SFAS No. 123.
                    The following table sets forth pro forma information as if compensation
                    cost has
                    been determined consistent with the requirements of SFAS No.
                    123 (in thousands,
                    except share data)
 2006
                            
                            2005
                            
                            2004Reported
                              net loss
                            
                            $
                            (35,355
                            )
                            $
                            (7,103
                            )
                            $
                            (5,309
                            )Add
                                back total stock-based employee compensation
                              expenses
                                under APB No.25
                            
                            
                            -
                            
                            
                            211
                            
                            
                            -Deduct
                                stock-based employee compensation expense
                              determined
                                under fair-value-based method for all rewards
                            
                            
                            (794
                            )
                            
                            (735
                            )
                            
                            (159
                            )Pro-forma
                              net loss
                            
                            $
                            (36,149
                            )
                            $
                            (7,627
                            )
                            $
                            (5,468
                            )Loss
                              per common share:Basic
                                - as reported
                            
                            $
                            (3.62
                            )
                            $
                            (0.75
                            )
                            $
                            (0.60
                            )Basic
                                - pro forma
                            
                            $
                            (3.70
                            )
                            $
                            (0.80
                            )
                            $
                            (0.61
                            )Loss
                              per common share:Diluted
                                - as reported
                            
                            $
                            (3.62
                            )
                            $
                            (0.75
                            )
                            $
                            (0.60
                            )Diluted
                                - pro forma
                            
                            $
                            (3.70
                            )
                            $
                            (0.80
                            )
                            $
                            (0.61
                            )
   75
   **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
  ***(p)  
                  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 recoverability
                  of the carrying
                  amount of property, plant and equipment; fair value of the reporting
                  unit when
                  evaluating goodwill impairment, valuation allowances for receivables
                  and
                  deferred tax assets; and realizable values of inventories. Actual
                  results could
                  differ from those estimates.
  ***(q)  
                  Impairment of Long-Lived Assets***
  Long-lived
                  assets, such as property, plant, and equipment, and purchased intangibles
                  subject to amortization, are reviewed for impairment whenever events
                  or changes
                  in circumstances indicate that the carrying amount of an asset
                  may not be
                  recoverable.
  Recoverability
                  of assets to be held and used is measured by a comparison of the
                  carrying amount
                  of an asset to estimated undiscounted future cash flows expected
                  to be generated
                  by the asset. If the carrying amount of an asset exceeds its estimated
                  undiscounted future cash flows, an impairment charge is recognized
                  by the amount
                  for 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
                  disposal group
                  classified as held-for-sale are reported separately in the asset
                  and liability
                  sections of the balance sheet.
  ***(r)  
                  Revenue Recognition***
  The
                  Group
                  recognizes revenue when products are shipped and, in certain 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 Staff Accounting Bulletin No. 104, which provides guidance
                  on the
                  application of these criteria to product sales. 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 fixed or determinable,
                  and
                  collectibility is probable. If these criteria are not met, the
                  associated
                  revenue is deferred until the criteria are met.
  The
                  provisions for trade discounts, products returns, incentive programs
                  for
                  distributors and end customers are recorded as a reduction of revenue
                  in the
                  same period the related revenue is recognized. The provision is
                  estimated based
                  on factors that include, but are not limited to, historical sales
                  returns,
                  discounts given and current known trends. Should the actual product
                  returns and
                  allowances exceed the estimates, additional reductions to the Group’s revenue
                  would result.
  ***(s)  
                  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, 2006,
                  2005 and 2004 were $1,865,000, $2,534,000 and $2,404,000, respectively.
   76
   **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
  ***(t)  
                  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 component of accumulated
                  other
                  comprehensive income (loss) within 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 cost of goods sold
                  in the
                  consolidated statements of operations as the foreign exchange gains
                  and losses
                  arose from the purchase or production of inventories. Aggregate
                  gains or losses
                  from foreign currency transactions for the years ended March 31,
                  2006, 2005 and
                  2004 were gains of $656,000 losses of $28,000 and losses of $310,000,
                  respectively.
  ***(u)  
                  (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) income per common share
                  is computed
                  based on dividing the net (loss) income by the weighted average
                  number of common
                  shares outstanding and giving effect to the dilutive potential
                  of outstanding
                  stock options to the extent the effect of including such securities
                  were
                  dilutive during the year.
  Stock
                  options outstanding for the years ended March 31, 2006, 2005, and
                  2004 were not
                  included in computing diluted loss per common share since their
                  effects were
                  anti-dilutive due to the net loss from continuing operations for
                  each year.
  ***(v)  
                  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.
   77
 
   **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
  ***(w)  
                  Recent Accounting Pronouncements***
  In
                  December 2004, the FASB issued FASB Statement No. 123 (revised
                  2004),
                  Share-Based Payment (“SFAS
                  No. 123R”), which addresses the accounting for transactions in which an
                  entity
                  exchanges its equity instruments for goods or services, with a
                  primary focus on
                  transactions in which an entity obtains employee services in share-based
                  payment
                  transactions. This Statement is a revision to Statement 123 and
                  supersedes APB
                  Opinion No. 25, Accounting for Stock Issued to Employees, and its
                  related
                  implementation guidance. This statement requires the measurement
                  of the cost of
                  employee services received in exchange for stock compensation to
                  be based on the
                  grant-date fair value of the employee stock options. Public registrants
                  are
                  required to adopt SFAS No. 123R at the beginning of the fiscal
                  year that begins
                  after June 15,
                  2005
                  and accordingly, the Company has adopted this statement on April
                  1, 2006 under
                  the modified prospective method of application. Under that method,
                  the Company
                  has recognized compensation costs for new grants of share-based
                  awards, awards
                  modified after the effective date, and the remaining portion of
                  the fair value
                  of the unvested awards at the adoption date. The Company expects
                  that the
                  adoption of SFAS No. 123R will have an impact on its results of
                  operations;
                  however, the amount and materiality of the impact will depend on
                  the amount and
                  type of share-based payments granted in future periods.
  In
                  December 2004, the FASB issued SFAS No. 151, Inventory Costs -
                  An Amendment of
                  ARB No. 43, Chapter 4 (“SFAS No. 151”). SFAS 151 clarifies that abnormal amounts
                  of idle facility expense, freight, handling costs and spoilage
                  should be
                  expensed as incurred and not included in inventory cost as a component
                  of
                  overhead. Further, SFAS No. 151 requires that allocation of fixed
                  and production
                  facilities overhead to conversion costs should be based on normal
                  capacity of
                  the production facilities. The provisions in SFAS No. 151 are effective
                  for
                  inventory costs incurred during fiscal years beginning after June
                  15, 2005.
                  The
                  Company does not expect that the adoption of SFAS No. 151 will
                  have a
                  significant effect on its consolidated financial statements.
  In
                  March
                  2005, the FASB published FASB Interpretation No. 47, Accounting
                  for Conditional
                  Asset Retirement Obligations (“FIN 47”). FIN 47 clarifies the term “conditional
                  asset retirement obligation” used in FASB Statement No. 143, “Accounting For
                  Asset Retirement Obligations,” and when an entity would have sufficient
                  information to reasonably estimate the fair value of an asset retirement
                  obligation. FIN 47 is effective for fiscal years ending after December
                  15, 2005.
                  The adoption of FIN 47 did not have a material impact on the Company’s
                  consolidated financial statements.
  In
                  May
                  2005, the FASB issued SFAS No.154, Accounting Changes and Error
                  Correction,
                  (“SFAS No. 154”). SFAS No. 154 establishes, unless impracticable, retrospective
                  application as the required method for reporting a change in accounting
                  principle in the absence of explicit transition requirements specific
                  to a newly
                  adopted accounting principle. This statement will be effective
                  for accounting
                  changes and correction of errors made in fiscal years beginning
                  after December
                  15, 2005.
  In
                  June
                  2006, the FASB issued Interpretation No. 48, Accounting for Uncertainty
                  in
                  Income Taxes (“FIN
                  48”). FIN 48 clarifies the accounting for uncertainty in income taxes
                  recognized
                  in an enterprise’s financial statements in accordance with FASB SFAS 109,
                  Accounting for Income Taxes. FIN 48 prescribes a recognition threshold
                  and
                  measurement attribute for the financial statement recognition and
                  measurement of
                  a tax position taken or expected to be taken in a tax return. This
                  statement
                  also provides guidance on derecognition, classification, interest
                  and penalties,
                  accounting in the interim periods, disclosure, and transition.
                  This statement is
                  effective for fiscal years beginning after December 15, 2006. The
                  Company is in
                  the process of determining the impact, if any, of FIN 48 on its
                  consolidated
                  financial statements.
   78
   **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
  **(2)  
                    Discontinued Operations**
  In
                    March
                    2004, the Company’s board of directors resolved to sell Hua Yang. In the
                    accompanying statements of operations and cash flows, Hua Yang
                    was reported as a
                    discontinued operation in the year ended March 31, 2004. In May
                    2004, the
                    Company completed the sale of Hua Yang and recorded a gain on
                    disposal of
                    $984,000 for the year ended March 31, 2005. 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 closing balance
                    sheet audit
                    was completed during the year ended March 31, 2005 and did not
                    result in any
                    adjustment to the selling price.
  The
                    operating results of the
                    Hua Yang, including the gain on sale, for the years presented
                    were as follows
                    (in thousands):
 **2006**
                            ****
                            **2005**
                            ****
                            **2004****Hua
                                Yang**
                            ****
                            **Hua
                                Yang**
                            ****
                            **Hua
                                Yang**Net
                              sales
                            
                            $
                            -
                            
                            $
                            3,816
                            
                            $
                            34,348Income
                              (loss) before
                              income taxes
                            
                            $
                            -
                            
                            $
                            324
                            
                            $
                            (2,111
                            )Income
                              tax benefit
                            
                            
                            -
                            
                            
                            28
                            
                            
                            229Income
                              (loss) from discontinued
                              operations
                            
                            $
                            -
                            
                            $
                            352
                            
                            $
                            (1,882
                            )
  In
                      March
                      2005, the Company’s board of directors resolved to sell Zindart Manufacturing
                      and initiated an active program to locate a buyer. As of March
                      31, 2005, Zindart
                      Manufacturing was available for immediate sale in its then
                      present condition
                      subject only to terms that are usual and customary for the
                      sale. In addition,
                      the Group considered the sale of Zindart Manufacturing to be
                      probable, and
                      believed that it was unlikely that significant changes to the
                      plan would be made
                      or that the plan would be withdrawn. As of the year ended March
                      31, 2005, the
                      Group reported Zindart Manufacturing’s operations as discontinued operations and
                      accordingly, the assets and liabilities associated with Zindart
                      Manufacturing as
                      of March 31, 2005 and related results of operations and cash
                      flows were
                      presented as discontinued operations in the Company’s previously reported 2005
                      financial statements.
  As
                      of and
                      during the year ended March 31, 2006, circumstances that previously
                      were
                      considered unlikely arose that caused management to believe
                      that the sale of
                      Zindart Manufacturing was no longer probable of being completed.
                      During the year
                      ended March 31, 2006, a transaction with a potential buyer
                      was not completed due
                      to certain procedures necessary to complete the sale were unexpectedly
                      delayed
                      and at the same time, market conditions had deteriorated that
                      caused Zindart
                      Manufacturing to be less attractive to the potential buyer
                      at the price
                      management marketed it for sale. Management has no plans to
                      further reduce the
                      selling price of Zindart Manufacturing to effect the sale and
                      accordingly, as of
                      March 31,
                      2006,
                      the results of operations and cash flows of Zindart Manufacturing
                      were
                      reclassified from discontinued operations to continuing operations
                      for all years
                      presented.
  In
                      connection with the reclassification of Zindart Manufacturing
                      as held and used,
                      the Group recorded an impairment charge of $1,439,000 with
                      respect to the
                      property, plant and equipment and land use rights associated
                      with Zindart
                      Manufacturing since the estimated fair values of the assets
                      were lower than the
                      assets’ carrying amounts before the disposal group was classified as
                      held for
                      sale, adjusted for any depreciation and amortization expense
                      that would have
                      been recognized had the disposal group been continuously classified
                      as held and
                      used.
   79
   **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
  The
                    assets and liabilities associated with Zindart Manufacturing
                    as of March 31,
                    2005 were not reclassified in the accompanying consolidated balance
                    sheets as
                    held and used. At March 31, 2005, the major classes of assets
                    and liabilities
                    associated with Zindart Manufacturing were as follows (in thousands):
 **2005****Zindart**
                          **Manufacturing**Cashandcashequivalents
                        
                        $
                        359Tradeaccountsreceivable,net
                        
                        
                        6,379Inventories
                        
                        
                        7,773Property,plant,andequipment,net
                        
                        
                        12,846Landuserights,net
                        
                        
                        1,083Goodwill
                        
                        
                        414Otherassets
                        
                        
                        389Totalassets
                        
                        
                        29,243Short-termdebt
                        
                        
                        (7,221
                        )Tradeaccountspayable
                        
                        
                        (8,798
                        )Obligationundercapitalleases
                        
                        
                        (1,460
                        )Accruedexpenses
                        
                        
                        (4,924
                        )Deferredtaxliabilities
                        
                        
                        (26
                        )Otherliabilities
                        
                        
                        (644
                        )Totalliabilities
                        
                        
                        (23,073
                        )Netassetsofdiscontinuedoperations
                        
                        $
                        6,170
  As
                      at March 31, 2006 and 2005, the minority interests of $Nil
                      and $693,000,
                      respectively, reflected in the accompanying consolidated balance
                      sheets were
                      associated with Zindart Manufacturing.
  **(3)  
                      Trade Accounts Receivable**
  Trade
                        accounts receivable consists of the following (in thousands):
  **2006**
                                
                                ******2005**Trade
                                  accounts receivable
                                
                                $
                                10,421
                                
                                $
                                7,355Less
                                    allowance for doubtful accounts
                                
                                
                                (360
                                )
                                
                                (776
                                )Trade
                                    accounts receivable, net
                                
                                $
                                10,061
                                
                                $
                                6,579
  Movements
                        of allowance for doubtful accounts are as follows (in thousands):
  ******2006**
                                
                                ******2005**
                                
                                **2004**Balance
                                    at beginning of year
                                
                                $
                                776
                                
                                $
                                1,080
                                
                                $
                                1,786Adjustments
                                    related to Zindart Manufacturing (note)
                                
                                
                                97
                                
                                
                                (97
                                )
                                
                                -Write-offs/written
                                    back
                                
                                
                                (513
                                )
                                
                                (207
                                )
                                
                                (706
                                )Balance
                                    at end of year
                                
                                $
                                360
                                
                                $
                                776
                                
                                $
                                1,080
 ________________
 (note)
                              The
                                  balance of allowance for doubtful accounts in relation
                                  to Zindart
                                  Manufacturing in 2005 was classified as discontinued
                                  operations and was
                                  reclassified back in 2006 when Zindart Manufacturing
                                  was reclassified as
                                  held and used.
   80
   **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
 
 **(4** **)** **I** **n** **ventorie** **s**
 
 I n v entories  consist  of  the  foll o wing  (in  thousands) :
  **2006**
                        
                        **2005**Rawmaterials
                        
                        $
                        1,483
                        
                        $
                        -Workinprocess
                        
                        
                        1,348
                        
                        
                        -Finishedgoods
                        
                        
                        7,441
                        
                        
                        6,864$
                        10,272
                        
                        $
                        6,864
  As
                  of March 31, 2005, inventories related to Zindart Manufacturing,
                  which are not
                  reflected in the table above, amounted to $7,773,000 (note 2) and
                  consisted of
                  $2,326,000 of raw materials, $2,127,000 in work in progress and
                  $3,320,000 in
                  finished goods.
  **(5)  
                  Property, Plant and Equipment**
  Property,
                  plant and equipment consists of the following (in thousands):
  **2006**
                        
                        **2005**Buildings
                        
                        $
                        7,878
                        
                        $
                        40Machineryandtooling
                        
                        
                        36,256
                        
                        
                        33,936Furnitureandofficeequipment
                        
                        
                        5,080
                        
                        
                        5,628Motorvehicles
                        
                        
                        158
                        
                        
                        64Cost
                        
                        
                        49,372
                        
                        
                        39,668Lessaccumulateddepreciation
                        
                        
                        (32,915
                        )
                        
                        (31,735
                        )Property,plantandequipment,net
                        
                        $
                        16,457
                        
                        $
                        7,933
  As
                  of March 31, 2005, net property, plant and equipment related to
                  Zindart
                  Manufacturing, which are not reflected in the table above, amounted
                  to
                  $12,846,000 comprising total cost of $31,921,000 including buildings
                  of
                  $13,867,000, machinery and tooling of $14,911,000, furniture and
                  office
                  equipment of $2,684,000,
                  and motor vehicles of $459,000, less accumulated depreciation of
                  $19,075,000.
  **(6)  
                  Land Use Rights**
  At
                  March 31, 2006 and 2005, the land use rights of $935,000 and $1,083,000
                  (note
                  2), respectively, were associated with Zindart Manufacturing which
                  has the right
                  to use the land for a period of 50 years until 2044 and 2047.
   81
   **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
  **(7** **)** **Goo** **d** **wil** **l**
 
 At
                  March 31, 2006 and 2005, the Group’s goodwill related primarily to the
                  acquisition of Corgi Classics
                  Holdings Limited in July 1999.
  Under
                  SFAS 142, goodwill is required to be tested for impairment on an
                  annual basis or
                  on an interim basis if an event or change in circumstances indicates
                  that the
                  asset might be impaired at the reporting unit level. The goodwill
                  arising from
                  the acquisition of Corgi Classics Holdings Limited was allocated
                  to the Corgi
                  reporting unit. At the end of each of its fiscal year, the Company
                  performs
                  goodwill impairment testing to determine whether the goodwill has
                  been impaired
                  and the extent of such impairment, if any. The methods used in
                  the Company’s
                  testing of goodwill impairment are as follows: 1) The Company determines
                  the
                  fair market value of the Corgi reporting unit by using the valuation
                  performed
                  by a third-party valuer using the discounted cash flow methodology.
                  In
                  estimating the discounted future cash flows, the Company follows
                  FASB Concepts
                  Statement No. 7, Using Cash Flow Information and Present Value
                  in Accounting
                  Measurements, by taking into account the Company’s expectations about possible
                  variations in the amount or timing of those cash flows, the risk-free
                  rate of
                  interest and the discounted interest rate. 2) The Company then
                  compares the
                  estimated fair value of the Corgi reporting unit with the carrying
                  value of the
                  Corgi reporting unit, including goodwill. 3) To the extent the
                  fair value of the
                  Corgi reporting unit is less than the carrying value, the second
                  step is
                  performed which compares the implied fair value of the Corgi reporting
                  unit’s
                  goodwill to the book value of the goodwill.
  As
                  of March 31, 2005 and 2004, the estimated fair value of the Corgi’s reporting
                  unit (as determined using the valuation performed by a third-party
                  valuer using
                  the discounted cash flow methodology) exceeded the carrying amount
                  of the
                  reporting unit (including goodwill) and therefore, no goodwill
                  impairment for
                  the years ended March 31, 2005 and 2004 was recognized.
  For
                    the year ended March 31, 2006, as a result of the Group’s annual goodwill
                    impairment test, a goodwill impairment loss of $18,368,000 was
                    recognized. The
                    impairment loss arises as the implied fair value of the goodwill
                    of Corgi was
                    $16,944,000, which was lower than the carrying amount of goodwill
                    of
                    $35,312,000. The facts and circumstances leading to the goodwill
                    impairment
                    charge were primarily due to lower expected future cash flows
                    as a result of
                    poor customer reception of Corgi’s products in the United Kingdom, and reduced
                    gross profit margins due to a shift in Corgi sales mix towards
                    more low- margin
                    mass-market products.
  In
                    connection with the reclassification of Zindart Manufacturing
                    as held and used,
                    the Company recorded an impairment charge of goodwill of $414,000
                    to reflect the
                    decrease in the fair value of Zindart Manufacturing due to the
                    deterioration of
                    market conditions in which Zindart Manufacturing operates.
  At
                    March 31, 2006, the carrying value of goodwill was $16,944,000,
                    net of the
                    impairment charge of $18,782,000.
  **(8)  
                    Short-Term Debt**
  At
                    March 31, 2006 and 2005, the short-term debt represents the utilization
                    of the
                    overdraft and working capital facilities granted by banks. As
                    at March 31, 2005,
                    utilization of the overdraft and working capital facilities by
                    Zindart
                    Manufacturing was $7,221,000 (note 2). The weighted average interest
                    rate of the
                    outstanding borrowings was approximately 8.7%, 8.4% and 6.9%
                    for the years ended
                    March 31, 2006, 2005
                    and
                    2004, respectively.
   82
  **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
  At
                  March 31, 2006 and 2005, Corgi had revolving banking facilities
                  of $4,348,000
                  and $5,666,000, respectively that were collateralized by fixed
                  and floating
                  charges over substantially all of the assets of Corgi Classics
                  Limited,
                  including the assets of its subsidiaries, Corgi Classics Inc.,
                  Lledo
                  Collectibles Limited and Icon Collectibles Limited, with an aggregate
                  net book
                  value of $35,171,000. The amount outstanding under these facilities
                  as of March
                  31, 2006 was $3,736,000.
  At
                  March 31, 2006 and 2005, Zindart Manufacturing 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 $10,902,000 and $12,215,000 respectively. Substantially
                  all of the
                  short-term debt outstanding at March 31, 2006 represented borrowings
                  made under
                  these banking facilities. Portions of such facilities are secured
                  by certain
                  Zindart Manufacturing accounts receivable and the buildings owned
                  by Zindart
                  Manufacturing in the PRC. The amount outstanding under these facilities
                  as of
                  March 31, 2006 was $7,041,000.
  **(9** **)** **Lease** **s**
 
 As
                    of March 31, 2006, the Group had acquired certain machinery and
                    tooling under
                    capital leases that expire at various dates during the next three
                    years. At
                    March 31, 2006 and 2005, the gross amount of machinery and tooling
                    and related
                    accumulated depreciation recorded under capital leases are as
                    follows (in
                    thousands):
  **2006**
                          
                          **2005**Machineryandtooling
                          
                          $
                          2,896
                          
                          $
                          -Lessaccumulateddepreciation
                          
                          
                          (1,083
                          )
                          
                          -Machineryandtooling,net
                          
                          $
                          1,813
                          
                          $
                          -
 As
                    of March 31, 2005, assets under capital leases associated with
                    Zindart
                    Manufacturing, which are not reflected in the table above, consisted
                    of
                    machinery and tooling of $2,590,000, less accumulated depreciation
                    of $509,000.
  Future
                    minimum capital lease payments at March 31, 2006 are as follows
                    (in thousands):
  YearendingMarch31:2007
                        
                        $
                        6752008
                        
                        
                        2162009
                        
                        
                        10Totalminimumcapitalleasepayments
                        
                        
                        901Lessamountrepresentinginterest(atratesrangingfrom2.5%to8.75%)
                        
                        
                        (47
                        )Presentvalueofnetminimumcapitalleasepayments
                        
                        
                        854Lesscurrentinstallmentsofobligationsundercapitalleases
                        
                        
                        (635
                        )Obligationsundercapitalleases,excludingcurrentinstallments
                        
                        $
                        219
   83
 
  **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
  **(10** **)** **Accrued** **** **Expense** **s**
  Accrued  e xpenses  consist  of  the  foll o wing  (in  thousands) :
  **2006**
                        
                        **2005**Rawmaterialpurchases
                        
                        $
                        1,829
                        
                        $
                        -Royalty
                        
                        
                        1,223
                        
                        
                        1,124Otherfactoryexpenses
                        
                        
                        1,832
                        
                        
                        -Wages,salariesandbonus
                        
                        
                        936
                        
                        
                        339Legalandprofessionalfees
                        
                        
                        544
                        
                        
                        219Others
                        
                        
                        1,652
                        
                        
                        1,118$
                        8,016
                        
                        $
                        2,800
  Accrued
                  expenses related to Zindart Manufacturing as of March 31, 2005
                  of $4,924,000
                  consists of $1,978,000
                  for raw material purchases, $1,241,000 for other factory expenses,
                  $1,349,000
                  for wages and salaries, $172,000 for legal and professional fees
                  and $184,000
                  for others.
  **(11)  
                  Income Taxes**
  Total
                  income tax (expense) benefit of the Group including discontinued
                  operations for
                  the years ended March 31, 2006, 2005 and 2004 were as follows (in
                  thousands):
  **2006**
                        
                        **2005**
                        
                        **2004**(Loss)incomefromcontinuingoperations
                        
                        $
                        (1,907
                        )
                        $
                        612
                        
                        $
                        (121
                        )(Loss)incomefromdiscontinuedoperations
                        
                        
                        -
                        
                        
                        28
                        
                        
                        229Extraordinaryitem
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -Stockholders’equity,foritemsincludedinother
                          comprehensiveincome
                        
                        
                        5
                        
                        
                        (176
                        )
                        
                        171$
                        (1,902
                        )
                        $
                        464
                        
                        $
                        279
 
 Loss
                  from continuing operations before income taxes is attributable
                  to the following
                  geographical locations for the years ended March 31, 2006, 2005
                  and 2004 (in
                  thousands):
  **2006**
                        
                        **2005**
                        
                        **2004**HongKong
                        
                        $
                        (5,819
                        )
                        $
                        (970
                        )
                        $
                        (408
                        )UnitedStates
                        
                        
                        (4,064
                        )
                        
                        (4,652
                        )
                        
                        (3,319
                        )UnitedKingdom
                        
                        
                        (23,694
                        )
                        
                        (2,725
                        )
                        
                        719$
                        (33,577
                        )
                        $
                        (8,347
                        )
                        $
                        (3,008
                        )
   84
   **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
  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, 2006. The United
                    Kingdom
                    subsidiaries are subject to United Kingdom profits tax at a rate
                    of 30%. The
                    United States subsidiary is subject to a federal tax rate of
                    35% and a state tax
                    rate of 5.85%. The British Virgin Islands subsidiaries 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 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 Company’s subsidiary in PRC, it was subject to PRC income tax at
                    the rate of 12%, since the subsidiary qualifies as an export
                    oriented
                    enterprise. The PRC local income tax of 3% is also exempted due
                    to the same
                    reason.
  Income
                    tax (expense) benefit attributable to continuing operations (in
                    thousands):
 **200****6**
                          
                          **2005**
                          
                          **200****4**Currenttaxes:PRC
                          
                          $
                          (109
                          )
                          $
                          (36
                          )
                          $
                          -U.K.
                          
                          
                          -
                          
                          
                          849
                          
                          
                          (604
                          )(109
                          )
                          
                          813
                          
                          
                          (604
                          )Deferredtaxes:HongKong
                          
                          
                          26
                          
                          
                          (129
                          )
                          
                          297U.K.
                          
                          
                          (1,824
                          )
                          
                          (72
                          )
                          
                          186(1,798
                          )
                          
                          (201
                          )
                          
                          483$
                          (1,907
                          )
                          $
                          612
                          
                          $
                          (121
                          )
  The
                  reconciliation of the Hong Kong statutory profits tax rate to the
                  effective
                  income tax rate attributable to continuing operations is as follows:
  **2006**
                        
                        **2005**
                        
                        **2004**HongKongstatutoryprofitstaxrate
                        
                        
                        (17.5%
                        )
                        
                        (17.5%
                        )
                        
                        (17.5%
                        )EffectofdifferenceinincometaxratesoutsideHongKong
                        
                        
                        (11.4%
                        )
                        
                        (16.1%
                        )
                        
                        (20.2%
                        )Non-taxableincomearisingfromactivities
                          whichqualifiedasoffshore
                        
                        
                        0.2%
                        
                        
                        (1.8%
                        )
                        
                        (7.7%
                        )Exchange
                              gain/(loss) arising from re-translation of certainbalances
                              tolocal
                            currency
                              in respect of an overseassubsidiary
                              for tax purpose
                        
                        
                        0.0%
                        
                        
                        0.0%
                        
                        
                        75.8%Changeinvaluationallowance
                        
                        
                        16.3%
                        
                        
                        28.0%
                        
                        
                        (33.1%
                        )Impairmentofgoodwill
                        
                        
                        16.6%
                        
                        
                        0.0%
                        
                        
                        0.0%Non-deductible/non-taxableitems
                        
                        
                        0.2%
                        
                        
                        (0.2%
                        )
                        
                        1.0%(Over)/under-provisionofprofitstaxinprioryears
                        
                        
                        0.0%
                        
                        
                        (3.8%
                        )
                        
                        0.0%Others
                        
                        
                        1.3%
                        
                        
                        4.1%
                        
                        
                        5.7%Effectiveincometaxrate
                        
                        
                        5.7%
                        
                        
                        (7.3%
                        )
                        
                        4.0%
   85
   **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
 **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
  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):
  **2006**
                        
                        **200****5**Deferredtaxassets:Netoperatinglosscarryforwards
                        
                        $
                        8,763
                        
                        $
                        5,361Property,plantandequipment
                        
                        
                        1,341
                        
                        
                        1,326Accruedexpenses
                        
                        
                        513
                        
                        
                        552Others
                        
                        
                        -
                        
                        
                        26Grossdeferredtaxassets
                        
                        
                        10,617
                        
                        
                        7,265Lessvaluationallowance
                        
                        
                        (10,326
                        )
                        
                        (4,869
                        )Netdeferredtaxassets
                        
                        
                        291
                        
                        
                        2,396Deferredtaxliabilities:Unrealizedlossonderivativeinstruments
                        
                        
                        -
                        
                        
                        (5
                        )Property,plantandequipment
                        
                        
                        (291
                        )
                        
                        (518
                        )(291
                        )
                        
                        (523
                        )Netdeferredtaxassets
                        
                        $
                        -
                        
                        $
                        1,873
  At
                  March 31, 2006, the Group has tax loss carry forwards of $28,346,000
                  to offset
                  future taxable income, if any. Of this amount, $15,230,000 relating
                  to the U.S.
                  subsidiary expires from 2021 through 2026
                  and
                  $8,646,000 and $4,470,000 relating to the Hong Kong and United
                  Kingdom
                  operations, respectively, can be carried forward indefinitely.
  In
                  assessing the realizability of deferred tax assets, management
                  considers whether
                  it is more likely than not that some portion or all of the deferred
                  tax assets
                  will not be realized. Management considers the scheduled reversal
                  of deferred
                  tax liabilities, projected future taxable income, and tax planning
                  strategies in
                  making this assessment. A valuation allowance is provided to reduce
                  the deferred
                  tax assets to an amount that is more likely than not to be realized.
                  At March
                  31, 2006 and 2005, a full valuation allowance was provided for
                  Corgi U.S.
                  deferred tax assets consisting primarily of tax loss carry forwards.
                  Since
                  inception of Corgi’s U.S. operations in fiscal year 2000, Corgi has incurred
                  consistent loss. Management assessed that until the Corgi U.S.
                  operation can
                  demonstrate an ability to produce consistent profitable operations
                  to utilize
                  the tax loss carry forwards, the Group will continue to record
                  a valuation
                  allowance against the deferred tax asset. At March 31, 2006, a
                  full valuation
                  allowance was provided for Corgi U.K. deferred tax assets of $3,195,000.
                  Corgi’s
                  UK operation has a recent history of losses. As of March 31, 2006,
                  management considered that it is more likely than not that all
                  of the deferred
                  tax assets will not be realized. As of March 31, 2006 and 2005,
                  a valuation
                  allowance was also provided for deferred tax assets pertaining
                  to tax loss carry
                  forwards of the Group’s Hong Kong operations. The valuation allowance relating
                  to the Group’s Hong Kong operation was mainly based on the management’s
                  assessment that it was more likely than not that the tax loss carry
                  forwards
                  will not be utilized in the future.
  The
                  valuation allowance was $1,533,000 as of April 1, 2003. The valuation
                  allowance
                  increased by $995,000,
                  $2,341,000 and $5,457,000 for the years ended March 31, 2004, 2005
                  and 2006,
                  respectively.
   86
 
  **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
 
 **(12** **)** **Extraordinary** **** **item** **s**
  In
                  December 2004, the Group acquired the minority interest of 45%
                  shareholdings in
                  a subsidiary, Onchart Industrial Limited, at a cash consideration
                  of $667,000,
                  which was below the fair market value of the acquired net current
                  assets,
                  resulting in a negative goodwill. The net assets consisted primarily
                  of current
                  assets and liabilities. The negative goodwill was allocated as
                  a pro-rata
                  reduction of the amounts that would have been assigned to all of
                  the acquired
                  assets except for current assets and certain other assets required
                  to be
                  recorded at fair value.
  In
                  January 2006, the Group acquired all minority interests of its
                  subsidiary, Luen
                  Tat Model Design Company Limited, at a consideration which was
                  below the fair
                  market value of the acquired net current assets, resulting in a
                  negative
                  goodwill. The negative goodwill was allocated as a pro-rata reduction
                  of the
                  amounts that would have been assigned to all of the acquired assets
                  except for
                  current assets and certain other assets required to be recorded
                  at fair value.
                  The excess of $98,000 was recognized as extraordinary gain in the
                  consolidated
                  financial statements.
  **(13** **)** **Stock** **** **Option** **** **Pla** **n**
  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 are
                  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 two executive
                  officers
                  were accelerated in full during the year ended March 31, 2005.
                  Accordingly,
                  under the provisions of APB No. 25, as interpreted by FIN 44, the
                  acceleration
                  resulted in a new measurement date as the options would have been
                  forfeited
                  unvested. Compensation expenses of $211,000 were recorded as a
                  result of the
                  modification to accelerate vesting.
  At
                  March 31, 2006, 76,072 shares were available for grant under the
                  Plan. The per
                  share weighted average fair value of stock options granted during
                  2006, 2005,
                  and 2004 was $1.45, $3.19, and $2.96 on the date of grant using
                  the Black
                  Scholes option-pricing model with the following weighted average
                  assumptions:
                  2006 - expected dividend yield of 0.0%, risk-free interest rate
                  of 4.32%, and an
                  expected life of 5 years, expected stock price volatility of 59.25%,
                  2005 -
                  expected dividend yield of 0.0%, risk- free interest rate of 4.49%,
                  and an
                  expected life of 5 years, expected stock price volatility of 67.31%, 2004
                  -
                  expected dividend yield of 0.0%, risk-free interest rate of 3.57%,
                  and an
                  expected life of 5 years; expected
                  stock price volatility of 65.93%. Stock option activity during
                  the periods
                  indicated is as follows:
  **2006**
                        
                        **2005**
                        
                        **2004****Number**
                          **of
                            Options**
                        
                        
                        **Weighted
                            Average**
                          **Exercise**
                          **Price**
                        
                        **Number**
                          **of
                            Options**
                        
                        
                        **Weighted
                            Average**
                          **Exercise**
                          **Price**
                        
                        **Number**
                          **of
                            Options**
                        
                        
                        **Weighted
                            Average**
                          **Exercise**
                          **Price**BalanceatApril1
                        
                        
                        1,415,015
                        
                        
                        $
                        3.90
                        
                        
                        1,930,221
                        
                        
                        $
                        3.08
                        
                        
                        1,760,605
                        
                        
                        $
                        2.48Granted
                        
                        
                        467,000
                        
                        
                        
                        2.65
                        
                        
                        430,000
                        
                        
                        
                        5.33
                        
                        
                        520,534
                        
                        
                        
                        5.26Exercised
                        
                        
                        (540,000
                        )
                        
                        
                        2.43
                        
                        
                        (614,375
                        )
                        
                        
                        1.73
                        
                        
                        (188,443
                        )
                        
                        
                        1.99Forfeited
                        
                        
                        (195,030
                        )
                        
                        
                        4.69
                        
                        
                        (330,831
                        )
                        
                        
                        5.04
                        
                        
                        (162,475
                        )
                        
                        
                        4.77BalanceatMarch31
                        
                        
                        1,146,985
                        
                        
                        $
                        3.94
                        
                        
                        1,415,015
                        
                        
                        $
                        3.90
                        
                        
                        1,930,221
                        
                        
                        $
                        3.08
 
  87
 
  **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
  **AtMarch31,2006****Outstanding**
                          
                          **Exercisable****ExercisePrice($)**
                          
                          **Number**
                            **ofOptions**
                          
                          **W**eighte****d****
                            **Average**
                            **Unexpired**
                            **Life**
                          
                          **Number**
                            **ofOptions**
                          
                          **Weighted**
                              **Average**
                              **Unexpired****Life**1.51
                          
                          
                          75,000
                          
                          
                          6.49
                          
                          
                          75,000
                          
                          
                          6.491.54
                          
                          
                          19,481
                          
                          
                          6.44
                          
                          
                          19,481
                          
                          
                          6.441.5625
                          
                          
                          12,500
                          
                          
                          4.79
                          
                          
                          12,500
                          
                          
                          4.792.65
                          
                          
                          467,000
                          
                          
                          9.78
                          
                          
                          -
                          
                          
                          -3.03
                          
                          
                          30,000
                          
                          
                          6.81
                          
                          
                          30,000
                          
                          
                          6.814.76
                          
                          
                          55,004
                          
                          
                          8.66
                          
                          
                          26,672
                          
                          
                          8.494.87
                          
                          
                          55,000
                          
                          
                          7.22
                          
                          
                          27,500
                          
                          
                          7.225.02
                          
                          
                          25,000
                          
                          
                          8.55
                          
                          
                          25,000
                          
                          
                          8.555.1
                          
                          
                          50,000
                          
                          
                          8.69
                          
                          
                          15,626
                          
                          
                          8.695.5
                          
                          
                          100,000
                          
                          
                          8.00
                          
                          
                          100,000
                          
                          
                          8.005.77
                          
                          
                          150,000
                          
                          
                          8.19
                          
                          
                          65,625
                          
                          
                          8.195.98
                          
                          
                          33,000
                          
                          
                          8.12
                          
                          
                          15,158
                          
                          
                          8.126.75
                          
                          
                          25,000
                          
                          
                          2.08
                          
                          
                          25,000
                          
                          
                          2.086.82
                          
                          
                          35,000
                          
                          
                          7.95
                          
                          
                          17,522
                          
                          
                          7.956.875
                          
                          
                          15,000
                          
                          
                          3.81
                          
                          
                          15,000
                          
                          
                          3.811,146,985
                          
                          
                          8.41
                          
                          
                          470,084
                          
                          
                          7.15
  At
                    March 31, 2006, 2005 and 2004, the number of options exercisable
                    was 470,084,
                    882,515, and 1,405,638
                    respectively, and the weighted average exercise price of those
                    options was
                    $4.53, $3.08, and $2.62,
                    respectively.
 
 88
   **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
 
 **(14** **)** **Reconciliation** **** **of** **** **Net** **** **Loss** **** **to** **** **Net** **** **Cash** **** **(Used** **** **in)** **** **P** **r** **ovided** **** **by** **** **Operatin** **g** **** **Activitie** **s**
  The
                  reconciliation of net loss to net cash (used in) provided by operating
                  activities for the years ended March 31, 2006, 2005 and 2004 is
                  as follows (in
                  thousands):
  **2006**
                        
                        **2005**
                        
                        **2004**Netloss
                        
                        $
                        $
                          (35,355
                        )
                        $
                        (7,103
                        )
                        $
                        (5,309
                        )Lessextraordinarygain,netoftax
                        
                        
                        98
                        
                        
                        418
                        
                        
                        -Lessnetincome(loss)fromdiscontinuedoperations,netoftax
                        
                        
                        -
                        
                        
                        352
                        
                        
                        (1,882
                        )Netlossfromcontinuingoperations
                        
                        
                        (35,453
                        )
                        
                        (7,873
                        )
                        
                        (3,427
                        )Adjustmentstoreconcilenetlossfromcontinuingoperations
                          tonetcash(usedin)providedbyoperatingactivities:Minorityinterests
                        
                        
                        (31
                        )
                        
                        138
                        
                        
                        298Depreciation
                        
                        
                        5,962
                        
                        
                        6,677
                        
                        
                        6,387Amortizationoflanduserights
                        
                        
                        27
                        
                        
                        26
                        
                        
                        26Loss(gain)ondisposalofproperty,plantandequipment
                        
                        
                        9
                        
                        
                        (497
                        )
                        
                        (290
                        )Impairmentonlong-livedassets
                        
                        
                        1,439
                        
                        
                        -
                        
                        
                        -Impairmentofgoodwill
                        
                        
                        18,782
                        
                        
                        -
                        
                        
                        -Amortizationofloanarrangementfees
                        
                        
                        -
                        
                        
                        78
                        
                        
                        76Lossonimpairmentofavailable-for-saleinvestments
                        
                        
                        63
                        
                        
                        -
                        
                        
                        127Lossonderivativeinstruments
                        
                        
                        -
                        
                        
                        20
                        
                        
                        -Deferredtaxes
                        
                        
                        1,798
                        
                        
                        201
                        
                        
                        (775
                        )Decrease(increase)intradeaccountsreceivable
                        
                        
                        2,897
                        
                        
                        4,797
                        
                        
                        (1,968
                        )Decrease(increase)ininventories
                        
                        
                        4,365
                        
                        
                        (471
                        )
                        
                        (2,808
                        )(Increase)decreaseinprepaidexpensesandothercurrentassets
                        
                        
                        (122
                        )
                        
                        553
                        
                        
                        (976
                        )Decreaseinloanreceivable
                        
                        
                        -
                        
                        
                        260
                        
                        
                        573(Decrease)increaseintradeaccountspayable
                        
                        
                        (2,018
                        )
                        
                        (1,177
                        )
                        
                        4,884Increase(decrease)inreceiptsinadvance
                        
                        
                        449
                        
                        
                        (531
                        )
                        
                        335Increase(decrease)inaccruedexpenses
                        
                        
                        277
                        
                        
                        (3,741
                        )
                        
                        (374
                        )(Decrease)increaseinincometaxespayable
                        
                        
                        (379
                        )
                        
                        (2,604
                        )
                        
                        908Stockoptioncompensationcosts
                        
                        
                        -
                        
                        
                        211
                        
                        
                        -IncreaseintradeaccountspayablewithHuaYang
                        
                        
                        -
                        
                        
                        25
                        
                        
                        515Netcash(usedin)providedbyoperatingactivities
                        
                        $
                        (1,935
                        )
                        $
                        (3,908
                        )
                        $
                        3,511
  The
                  Group paid $1,038,000, $1,204,000 and $905,000 for interest for
                  the years ended
                  March 31, 2006,
                  2005 and 2004, respectively. The Group paid $487,000 and $1,791,000
                  for income
                  taxes for years ended March 31, 2006 and 2005, respectively, and
                  none for the
                  year ended March 31, 2004.
   89
 
  **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
 
 **(15** **)** **Deri** **v** **at** **i** **ve** **** **Instrument** **s**
  The
                    Group participates in the foreign exchange markets to minimize
                    its risk of loss
                    from fluctuations in currency exchange rates. The Group uses
                    foreign currency
                    forward contracts to hedge anticipated transactions that are
                    subject to foreign
                    currency exchange exposure. These contracts are highly effective
                    in hedging the
                    variability in future cash flows attributable to changes in foreign
                    currency
                    exchange rates. For those transactions that qualify for cash
                    flow hedge
                    accounting under SFAS 133, the instruments are recorded 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. As of March 31, 2006,
                    the Group had no
                    forward currency contracts outstanding. As of March 31, 2005,
                    an accumulated
                    unrealized loss of $15,000, net of tax of $5,000, on derivatives
                    designated as
                    cash flow hedges was reported in the accumulated other comprehensive
                    income
                    (loss) account within stockholders’ equity. The fair values of foreign currency
                    exchange contracts were determined using market exchange rates.
  For
                    those transactions that do not qualify for hedge accounting under
                    SFAS 133, the
                    adjustment to fair value is reported currently through earnings.
                    In 2004, the
                    Group did not apply hedge accounting for certain derivative contracts
                    and
                    accordingly, the fair value of these derivatives were recorded
                    in earnings. The
                    impact to earnings associated with these derivatives was a loss
                    of $209,000
                    associated with Hua Yang for the year ended March 31, 2004.
  **(16** **)** **Commitments** **** **and** **** **Contingencie** **s**
  ***(a*** ***)*** ***Operating*** ****** ***Lease*** ***s***
  The
                  Group has several non-cancelable operating leases, primarily for
                  office, staff
                  quarters and warehouse space, that expire over the next 10 years.
                  Rental expense
                  for operating leases for the years ended March 31, 2006, 2005 and
                  2004 was
                  approximately $1,011,000, $1,166,000, and $626,000, respectively.
                  At March 31,
                  2006, future minimum payments under agreements classified as operating
                  leases
                  with non-cancelable terms are as follows (in thousands):
  YearendingMarch31:2007
                        
                        $
                        7772008
                        
                        
                        4372009
                        
                        
                        2822010
                        
                        
                        1972011
                        
                        
                        195Thereafter
                        
                        
                        731$
                        2,619
   90
 
  **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
 
 ***(b*** ***)*** ***Capital*** ****** ***Commitment*** ***s***
  At
                  March 31, 2006, the Group has authorized and contracted for the
                  purchase of
                  certain machinery and equipment. The future amount payables under
                  these
                  contracts are as follows (in thousands):
  YearendingMarch31:2007
                        
                        $
                        9372008
                        
                        
                        -2009
                        
                        
                        -2010
                        
                        
                        -2011
                        
                        
                        -Thereafter
                        
                        
                        -$
                        937
  ***(c*** ***)*** ***Licensing*** ****** ***Commitment*** ***s***
  The Group entered into several licensing agreements to acquire
                  the rights to
                  manufacture and distribute licensed property. These agreements
                  cover differing
                  periods ranging from three to four years. Under the licensing agreements,
                  the
                  Group is required to pay minimum royalty fees which are payable
                  by installments
                  over the life of the agreements. At March 31, 2006, the future
                  minimum royalty
                  fees payable under these licensing agreements are as follows (in
                  thousands):
  YearendingMarch31:2007
                          
                          $
                          6052008
                          
                          
                          3602009
                          
                          
                          22010
                          
                          
                          92011
                          
                          
                          -Thereafter
                          
                          
                          -$
                          976
 **(17** **)** **Reti** **r** **ement** **** **Plan** **s**
  The
                  Group’s employees in the United Kingdom and the United States of America,
                  after
                  completing a probation period, were entitled to join defined contribution
                  provident funds managed by independent trustees in the United Kingdom
                  and the
                  United States. 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.
  The
                  Group makes monthly contributions to the schemes ranging from 5%-11%
                  for its
                  employee in United Kingdom and 3% for its employee in United States
                  of the
                  employees’ basic salaries. The employees are entitled to receive 100% of the
                  employer’s contribution and the accrued interest 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.
   91
   **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
  The
                  aggregate amount of the Group’s employer contributions to the retirement plans
                  for the years ended March 31, 2006, 2005 and 2004 was approximately
                  $354,000,
                  $399,000, and $346,000, respectively.
  **(18)  
                  Concentrations of Risk**
  The
                  Group’s accounts receivable are subject to a concentration of credit
                  risk with
                  customers in North America and the United Kingdom. A small number
                  of customers
                  account for a large share of the Group’s net sales. The Group’s top five
                  customers accounted for 42.6%, 42.2% and 38.7% of the Group’s net sales in the
                  fiscal years ended March 31, 2006, 2005 and 2004, respectively.
                  Three individual
                  customers, Hallmark Cards, Inc. ("Hallmark"), Jada Toys, Inc. ("Jada")
                  and
                  Mattel® Toys
                  ("Mattel"), all of whom are customers of Zindart Manufacturing,
                  each accounted
                  for more than 5% of the Group’s sales in the year ended March 31, 2006. Sales to
                  Hallmark, Jada and Mattel represented 16.2%, 11.9%, and 7.8%, respectively,
                  of
                  the total net sales for the year ended March 31, 2006. The Group’s dependence on
                  its major customers is expected to continue in the foreseeable
                  future. The
                  concentration of the Group’s business with a relatively small number of
                  customers may expose the Group to significantly decreased revenues
                  and profits
                  if one or more of its large customers were to significantly reduce
                  purchases for
                  any reason. Customers make no binding long-term commitments to
                  the Group
                  regarding purchase volumes and make all purchases by delivering
                  one-time
                  purchase orders. Any customer could reduce its overall purchases
                  of the Group’s
                  products, reduce the number and variety of the Group’s products that it carries
                  and the shelf space allotted for the Group’s products, or otherwise seek to
                  materially change the terms of the business relationship at any
                  time. Any such
                  change could significantly impact the Group’s business and operating results. In
                  addition, the loss of any one of its major customers, particularly
                  Hallmark,
                  Mattel or Jada, would have a material adverse effect on the Group’s business,
                  financial condition and results of operations. Further, several
                  of the Group’s
                  licenses apply to products that generate a large volume of sales.
                  To the extent
                  the Group is unable to maintain these licenses, the lost sales
                  would have a
                  significant impact on future sales.
 
 The
                  Group performs ongoing credit evaluations of its customers’ financial condition
                  and generally requires no collateral from its customers. The Group’s five
                  largest trade accounts receivable accounted for approximately 40.4%
                  of the
                  Group’s total gross trade accounts receivable as of March 31, 2006. There
                  is a
                  risk that customers will not pay, or that payment may be delayed,
                  because of
                  bankruptcy or other factors beyond the Group’s control, which could increase the
                  Group’s exposure to losses from bad debts. In addition, if these or other
                  customers were to cease doing business as a result of bankruptcy,
                  or
                  significantly reduce the number of stores operated, it could have
                  a material
                  adverse effect on the Group’s business, financial condition and results of
                  operations.
  The
                  Group relies on several original equipment manufacturers ("OEM"),
                  all based in
                  the PRC, to produce its products. Manufacturing alternatives may
                  be available in
                  the PRC, but there can be no assurance that the Group will be able
                  to find
                  alternate quality producers on a timely basis, if at all. In addition,
                  prices
                  charged by the alternate vendors may be higher than charged by
                  the Group’s
                  current OEM. The related price increases could unfavorably impact
                  the Group’s
                  financial results.
  **(19)  
                  Segment Information**
  Subsequent
                  to the sale of Hua Yang in May 2004, the Group’s operating segments consist of
                  Corgi and Zindart Manufacturing. Corgi primarily consists of the
                  design,
                  marketing and distribution of die-cast products under its proprietary
                  brand
                  names. Zindart Manufacturing primarily consists of OEM manufacturing
                  of die-cast
                  and plastic injection-molded collectible, gifts and toy products.
                  The accounting
                  policies of the segment are the same as those described in the
                  summary of
                  significant accounting policies. Management evaluates
                  performance of the segment based on profit or loss from operations
                  before income
                  taxes but not including corporate general and administrative expenses,
                  interest
                  income, interest expense and other non- operating income (loss).
   92
 
 **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
 
 The  s e gment  information  relating  to  Co r gi  and  Zindart  Manu f acturing  are  as  foll o ws  (in  thousands) :
 
 ***(a*** ***)*** ***Net*** ****** ***Sale*** ***s***
  **200****6**
                        
                        **2005**
                        
                        **2004**Netsalesconsistofthefollowing:Manufacturingofdie-castandinjection-moldedplastic
                          products
                        
                        $
                        40,302
                        
                        $
                        49,526
                        
                        $
                        46,075Design,marketinganddistributionofdie-castproductsunder
                          proprietarybrandnames
                        
                        
                        36,092
                        
                        
                        43,214
                        
                        
                        49,744$
                        76,394
                        
                        $
                        92,740
                        
                        $
                        95,819
  **2006**
                          
                          **2005**
                          
                          **2004**Geographicalanalysisofnetsalesisasfollows:Manufacturingofdie-castandinjection-moldedplastic
                            productsUnited States of America
                          
                          $
                          37,486
                          
                          $
                          48,716
                          
                          $
                          45,397Europe
                          
                          
                          -
                          
                          
                          -
                          
                          
                          616Others
                          
                          
                          2,816
                          
                          
                          810
                          
                          
                          6240,302
                          
                          
                          49,526
                          
                          
                          46,075Design,marketinganddistributionofdie-castproductsunder
                            proprietarybrandnamesUnitedKingdom
                          
                          
                          24,261
                          
                          
                          32,370
                          
                          
                          35,443OtherEuropeancountries
                          
                          
                          2,164
                          
                          
                          3,080
                          
                          
                          3,083UnitedStatesofAmerica
                          
                          
                          7,396
                          
                          
                          6,441
                          
                          
                          9,956Others
                          
                          
                          2,271
                          
                          
                          1,323
                          
                          
                          1,26236,092
                          
                          
                          43,214
                          
                          
                          49,744$
                          76,394
                          
                          $
                          92,740
                          
                          $
                          95,819
   **2006**
                        
                        **2005**
                        
                        **2004**NetSalesbymajorproductcategoryareToys
                        
                        $
                        39,452
                        
                        $
                        44,767
                        
                        $
                        41,925Premium
                        
                        
                        1,433
                        
                        
                        8,808
                        
                        
                        8,095Collectibles
                        
                        
                        35,509
                        
                        
                        39,165
                        
                        
                        45,799$
                        76,394
                        
                        $
                        92,740
                        
                        $
                        95,819
   93
   **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
 
 ***(b*** ***)*** ***Operating*** ****** ***(Loss)*** ****** ***Incom*** ***e***
  **200****6**
                        
                        **2005**
                        
                        **2004**Manufacturingofdie-castandinjection-moldedplastic
                          products(notea)
                        
                        $
                        (5,101
                        )
                        $
                        455
                        
                        $
                        846Design,marketinganddistributionofdie-castproductsunder
                          proprietarybrandnames(noteb)
                        
                        
                        (25,962
                        )
                        
                        (5,561
                        )
                        
                        (688
                        )Corporategeneralandadministrativeexpenses
                        
                        
                        (2,007
                        )
                        
                        (2,279
                        )
                        
                        (2,170
                        )Interestincome
                        
                        
                        85
                        
                        
                        138
                        
                        
                        39Interestexpense
                        
                        
                        (1,038
                        )
                        
                        (1,204
                        )
                        
                        (905
                        )Otherincome(loss)
                        
                        
                        446
                        
                        
                        104
                        
                        
                        (130
                        )Lossbeforeincometaxes
                        
                        $
                        (33,577
                        )
                        $
                        (8,347
                        )
                        $
                        (3,008
                        )
  (note a)
                            The
                                amount includes
                                impairment of long-lived assets of $1,439,000 and
                                impairment of goodwill
                                of $414,000.
  (note b)
                            The
                                amount includes
                                impairment of goodwill of $18,368,000.
 
 
 94
 
  **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
 
 ***(c*** ***)*** ***Reportable*** ****** ***Segmen*** ***t*** ****** ***Assets,*** ****** ***Capital*** ****** ***Expenditures,*** ****** ***Depreciation*** ****** ***an*** ***d*** ****** ***Amortizatio*** ***n***
  Assets
                  that are included in the measure of the segment’s assets that is used by the
                  chief operating decision maker represent cash and cash equivalents,
                  trade
                  accounts receivable, net, inventories, property, plant and equipment,
                  and
                  goodwill.
  The
                  reconciliation of such segment assets to the corresponding amounts
                  in the
                  consolidated balance sheet is as follows:
  **2006**
                        
                        **2005**Manufacturingofdie-castandinjection-moldedplastic
                          products(note)
                        
                        $
                        90
                        
                        $
                        -Design,marketinganddistributionofdie-castproducts
                          underproprietarybrandnames
                        
                        
                        262
                        
                        
                        764Corporate
                        
                        
                        468
                        
                        
                        6,248Totalcashandcashequivalents
                        
                        $
                        820
                        
                        $
                        7,012Manufacturingofdie-castandinjection-molded
                          plasticproducts(note)
                        
                        $
                        4,359
                        
                        $
                        -Design,marketinganddistributionofdie-castproducts
                          underproprietarybrandnames
                        
                        
                        5,702
                        
                        
                        6,579Totaltradeaccountsreceivable,net
                        
                        $
                        10,061
                        
                        $
                        6,579Manufacturingofdie-castandinjection-molded
                          plasticproducts(note)
                        
                        $
                        5,096
                        
                        $
                        -Design,marketinganddistributionofdie-castproducts
                          underproprietarybrandnames
                        
                        
                        5,176
                        
                        
                        6,864Totalinventories,net
                        
                        $
                        10,272
                        
                        $
                        6,864Manufacturingofdie-castandinjection-molded
                          plasticproducts(note)
                        
                        $
                        10,207
                        
                        $
                        -Design,marketinganddistributionofdie-castproducts
                          underproprietarybrandnames
                        
                        
                        6,245
                        
                        
                        7,927Corporate
                        
                        
                        5
                        
                        
                        6Totalproperty,plantandequipment,net
                        
                        $
                        16,457
                        
                        $
                        7,933Design,marketinganddistributionofdie-castproducts
                          underproprietarybrandnames
                        
                        $
                        16,944
                        
                        $
                        35,312Totalgoodwill
                        
                        $
                        16,944
                        
                        $
                        35,312
 __________
 (note)
                            The
                                amount of reportable segment assets in relation to
                                the manufacturing of
                                die-cast and injection- molded plastic products reportable
                                segment in 2005
                                are disclosed in note 2.
   95
 
  **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
  **2006**
                        
                        **2005**
                        
                        **2004**Capitalexpenditures:Manufacturingofdie-castandinjection-moldedplastic
                          products
                        
                        $
                        381
                        
                        $
                        1,928
                        
                        $
                        2,408Design,marketinganddistributionofdie-castproductsunder
                          proprietarybrandnames
                        
                        
                        3,334
                        
                        
                        3,164
                        
                        
                        3,180Corporate
                        
                        
                        -
                        
                        
                        6
                        
                        
                        -$
                        3,715
                        
                        $
                        5,098
                        
                        $
                        5,588Depreciationandamortization:Manufacturingofdie-castandinjection-moldedplastic
                          products
                        
                        $
                        1,701
                        
                        $
                        1,582
                        
                        $
                        1,680Design,marketinganddistributionofdie-castproductsunder
                          proprietarybrandnames
                        
                        
                        4,287
                        
                        
                        5,199
                        
                        
                        4,809Corporate
                        
                        
                        1
                        
                        
                        -
                        
                        
                        -$
                        5,989
                        
                        $
                        6,781
                        
                        $
                        6,489
 *(d)Long-Lived**Assets***
  **2006**
                        
                        **2005**Geographicanalysisoflong-livedassetsisasfollows:HongKongandMainlandChina(note)
                        
                        $
                        11,147
                        
                        $
                        6UnitedKingdom
                        
                        
                        23,189
                        
                        
                        43,239$
                        34,336
                        
                        $
                        43,245
  __________
 (note)
                        The
                            amount of long-lived assets in Hong Kong and Mainland
                            China in 2005
                            exclude the long- lived assets associated with Zindart
                            Manufacturing of
                            $14,343,000.
  **
                  Long-lived assets represent property, plant and equipment, land
                  use right and
                  goodwill.
   96
 
   **CORGI** **** **INTER** **N** **A** **T** **IO** **N** **AL** **** **LIMITE** **D** **** **AND** **** **SUBSIDIARIE** **S**
  **Notes** **** **to** **** **Consolidated** **** **Financial** **** **Statement** **s** **** **—** **** **(Continued** **)**
 
 **(20** **)** **Loss** **** **per** **** **Sha** **re**
 
 The  foll o wing  tables  sets  forth  the  computation  of  basic  and  diluted  loss  per  common  share  at  Marc h 31,  2006 :
  **2006**
                        
                        **2005**
                        
                        **2004**Numeratorforbasicanddilutedlosspercommonshare:Lossfromcontinuingoperations
                        
                        $
                        (35,453
                        )
                        $
                        (7,873
                        )
                        $
                        (3,427
                        )Income(loss)fromdiscontinuedoperations
                        
                        
                        -
                        
                        
                        352
                        
                        
                        (1,882
                        )Extraordinarygain
                        
                        
                        98
                        
                        
                        418
                        
                        
                        -Netloss
                        
                        $
                        (35,355
                        )
                        $
                        (7,103
                        )
                        $
                        (5,309
                        )Denominator:Basicweightedaveragenumberofcommonsharesoutstanding
                        
                        
                        9,763,957
                        
                        
                        9,487,129
                        
                        
                        8,907,015Effectofdilutiveoptions
                        
                        
                        -
                        
                        
                        -
                        
                        
                        -Dilutedweightedaveragenumberofcommonsharesoutstanding
                        
                        
                        9,763,957
                        
                        
                        9,487,129
                        
                        
                        8,907,015Basiclosspercommonshare:Lossfromcontinuingoperations
                        
                        $
                        (3.63
                        )
                        $
                        (0.83
                        )
                        $
                        (0.38
                        )Income(loss)fromdiscontinuedoperations
                        
                        
                        -
                        
                        
                        0.04
                        
                        
                        (0.22
                        )Extraordinarygain
                        
                        
                        0.01
                        
                        
                        0.04
                        
                        
                        -Netloss
                        
                        $
                        (3.62
                        )
                        $
                        (0.75
                        )
                        $
                        (0.60
                        )Dilutedlosspercommonshare:Lossfromcontinuingoperations
                        
                        $
                        (3.63
                        )
                        $
                        (0.83
                        )
                        $
                        (0.38
                        )Income(loss)fromdiscontinuedoperations
                        
                        
                        -
                        
                        
                        0.04
                        
                        
                        (0.22
                        )Extraordinarygain
                        
                        
                        0.01
                        
                        
                        0.04
                        
                        
                        -Netloss
                        
                        $
                        (3.62
                        )
                        $
                        (0.75
                        )
                        $
                        (0.60
                        )
 Stock
                    options for 212,221, 516,422 and 1,102,638 shares of common stock
                    for the years
                    ended March 31,
                    2006,
                    2005 and 2004, respectively, were not included in computing diluted
                    loss per
                    common share since their effects were anti-dilutive due to the
                    net loss from
                    continuing operations for the year.
  **(21)  
                    Subsequent Events**
  On
                    April 28, 2006, the Company issued convertible subordinated notes
                    and warrants
                    in a private placement, with gross proceeds to the Company of
                    $5.65 million,
                    with certain institutional and individual accredited investors.
                    The CEO of the
                    Company and a director of the board of the Company purchased $100,000
                    and $50,000, respectively, of the notes. The notes, in original
                    principal amount
                    of $5.65 million, mature in October 2008 and will be exchangeable
                    at the option
                    of the holders into the Company’s American Depositary Shares at a conversion
                    price of $2.00 per share. The warrants are exercisable for 988,750
                    of the Company’s American Depositary Shares for an exercise price of $0.07 per
                    share if certain conditions are not met. The warrants may not
                    be exercised and
                    the notes may not be exchanged for American Depositary Shares
                    until the issuance
                    of the Ordinary Shares underlying said American Depositary Shares
                    have been
                    approved by the Company’s shareholders. The Company held an extraordinary
                    general meeting
                    of its shareholders for this purpose on June 26, 2006, where
                    the issuance of the
                    Ordinary Shares underlying said American Depositary Shares was
                    approved. The
                    Company has agreed to register for resale the American Depositary
                    Shares
                    issuable upon exchange of the notes and upon exercise of the
                    warrants. The
                    warrant agreement does not specify the consequences or penalty
                    imposed against
                    the Company in the event the Company is unable to register for
                    the resale of the
                    American Depositary Shares upon exercise of the warrants.
 97
   **CORGI
                    INTERNATIONAL LIMITED AND SUBSIDIARIES**
  **Notes
                    to Consolidated Financial Statements — (Continued)**
 The
                  Group has accounted for its convertible subordinated notes in accordance
                  with
                  Emerging issues Task Force ("EITF") 00-27, Application of Issue
                  No. 98-5 to
                  Certain Convertible Instruments, which requires the proceeds received
                  from the
                  financing transaction to be allocated to the convertible instruments
                  and the
                  detachable warrants on a relative fair value basis. The embedded
                  beneficial
                  conversion feature shall be measured by allocating a portion of
                  the proceeds in
                  relation to the convertible instruments, equivalent to the intrinsic
                  value of
                  the embedded conversion option, using an effective conversion price.
                  The
                  discount resulting from recording the beneficial conversion option
                  and the fair
                  value of the warrants is recognized as a reduction to the carrying
                  amount of the
                  convertible debt which is accreted from the date of issuance to
                  the stated
                  redemption date of the convertible instrument through a charge
                  to earnings as
                  interest expense.
  The
                  interest rate of the convertible subordinated notes is at 11% per
                  annum until
                  and including the date on which the shareholder’s approval of the issuance of
                  the ordinary shares underlying the Company’s American Depositary Shares is
                  obtained and at 7.5% per annum thereafter. Under EITF No. 00-19,
                  Accounting for
                  Derivative Financial Instruments Indexed to, and Potentially Settled
                  in, a
                  Company’s Own Stock, if (a) a derivative contract requires physical or
                  net-share
                  settlement by delivery of registered shares and does not specify
                  any
                  circumstances under which net-cash settlement would be permitted
                  or required and
                  (b) the contract does not specify how the contract would be settled
                  in the event
                  that the company is unable to deliver registered shares, then net-cash
                  settlement is assumed if the company is unable to deliver registered
                  shares
                  (because it is unlikely that nonperformance would be an acceptable
                  alternative).
                  As a consequence of EITF No. 00-19, a derivative within the parameters
                  must be
                  classified as an asset or a liability because share settlement
                  is not within the
                  company’s control. Accordingly, the fair value of the warrants would be
                  recorded
                  as a liability with any changes in the fair value of the warrants
                  at each
                  reporting date being recorded through the Company’s statement of operations. The
                  warrants will continue to be reported as a liability until such
                  time as the
                  warrants are exercised, expire, or the Company is otherwise able
                  to revise the
                  warrant agreement to specify (a) whether net-cash settlement would
                  be permitted
                  or required or (b) how the contract would be settled in the event
                  that the
                  Company is unable to deliver registered shares. In August 2006,
                  the Company
                  obtained a waiver from the warrant holders to waive any default
                  or failure to
                  comply with any obligation, and agreed to refrain from enforcement
                  of any
                  obligation the Company may otherwise have, should the Company be
                  unable to
                  register for the resale of the American Depositary Shares upon
                  exercise of the
                  warrants. Accordingly, the warrants would be reclassified as equity
                  as the share
                  settlement is now within the Company’s control.
 
 98
 **CORGI
                    INTERNATIONAL LIMITED AND SUBSIDIARIES**
  **Notes
                    to Consolidated Financial Statements — (Continued)**
 **Item
                    19.** ***Exhibits***
  1(a)
                          Memorandum
                              of Association of the Company.(1)  1(b)
                          Articles of Association
                            of the
                            Company.(2)  2(a)(1)
                          Exchange
                              Agreement by and among Corgi International Limited,
                              Hua Yang HoldingsCo.,
                              Ltd., Hua Yang Printing Holdings Co., Limited, the
                              shareholders of Hua
                              YangHoldings
                              Co., Ltd. and certain beneficial owners of such shareholders,
                              dated
                              February13,
                              1998.(2)  2(a)(2)
                          Form
                              of Deposit Agreement by and among Corgi International
                              Limited, The Bank ofNew
                              York and Owners and Holders of American Depositary
                              Receipts, dated at
                              January1997.(1)  2(a)(3)
                          Amended and Restated
                            1997 Equity Incentive
                            Plan.(7)  4(a)(1)
                          Sino-Foreign
                              Co-Operation Contract, Zindart Toys (Dongguan) Company
                              Limited,between
                              Dongguan Hengli Trading General Company and Zindart
                              Industrial CompanyLimited,
                              dated September 8, 1994.(1)  4(a)(2)
                          Sino-Foreign
                              Co-Operation Contract, Zindart Toys (Dongguan)Company
                              Limited, Supplemental Contract, between Dongguan Hengli
                              TradingGeneral
                              Company and Zindart Industrial Company Limited, dated
                              December 5,1995.(1)  4(a)(3)
                          Sino-Foreign
                              Co-operation Contract by and between Shenzhen City
                              Boan DistrictXixian
                              Town Gushu Economic Development Company Limited and
                              Hua YangPrinting
                              Holdings Co. Limited, dated May 28,
                              1995.(2)  4(a)(4)
                          Processing
                              Agreement by and between Corgi International Limited
                              and DongguanHengli
                              Industry Development Company, dated August 18, 1997.
                              (2)  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 betweenGushu
                              Economic Development Company and Huan Printing Group
                              Company, datedJanuary
                              24, 1995.(2)  4(a)(10)
                          Tenancy
                              Agreement of Dormitory by and between Gushu Economic
                              Development Co.and
                              Huaxuan Printing Company Limited, dated August
                              1997.(2)  4(a)(11)
                          Standard Chartered Bank,
                            Banking Facility: Hua
                            Yang, dated March 22, 2000.(3)
  99
 **CORGI
                      INTERNATIONAL LIMITED AND SUBSIDIARIES**
  **Notes
                      to Consolidated Financial Statements — (Continued)**
  4(a)(12)
                          Standard Chartered Bank,
                            Banking Facility:
                            Corgi International Limited dated March 22, 2000.(3)  4(a)(13)
                          Hong Kong Bank, Banking
                            Facilities, dated
                            April 25, 2000.(3)  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.(4)  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.(4)  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 tothe
                              Term Loan of US$9,000,000, dated March 8,
                              2001.(6)  4(a)(17)
                          Zindart Loan and
                              Security Agreement and
                              Agreement, May 13, 1999, by and among Corgi International
                              Limited (Hong Kong), Intervisual Books, Inc. and Fast
                              Forward Marketing,Inc.(5)  4(a)(18)
                          Extension
                              Notice, May 29, 2000, delivered pursuant to the Zindart
                              Loan and SecurityAgreement
                              and Agreement, May 13, 1999, by and among Corgi International
                              Limited
                              (HongKong),
                              Intervisual Books, Inc. and Fast Forward Marketing,
                              Inc.(5)  4(a)(19)
                          Amendment
                              No. 1 to the Zindart Loan and Security Agreement and
                              Agreement, April 16,2001,
                              by and among Corgi International Limited (Hong Kong),
                              Intervisual Books,
                              Inc. andFast
                              Forward Marketing, Inc.(5)  4(a)(20)
                          Amendment
                              No. 2 to the Zindart Loan and Security Agreement and
                              Agreement, December31,
                              2001, by and among Corgi International Limited (Hong
                              Kong), Intervisual
                              Books, Inc.and
                              Fast Forward Marketing, Inc.(5)  4(a)(21)
                          Note and Warrant
                              Purchase Agreement dated
                              April 28, 2006, by and between Corgi International
                              Limited and certain investors listed on the Schedule
                              of Purchasers
                              attachedthereto.(8)  4(a)(22)
                          Form of Promissory
                              Note issued by Corgi
                              International Limited to the other parties to the Note
                              and Warrant Purchase Agreement dated April 28,
                              2006.(8)  4(a)(23)
                          Form of Warrant issued
                            by Corgi International
                            Limited to the other parties to the Note and Warrant
                            Purchase Agreement dated April 28,
                            2006.(8)  4(c)(1)
                          Employment
                              Agreement, by and between Corgi International Limited
                              and Peter A.J.
                              Gardiner,dated
                              March 14, 2005.  4(c)(2)
                          Employment Agreement,
                              between Hua Yang
                              Printing Holdings Co., Ltd., a wholly-owned subsidiary
                              of Corgi International Limited, and Kevin Murphy, dated
                              November 1,
                              2001.(5)  4(c)(3)
                          Employment Agreement,
                              between Corgi
                              International Limited and Richard Tong, dated December
                              17, 2001.(5)
   100
 **CORGI
                      INTERNATIONAL LIMITED AND SUBSIDIARIES**
  **Notes
                      to Consolidated Financial Statements — (Continued)**
  4(c)(4)
                          Option
                            Agreement, between Corgi International Limited and Peter
                            A.J. Gardiner,
                            dated at
                            October 31, 2000.(7)  4(c)(5)
                          Option Agreement, between
                            Corgi International
                            Limited and Christopher Guest, dated at
                            January 11, 2001.(7)  4(c)(6)
                          Employment Agreement,
                            by and between Corgi
                            International Limited and George Volanakis,
                            dated February 13, 2004.  4(c)(7)
                          Amendment to Employment
                            Agreement dated
                            February 13, 2004 by and between Corgi
                            International Limited and George Volanakis, dated September
                            26,
                            2005.  4(c)(8)
                          Amendment to Employment
                            Agreement dated
                            February 13, 2004 by and between Corgi
                            International Limited and George Volanakis, dated January
                            6,
                            2006.  4(c)(9)
                          Employment Agreement,
                            by and between Corgi
                            International Limited and Ken Fowler, dated
                            August 30, 2002.  4(c)(10)
                          Amendment to Employment
                            Agreement dated August
                            30, 2002 by and between Corgi
                            International Limited and Ken Fowler, dated April 15,
                            2006.  8.1
                          List of
                            subsidiaries  12.1
                          Section 302 Certification
                            of George
                            Volanakis  12.2
                          Section 302 Certification
                            of Ken
                            Fowler  13.1
                          Section 906 Certification
                            of George Volanakis
                            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 F-1, as
                              amended(File
                              No. 333-08134).
  (3)
                          Incorporated
                              by reference to the Registrant’s Annual Report on Form 10-K, filed June
                              29, 2000(File
                              No. 000-22161).
  (4)
                          Incorporated
                              by reference to the Registrant’s Quarterly Report on Form 10-Q, filed
                              February14,
                              2001 (File No. 000-22161).
  (5)
                          Incorporated
                              by reference to the Registrant’s Quarterly Report on Form 10-Q, filed
                              February12,
                              2002.
  (6)
                          Incorporated
                              by reference to the Registrant’s Annual Report on Form 10-K, filed June
                              28, 2001.
  (7)
                          Incorporated
                              by reference to the Registrant’s Annual Report on Form 10-K, filed July 1,
                              2002.
  (8)
                          Incorporated
                              by reference to the Registrant’s Report of Foreign Issuer on 6-K, filed
                              May 26, 2006.
   101
   **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.
  CORGIINTERNATIONALLIMITED/s/
                                KEN FOWLER**Ken
                                Fowler**
                              *Chief
                                  Financial Officer*
                                *(Principal
                                  Financial Officer)*Date:
                              August 22,
                              2006
           102