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Form 10-K for Zindart Ltd. filed on June 25 1999

                       SECURITIES AND EXCHANGE COMMISSION

                              WASHINGTON, DC 20549

                        ---------------------------------

                                    FORM 10-K

                        FOR ANNUAL AND TRANSITION REPORTS

                     PURSUANT TO SECTIONS 13 OR 15(d) OF THE

                         SECURITIES EXCHANGE ACT OF 1934

(Mark One)

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

        For the fiscal year ended March 31, 1999 OR

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

        For the transition period from __________ to __________

                        Commission file number: 000-22161

                                 ZINDART LIMITED
             (Exact Name of Registrant as Specified in its Charter)

HONG KONG                                   Not Applicable
(State or Other Jurisdiction of             (I.R.S. Employer Identification No.)
Incorporation or Organization)

Flat C&D, 25/F, Block 1, Tai Ping Industrial Centre          Not Applicable
57 Ting Kok Road, Tai Po, N.T., Hong Kong                    (Zip Code)
(Address of Principal Executive Offices)

Registrant's telephone number, including area code: 011-852-2665-6992

Securities registered pursuant to Section 12(b) of the Act:

       Title of Each Class          Name of Each Exchange on Which Registered

       Not Applicable.              Not Applicable.

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

                           AMERICAN DEPOSITARY SHARES

                         (Representing Ordinary Shares)

                                (Title of Class)

Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in the definitive proxy or information
statements incorporated by reverence in Part III of this Form 10-K of any
amendment to this Form 10-K. [X]

The approximate aggregate market value of the American Depositary Shares
("ADSs") held by non-affiliates of the Registrant, based upon the last sale
price of the ADSs reported on the Nasdaq National Market on June 24, 1999 was
$41,518,853.

The number of ordinary shares ("Shares") outstanding as of March 31, 1999 was
8,813,625.



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REPORTS TO SHAREHOLDERS

The Company is publishing this report on Form 10-K, and the Company intends to
publish its subsequent quarterly reports on Form 10-Q in order to provide
additional information to the Company's shareholders. However, the Company, as a
foreign private issuer, is not required to publish these reports on these forms
and may discontinue doing so at any time without prior notice. Moreover, as a
foreign private issuer, the Company is and will remain exempt from Section
14(a), 14(b), 14(c) and 14(f) of the Securities Exchange Act of 1934 (the
"Exchange Act"), and the Company's officers, directors and principal
shareholders are and will remain exempt from the reporting and "short-swing"
profit recovery provisions contained in Section 16 of the Exchange Act, until
such time as the Company ceases to be a foreign private issuer.

FORWARD-LOOKING STATEMENTS

This annual report (the "Annual Report") on Form 10-K contains forward-looking
statements that are subject to risks and uncertainties which could differ
materially from those anticipated. Risks and uncertainties include, in addition
to those discussed below under "Item 1-- Risk Factors" and without limitation,
changes in market demand for the Company's products, changes in economic
conditions and dependence on certain customers. The Company undertakes no
obligation to revise these forward-looking statements to reflect subsequent
events or circumstances.

DOCUMENTS INCORPORATED BY REFERENCE

Certain parts of the Zindart Limited Proxy Statement relating to the annual
general meeting of shareholders to be held on September 10, 1999 (the "Proxy
Statement") and to be filed on Form 6-K are incorporated by reference into Part
III of this Annual Report on Form 10-K.

CURRENCY CONVERSIONS

All references in this Annual Report on Form 10-K to "U.S. Dollars," "Dollars,"
"US$" or "$" alone are to United States dollars; all references to "HK Dollars"
or "HK$" are to Hong Kong dollars; and all references to "Renminbi" or "Rmb" are
to Renminbi, which is the currency of the People's Republic of China (the
"PRC"). This Annual Report on Form 10-K contains translations of certain HK
Dollar amounts into U.S. Dollar amounts at specified rates. These translations
should not be construed as representations that the HK Dollar amounts actually
represent or represented such U.S. Dollar amounts or could be or could have been
converted into U.S. Dollars at the rates indicated. Unless otherwise stated, the
translations of HK Dollars into U.S. Dollars have been made at the rate of
US$1.00 = HK$7.75.

PART I

ITEM 1 -  BUSINESS

Zindart Limited ("Zindart" or the "Company") was organized under the laws of
Hong Kong in 1978. Unless the context otherwise requires, references in this
Annual Report on Form 10-K to the "Company" refer to Zindart Limited and its
subsidiaries (including Hua Yang), the term "Zindart" refers to Zindart Limited
and its subsidiaries (excluding Hua Yang) and the term "Hua Yang" refers to Hua
Yang Holdings Co., Ltd., its main operating subsidiary, Hua Yang Printing
Holdings Co., Limited, and its other subsidiaries. The Company's executive
offices are located at Flat C&D, 25/F, Block 1, Tai Ping Industrial Centre, 57
Ting Kok Road, Tai Po, N.T., Hong Kong, and its telephone number is: 011-852-
2665-6992.

The Company is a turnkey manufacturer of high-quality die-cast, injection-molded
and paper products that require a significant degree of engineering and
hand-assembly expertise to produce. The Company manufactures die-cast
collectibles, collectible holiday ornaments and toys, hand-made books, specialty
packaging and other paper products. The Company is headquartered in Hong Kong
and its manufacturing operations are located in the neighboring Guangdong
Province of the PRC.

The Company serves a growing number of customers that are brand-name marketers
of die-cast and injection-molded giftware and collectibles, as well as packagers
and publishers of books in the United States and Europe. Customers for die-cast
and injection-molded products include Hallmark Cards, Inc. ("Hallmark"), The
Ertl Company ("Ertl"), Mattel(R) Toys ("Mattel(R)"), Hasbro, Inc., Sieper Werke
GmbH and Revell Monogram. Customers for books, paper and packaging products
include Mattel(R), Intervisual Books, Inc., Reader's Digest, Inc., The
Metropolitan Museum of Art, Jetta Co. Ltd., Penguin Putnam Inc. and Macmillan
Children's Books. See Note 21- "Segment Information" of the Notes to
Consolidated Financial Statements of Zindart.



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DEVELOPMENT OF THE COMPANY

Zindart was founded in 1978 by Mr. George Sun. In 1982, Zindart moved its
production to its first facility in the PRC. Zindart began doing business with
Ertl in 1978, and in 1983, Zindart began business with Hallmark. Additional
production capacity was added in 1987 with the opening of the Company's second
PRC facility. In 1993, ChinaVest IV Funds Group ("ChinaVest") acquired a
majority ownership position in Zindart. By late 1994, in response to growth in
sales, Zindart decided to build a large modern facility for its die-cast and
injection molded products located in Dongguan, Guangdong Province (the "Dongguan
Facility") in order to expand and consolidate its manufacturing operations.
Relocation of the workers and production lines from Zindart's two other
facilities to the Dongguan Facility began in September 1996. The relocation of
workers and production lines was completed in January 1998. By the end of 1998,
the Dongguan Facility provided over 1,424,000 square feet for production and
production support including dormitory spaces capable of accommodating up to
12,200 employees.

In February 1998, Zindart acquired 100% of the outstanding capital stock of Hua
Yang. Hua Yang is a leading printer and manufacturer of hand-made books,
specialty packaging and other paper products and is located in the PRC. The
acquisition provides Zindart with its own packaging operation, which is an
integral part of providing its customers with a fully-integrated turnkey
manufacturing service. The acquisition of Hua Yang (the "Hua Yang Acquisition")
broadened Zindart's product lines and customer base, and promoted its goal of
becoming the leading producer of high-quality hand-assembled consumer products
in the PRC.

Hua Yang's business was founded in Hong Kong in the 1950s as a small business
printer by C.M. Chan and his family. In the 1960s, the Chan family purchased a
two-color offset printing press and launched the packaging business, primarily
servicing Hong Kong-based toy manufacturers. By the mid-1980s, the Chan family
had acquired additional four-color presses and decided to diversify into the
hand-made book business, initially focusing on pop-up books. At the time, given
the high level of hand-work involved in pop-up books, the Chan family opened an
assembly plant in Shenzhen to access the large and inexpensive labor force. In
1995, the Chan family sold the assets of the business to ChinaVest and various
Advent Funds ("Advent"). That same year, Hua Yang purchased two more six-color
presses and consolidated its printing and hand-assembly in the PRC, maintaining
its headquarters and sales force in Hong Kong.

Pursuant to the Exchange Agreement of Hua Yang acquisition, the Hua Yang
Shareholders exchanged all of parent's outstanding ordinary shares and preferred
shares for $35.0 million in cash and up to 1,000,000 Shares (collectively, the
"Acquisition Consideration"). Of the 1,000,000 Shares, 666,667 were issued at
the closing of the Hua Yang Acquisition and placed in escrow for a period of six
months to secure certain indemnification obligations under the Exchange
Agreement. By the terms of the Exchange Agreement, the remaining 333,333 Shares
were to remain unissued until completion of an independent audit of Hua Yang's
financial results for the two-year period ending March 31, 1999. Upon completion
of the audit, a portion of such Shares were to be issued to the extent that Hua
Yang's earnings before interest expense (net of interest income), provision
(benefit) for income taxes, depreciation and amortization ("EBITDA") for such
two-year period exceeded $12.48 million. All of such Shares were to be issued if
Hua Yang's EBITDA for such two-year period equaled or exceeded $15.6 million
(the "Earn-Out"). As of March 31, 1999, the Company was still in the process of
issuing the 666,667 shares of common stock reserved in connection with Hua Yang
acquisition. Because Hua Yang did not meet the Earn-out requirement as of March
31, 1999, the Company has not issued and will not issue the remaining 333,333
shares. Zindart financed $30.0 million of the cash portion of the Acquisition
Consideration and related fees and expenses from a credit facility syndicated by
Credit Suisse First Boston, Hong Kong Branch (the "Credit Facility"). The
remaining cash was provided from Zindart's working capital. In February 1999,
the Credit Facility was fully repaid and cancelled.

THE COMPANY'S SOLUTION

The Company's customers seek suppliers that can manufacture high-quality
products in desired volume (i.e., both in large quantities and limited runs) in
a timely and cost-effective manner. In addition, the Company's customers seek to
eliminate the cost, time and complexity of identifying and managing multiple
vendors required to develop and produce a product. For example, marketers of
die-cast and injection-molded products often must hire different companies to
engage in product engineering, model and mold making, and manufacturing and
packaging of the finished product. Book customers often must turn to trading
houses, brokers or service intermediaries for product development and
engineering as well as component sourcing. The need to coordinate several
different companies in the manufacturing process can cause production delays,
inefficiencies in the management of multiple contractors, and quality and
reliability problems.

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

High-Quality Production

The Company uses modern computer-aided design and manufacturing equipment to
produce high-quality products. The



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

Manufacturing Capacity

The Company currently employs approximately 9,500 production workers and has an
aggregate of 1,962,000 square feet of manufacturing space with the capacity for
up to 15,700 workers in its two manufacturing facilities. The Company's
expansion of the Dongguan Facility, the third phase of which was completed in
December 1998, will enlarge the Company's capacity to meet increasing demands
from its customers. The Company believes that the added flexibility gained
through increased production capacity should enable it to further shorten
production cycles, which in turn will enable the Company to offer, among other
things, a just-in-time manufacturing service.

Turnkey Manufacturing Service

The Company's turnkey manufacturing service fulfills a customer's requirements
at every stage in the production process, including component sourcing,
computer-aided product engineering and design, model and mold making and
manufacturing, assembling and packaging of the finished product. This
coordinated, one-stop production process provides the Company's customers with
(i) shortened lead times from design to production, (ii) a single participant in
the manufacturing process instead of the multiple participants previously
required and (iii) increased efficiency, resulting in lower per-unit costs. See
"Business -- Manufacturing."

Commitment to Efficiency

The Company continually strives to increase efficiency and reduce costs for the
benefit of the Company and its customers. To date, the Company has been able to
achieve efficiencies by locating its production facilities in the PRC,
vertically integrating its production processes, and working in close
cooperation with its customers. The Company has achieved efficiencies as a
result of the consolidation of Zindart's operations in its Dongguan Facility,
and is pursuing additional efficiencies by restructuring its Shenzhen
Facilities.

THE COMPANY'S STRATEGY

The Company's goal is to become the leading manufacturer of high-quality
die-cast and injection-molded collectibles, hand-made books, specialty packaging
and other paper products for the premier designers and marketers of such items.
The Company's business strategy to achieve this goal is to focus on the
following:

Develop Additional Major Customers

Currently, the Company has a small core group of large customers, but it also
manufactures products for many other smaller customers. The Company expects that
it may be able to develop several of these smaller customers into major
customers as they become familiar with the benefits of the Company's turnkey
manufacturing service. With completion of the Dongguan Facility, the Company can
now offer major customers a dedicated production team and dedicated production
space which can provide such customers with attractive advantages. For example,
the Company can customize its production facility to meet the specific needs of
such customers, and the customer is able to exercise greater control over the
production process, thereby enhancing quality control and cost efficiency,
increasing confidentiality, and expediting scheduling and delivery timetables.
The Company believes that its ability to offer such dedicated production
services has led to enhanced relationships with its core customer base. It has
also begun discussions with potential new customers headquartered in Asia,
Europe, and United States concerning future business. These discussions reflect
the Company's goal to promote the geographic and commercial diversity of its
customer base.

Diversify Product Offerings

The Company has established itself as a leading manufacturer of die-cast
collectibles, collectible holiday ornaments, toys, hand-made books, specialty
packaging and other paper products. The Company intends to diversify its product
offerings to include the manufacture of other consumer products that utilize the
Company's current competitive advantages and production expertise. Zindart's
experience in acquiring Hua Yang and the strength of its balance sheet have led
the Company to review other strategic acquisition opportunities. In particular,
the Company is currently seeking acquisitions that will enable it to participate
directly in the marketplace for die-cast collectibles. These efforts may include
expansion into branded products and distribution. Geographically, potential
acquisitions may occur in Europe and North America, as well as Asia.



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Invest in Manufacturing Capacity

Completion of the Dongguan Facility has increased the Company's capacity and,
the Company believes, improved the quality of its operations and overall
efficiency. This in turn should enable the Company to meet additional demand for
its manufacturing services through calendar year 1999 and 2000. In addition, in
early 1999 the Company began a reorganization of the manufacturing space at its
Shenzhen Facility aimed at improving production efficiency and reducing labor
requirements. Management expects that these improvements will reduce material
handling and queuing time, accelerate response times, and generally increase
overall plant efficiency. The Company intends to purchase new equipment for its
facilities and to continue to seek ways to streamline and expand its production
capacity to meet customer demand.

Deploy Advanced Management Information Systems

The Company seeks to enhance its manufacturing and business processes through
the deployment of advanced management information systems that enable the
real-time monitoring and management of its operating and financial performance
and resources. The Company has contracted with a third party to develop custom
manufacturing software and to deploy a comprehensive enterprise software
solution. The implementation of the software has proven quite successful in
improving the efficiency of the production lines to which they have been
applied, and the Company is now extending the software to cover other production
lines.

MARKETS, PRODUCTS AND CUSTOMERS

Die-cast Collectibles

The Company manufactures a wide range of metal die-cast collectible scale model
replicas of automobiles, such as Mercedes Benz, BMW, Corvette and Mustang,
trucks, planes, farm implements and construction equipment, such as John Deere
and Caterpillar, and classic cars, such as the 1932 Cadillac, the 1964 Aston
Martin and the 1956 Ford Thunderbird. These replicas, which come in various
scales from 1/12th to 1/64th of the size of the original product, are medium and
high-feature products that must meet exacting standards. Many of the die-cast
replicas have complex designs which require high-quality workmanship and
decorative details, with pad printing of as many as one hundred imprints. The
most complex of these models incorporate up to 200 moveable parts. The die-cast
scale model replicas manufactured by the Company are sold through hobby shops,
collectors' clubs, car and equipment dealers, toy and gift stores and other
channels. These products typically retail in the U.S. for between $150.00 and
$180.00 for the high-feature products, between $25.00 and $60.00 for the
medium-feature products and between $5.00 and $10.00 for the small-scale
products. Many of these products have nostalgic appeal to adult consumers. In
addition, some of these products, especially the automobile replicas, have
attracted a following of collectors and are traded on a secondary market. The
Company believes, based on many years of sales experience, that many die-cast
collectibles have enduring consumer appeal. For example, the Company
manufactures on an annual basis several products for which molds were made
between five and ten years ago. These include the '70 Ford Mustang, '68 Pontiac
GTO, '67 Corvette convertible, Ford Roadster, Allis Chalmers Model "C" Tractor
and John Deere Skidsteer Loader.

The Company's primary customers for die-cast collectibles are Ertl and
Mattel(R). Ertl, which was recently acquired by Racing Champions, is a leading
U.S. designer and marketer of die-cast collectible replicas. Ertl was the
Company's first customer in 1978 and has been a customer ever since. Sales to
Ertl continue to account for a significant portion of the Company's net sales.
In March 1997, Zindart started a business relationship with Mattel(R), a leading
U.S. designer and marketer of die-cast collectible replicas and general toys.
For the fiscal year ended March 31, 1999, sales to Ertl and Mattel(R)
represented approximately 17.1% and 26.1% of the Company's total revenues,
respectively. See "Risk Factors -- Risks Relating to the Company - Dependence on
Major Customers."

The Company's customers for die-cast collectibles include other well-known
designers and marketers of such products, such as Revell-Monogram, which has
been a customer of the Company since 1987, and SWG of Germany, which has been a
customer of the Company since 1989. Revell-Monogram is a leading worldwide
designer and marketer of plastic model kits and die-cast replicas of airplanes,
automobiles and ships marketed under the "Revell" and "Monogram" brand names.
SWG is one of the largest designers and marketers of die-cast replicas in
Germany, marketed under the brand name "Siku."

Collectible Holiday Ornaments

Hallmark, long known as a leading producer of greeting cards, has successfully
diversified into collectible holiday ornaments and giftware products. Hallmark
relies on the Company to manufacture many of its Keepsake Ornaments, which
consist of a variety of Christmas ornaments, holiday-themed pieces and other
giftware both in die-cast zinc alloy and plastic. Hallmark's Keepsake Ornaments
products also include free-standing decorations such as die-cast replicas of



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pedal cars. The production of Keepsake Ornaments products requires
highly-developed hand spray painting skills and attention to quality by each
member of the Company's workforce in order to meet Hallmark's exacting aesthetic
and quality requirements.

The Keepsake Ornaments manufactured by the Company are collectibles sold through
authorized retail outlets. These products typically retail in the U.S. for
between $7.00 and $25.00. 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 and Peanuts, as well
as various well-known Disney characters. For the fiscal year ended March 31,
1999, sales to Hallmark represented approximately 15.2% of the Company's total
revenues. See "Risk Factors -- Risks Relating to the Company -- Dependence on
Major Customers."

Books

The Company manufactures "pop-up" books, novelty books and board books. Pop-up
books are books containing specially die-cut, folded and glued paper pieces
that, when the book is opened, "pop" out of the book in three dimensions. These
products typically retail in the U.S. for between $3.00 and $50.00. Most of the
Company's "pop-up" books are targeted at children, but a small segment also
caters to the adult and young adult markets. Novelty books, sometimes also
referred to as "book-plus," incorporate an extra or unusual element. These
elements often make the book interactive or provide play value; examples include
an electronic device, a noise maker, plastic, vinyl, textured or scented
materials, or a plush toy. Board books usually are die-cut or punched into an
unusual shape, thus requiring hand-assembly. These books are made of
heavyweight, stiff paperboard, are durable in nature and usually are targeted at
the children's market. Often board books come in a set of three or more titles
and are grouped together in a hand-assembled slip case, sleeve or custom made
box. These books are sold through toy and book stores, authorized dealers and
other channels.

Specialty Packaging

Specialty packaging includes paper board and E-flute (corrugated) boxes and, to
a lesser extent, blister cards and inserts. Box packaging often requires
advanced printing techniques, including six and seven color printing, hot foil
stamping, spot or total coating, varnishing, embossing and lamination. After
printing, boxes are die-cut to shape with a drop-out window often included. PVC
sheets, which also are cut to shape and often incorporate some silk screen
printing, are glued in place by hand in the drop-out windows. Blister cards are
simple backing boards used in a plastic blister pack while insert cards are
printed pieces of board used as backing or filler inside a larger packaging box.
Specialty packaging is produced for certain manufacturers and other marketers
that utilize this kind of specialty packaging to protect products during
shipment and to exhibit products for sale in retail stores.

Other Paper Products

Other paper products manufactured by the Company include puzzles, board games,
photo albums, stationery sets and activity packs, all of which require hand
assembly. These products are targeted at children, young adult and adult
markets. These products are also sold through hobby shops, authorized dealers,
book and gift stores, as well as through other channels.

MANUFACTURING

The Company offers a fully-integrated turnkey manufacturing service. With this
service, the Company integrates component sourcing, computer-aided product
engineering, model-making and mold-making, as well as manufacturing, assembling
and packing of finished product. This enables the Company to meet all of a
customer's design engineering and manufacturing needs and eliminates the need
for intermediaries. By coordinating product development and process design with
production and packaging, the Company is able to shorten the lead time from
conceptual design to product delivery and to lower product cost while
maintaining high quality and reliability.

The Company's die-cast and injection-molded production facilities are located in
Dongguan, in the PRC. The Dongguan Facility includes (i) a product engineering
area, (ii) model-making and mold-making areas, (iii) die-casting and
injection-molding areas, (iv) hand-spray and electrostatic painting and pad
printing areas, (v) assembly and packing areas, (vi) a warehouse, and (vii)
dormitory, dining and recreational facilities. The Company's product engineering
staff makes extensive use of sophisticated computer-aided design systems for the
development of prototype-scale models. The die-casting, injection-molding and
electrostatic painting areas operate on a two-shift basis. The hand-spray, pad
printing and assembly and packing areas run on a single-shift basis. Assembly
and hand painting areas account for most of the total work force and production
area. The Company's hand-made book, specialty packaging and paper production
facilities are located between Dongguan and Hong Kong in Shenzhen (the "Shenzhen
Facility") in the PRC. The Shenzhen Facility includes (i) a pre-press area,
press rooms and print finishing area, (ii) die-cut, trimming, guillotining and



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punching areas, (iii) packaging and book hand assembly areas, (iv) a warehouse,
and (v) dormitory and dining facilities. The press rooms operate on a two-shift
basis with seven advanced German presses delivering up to six-color printing
capability. The die-cut department also runs on a two-shift basis during the
peak season. Hand assembly for both packaging and books generally works one
shift, adding an additional shift during the peak season, and accounts for most
of the total work force and production areas.

The Company uses zinc alloy and various plastic resins in its die-cast and
injection-molded production 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 can
fluctuate significantly. The Company acquires raw materials for its die-cast
production primarily from Australia, Belgium and Canada. Plastics used for
manufacturing collectible holiday ornaments and figurines are obtained from Hong
Kong. The Company's standard practice is to maintain a supply of raw materials
sufficient for approximately three months' production. See "Risks Factors
--Risks Relating to the Company -- Dependence on Raw Materials."

Paper, ink and glue are the principal raw materials used by the Company in the
manufacture of books, specialty packaging and other paper products. The Company
uses many types of coated paper and board in a variety of grades, depending on
customers' quality and price requirements. The Company purchases a majority of
its paper from U.S. and European suppliers, but generally places orders through
trading companies or agents in Hong Kong. Additionally, the Company acquires a
small amount of paper from local sources in Hong Kong. Ink and glue are ordered
locally in Hong Kong.

The plants and equipment owned and operated or leased by the Company are subject
to comprehensive PRC laws and regulations that involve substantial risks. See
"Risk Factors -- Risks Relating to the Company -- Environmental Matters" and "--
Production Facilities; Capacity Limitations" and "-- Dependence on PRC Parties."

COMPETITION

The Company faces significant competition in each of its product segments. In
die-cast collectibles and collectible holiday ornaments, the Company competes
with several companies located primarily in the PRC. In toys, the Company
competes with numerous companies located all over the world. In "pop-up" books,
the Company competes with several companies located in Southeast Asia and South
America. In novelty and board books as well as packaging, the Company competes
with several companies located in Hong Kong. The Company believes that the basis
of competition in the manufacturing of all of its products is price, quality,
technical capabilities and the ability to produce in required volumes and to
timely meet delivery schedules. The ability to meet increasing demands of
just-in-time ordering by customers is becoming one of the essential factors for
maintaining competitive advantage in the die-cast market. The Company believes
that it can maintain this competitive advantage through its facilities expansion
and reorganization programs. The Company also expects increased competition from
other industry participants that may seek to enter one or more of the Company's
high margin product segments. Many of the existing and potential competitors
have significantly greater financial, technical, manufacturing and marketing
resources than the Company.

The Company does not believe that there are any significant barriers to entry
into the manufacture of its products, although the Company believes that it
currently holds certain competitive advantages. The Company does not
characterize its business as proprietary and does not own any copyrights or
possess any material trade secrets although the Company has recently received a
Notice of Allowance from U.S. Patent and Trademark Office for a `United States
Utility Patent' on one of its Novelty Book products. Accordingly, additional
participants may enter the market at any time. No assurance can be given as to
the ability of the Company to compete successfully with its current or future
competitors, and the inability to do so would have a material adverse effect on
the Company's business, financial condition and results of operations. In
addition, certain of the Company's customers, including Mattel(R), manufacture a
substantial portion of their products internally. Any determination by a
principal customer to manufacture new products internally or to move
manufacturing from the Company to another third party would have a material
adverse effect on the Company's business, financial condition and results of
operations.

SUBSIDIARIES

The Company has a controlling interest in two mold-making subsidiaries. In
August 1994, Zindart acquired a 55% interest in Onchart Industrial Limited, a
British Virgin Islands corporation. In December 1994, Zindart acquired a 51%
interest in Luen Tat Mould Manufacturing Limited ("Luen Tat"), and in July 1998,
Zindart increased its ownership interest in Luen Tat to a 90% stake by
committing to payment of USD1.65 million pursuant to a payment schedule that
will be completed on September 29, 1999. Goodwill in this acquisition accounted
for USD0.54 million and will be amortized over 10 years. Presently, Luen Tat
conducts its mold-making operations in one of the Company's factories, and
provides the Company with the largest in-house mold and model-making capacity in
southern China. Dongguan Xinda Giftware Company Limited is a Sino-foreign
contractual joint venture with Dongguan Hengli Trading General



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Company, an entity that is controlled by PRC governmental bodies. This
contractual joint venture was established in the PRC to own and operate the
Dongguan Facility. This joint venture has a term of 15 years, expiring in
November 2009. Under the joint venture agreement and the supplemental agreement
thereto, the Company is entitled to 100% of the joint venture's profit, after
paying its joint venture partner a pre-determined annual fee.

Hua Yang is a subsidiary of the Company and has three subsidiaries. Hua Yang
Printing Holdings Co., Limited, based in Hong Kong, is 100% owned and employs
the sales, accounting and management staff for the book and packaging businesses
and holds the Hua Yang equity interests in its two Chinese joint
ventures/subsidiaries. Shenzhen Huaxuan Printing Product Co., Ltd. ("Shenzhen
Huaxuan") is a contractual joint venture with Goshu Economic Development
Company, Shenzhen, a government entity, that was established in the PRC to
operate the Shenzhen Facility. The Shenzhen Huaxuan joint venture has a term of
15 years and expires in October 2010. Under the joint venture agreement, the
Company is entitled to 100% of the joint venture's profit, after paying its
joint venture partner a pre-determined annual fee, and at the end of the joint
venture term, the Company will continue to own the other assets of the joint
venture, but the land and building will revert to the PRC party of the joint
venture company. Guangzhou Jin Yi Advertising Company Ltd. is a 90% owned
company by Hua Yang but it is inactive currently.

BACKLOG AND SEASONALITY

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

The buying and ordering cycles for packaging and books differ. For packaging, in
November or December the Company reviews with its two core customers their
anticipated packaging needs for the upcoming year. By the beginning of the
calendar year, both Mattel(R) and Jetta Co. Ltd. will have provided the Company
with dollar and unit allocations for the year. This allocation will be based on
the Company's performance for the past year, capacity and technical capability
vis-a-vis the designs agreed to by the customer. Every week thereafter, the
Company will receive purchase orders covering the next four to six weeks. Firm
orders and packaging planning rarely extend beyond six weeks. The buying cycle
in books is much longer than in packaging and somewhat variable, with a majority
of activity grouped around the Frankfurt Book Fair held in Germany every October
and the Children's Book Fair held in Bologna, Italy every April. The fairs are a
time for customers of the Company's book and packaging division to present their
new book concepts and ideas to customers, with confirmed sales being realized
three to six weeks after each fair. Once these customers have confirmed sales,
they turn to printers to reserve production capacity. Orders for reprints of old
titles, however, can be booked anytime during the year but generally fall
outside of the peak summer production months.

As is customary in the PRC, each year the Company closes its facilities for two
weeks during the months of January or February in celebration of the Chinese New
Year holidays. As a result, the Company's fourth fiscal quarter production and
revenues have in the past been lower than in other quarters and are expected to
be lower than in future quarters. Except as attributable to the observance of
the New Year, the Company has not experienced seasonality in its die-cast and
injection-molded products business operations, although they could show
quarterly fluctuations based on the timing of orders placed by its customers.
The Company's book sales are weighted toward the Christmas season. As a result,
sales of books in the first half of each fiscal year are generally greater than
in the second half.

In light of the increasing demands of just-in-time manufacturing and the
competitive environment in the books and packaging sector, the Company expects
to face pressure on its sales and revenue especially in the first quarter of
fiscal year 2000. As of March 31, 1999, the Company had orders on hand of
approximately $34.0 million, compared to $37.5 million as of March 31, 1998, a
decrease of 9% from the previous year. However, as of April 30, 1999, the
Company had orders on hand of approximately $36.5 million, compared to $30.9
million as of April 30, 1998, representing growth of 18%.

TRADEMARKS AND OTHER PROPRIETARY RIGHTS

The Company has no registered trademarks. The Company has received a Notice of
Allowance from U.S. Patent and Trademark Office for a United States patent on a
Novelty book and anticipates that the patent will soon be issued formally. The
Company's key employees have entered into confidentiality agreements with the
Company.

EMPLOYEES

As of March 31, 1999, the Company employed approximately 11,790 persons, of whom
approximately 9,195 were production workers, 1,810 were administrative staff and
790 were engineering and technical personnel. As is customary



                                     - 8 -
<PAGE>   9

for employers in the PRC, each of the Company's production facilities includes
housing facilities for workers. The Company is committed to providing good
working and living conditions for its employees in the PRC. To that end, the
Company has adopted a code of conduct relating to human rights, including a
prohibition on use of child labor, and guidelines regarding worker safety, wages
and hours.

The Company provides training to its managers and executives in its Hong Kong
headquarters through courses conducted by industry professionals engaged by the
Company as well as by senior management. The courses cover management skills,
total quality management, ISO 9000 requirements and the technical aspects of the
Company's operations. In addition, the Company sponsors the attendance of night
classes for a number of technical staff, and in-house seminars for workers are
held semi-annually by the quality control staff or the factory managers on
quality requirements. See "Risk Factors -- Risks Relating to the Company
--Reliance on Key Personnel" and "-- Employees."

RISK FACTORS

Limited Precedent

Prospective investors should be aware of and take into consideration the limited
precedent with which to evaluate the potential risks and rewards related to the
development, financing, ownership and operation of a light manufacturing company
in the PRC.

Limited Reporting Requirements

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

Risks Relating to the Company

Dependence on Major Customers. Sales to three core customers -- Hallmark, Ertl
and Mattel(R) -- account for a majority of the Company's total net sales. Sales
to Hallmark, Ertl and Mattel(R) as a percentage of the Company's total net sales
during fiscal years 1998 and 1999 were approximately 51.6% and 58.4%,
respectively. Zindart began a business relationship with Mattel(R) in February
1997. As a result, the Company may be more susceptible to a loss of business
from Mattel(R) than it would be from its other customers with longer-term
relationships. For example, in fiscal year 1999, Mattel(R) switched to internal
production of its small scale (1/64) cars, which had previously been produced by
Zindart. Sales to the seven next largest customers as a percentage of the
Company's total net sales during fiscal 1998 and 1999 were approximately 17.4%
and 17.9%, respectively. While the Company considers its relationship with Ertl
to be good, Ertl was recently acquired by Racing Champions, and no assurance can
be given that this acquisition will not adversely affect the Company's revenues
from Ertl. The Company's dependence on its core customers is expected to
continue in the foreseeable future. Although management believes that any one of
its customers could be replaced eventually, the loss of any one of its major
customers, particularly Mattel(R), Hallmark or Ertl, would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's sales transactions with all of its customers are based
on purchase orders received by the Company from time to time that are subject to
cancellation.

Introduction of New Products by Customers; Market Acceptance; Economic Factors.
The Company's long-term operating results depend substantially upon its
customers' ability 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 Company's customers
continuously develop new products and create additions to their existing product
lines. Significant delays by the Company's customers in the introduction of, or
their failure to introduce or market, new products or additions to their
respective product lines would impair the Company's results of operations. The
die-cast collectible, collectible holiday ornament, toy and hand-made book
markets are affected by changing consumer tastes and interests, which are
difficult to predict and over which the Company's customers have little, if any,
control. These products in any event have limited life cycles and may be
discontinued by the customer at any time. Accordingly, there can be no assurance
that existing or future products of the Company's customers will continue to
receive substantial market acceptance. In addition, since most of the products
manufactured by the Company are sold in the U.S., the Company's profitability
will also depend on the strength of the U.S. economy, which can affect U.S.
consumers' spending habits on such items as die-cast collectibles, collectible
holiday ornaments, toys and books. Any downturn in the U.S. economy could have a
material adverse effect on the Company's business, financial condition and
results of operations.



                                     - 9 -
<PAGE>   10

Competition. The Company faces significant competition in each of its product
segments. In die-cast collectibles and collectible holiday ornaments, the
Company competes with several companies located primarily in Hong Kong and the
PRC. In toys, the Company competes with numerous companies located all over the
world. In "pop-up" books, the Company competes with several companies located in
Southeast Asia and South America. In novelty and board books as well as
packaging, the Company competes with several companies located in Hong Kong/PRC.
The Company believes that the basis of competition in the manufacturing of all
of its products is price, quality, technical capabilities and the ability to
produce in required volumes and to meet delivery schedules in a timely manner.
The Company expects increased competition from other industry participants that
may seek to enter one or more of the Company's high margin product segments.
Many of the existing and potential competitors have significantly greater
financial, technical, manufacturing and marketing resources than the Company.

The Company does not believe that there are any significant barriers to entry
into the manufacture of its products, although the Company believes that it
currently holds certain competitive advantages. The Company does not
characterize its business as proprietary and does not own copyrights or possess
any material trade secrets. Accordingly, additional participants may enter the
market at any time. No assurance can be given as to the ability of the Company
to compete successfully with its current or future competitors, and the
inability to do so would have a material adverse effect on the Company's
business, financial condition and results of operations. In addition, certain of
the Company's customers, including Mattel(R), manufacture a substantial portion
of their products internally. Any determination by a principal customer to
manufacture its products internally or to move manufacturing from the Company to
another third party would have a material adverse effect on the Company's
business, financial condition and results of operations.

Ability to Manage Growth and Fluctuations. Zindart has experienced significant
growth over the past few years and is expanding its manufacturing operations.
The operations of the Company's book and packaging division have fluctuated
significantly over the same periods. The management of the Company's growth or
fluctuations in levels of operations, as appropriate, will require continued
improvement and refinement of the Company's operating, management and financial
control systems, as well as a significant increase in the Company's
manufacturing, quality control, marketing, logistics and service capabilities,
any of which could place a significant strain on the Company's resources. If the
Company's management is unable to manage its operations effectively, the quality
of the Company's products, its ability to retain key customers and its business,
financial condition and results of operations could be adversely affected. As
part of its expansion, the Company will have to hire additional management
personnel and other employees. The expenses associated with hiring, training and
integrating such employees may be incurred prior to the generation of any
associated revenues, with a corresponding adverse effect on the Company's
business, financial condition and results of operations. In addition, the
failure to integrate new personnel on a timely basis could have an adverse
effect on the Company's business, financial condition and results of operations.

Production Facilities; Capacity Limitations. The existing facilities of Hua Yang
(the Company's book and packaging division) are relatively old and will likely
need to be further upgraded and expanded in coming year in order to handle
projected business. The Company intends to either secure additional space in
close proximity to these existing facilities or move its book and packaging
operations to a new location closer to Zindart's Dongguan Facility. In either
case, the Company will be required to incur substantial additional costs in
connection with upgrading or moving its book and packaging division
manufacturing facilities. The Company leases its current facilities for its book
and packaging division. If the Company elects to relocate these facilities prior
to the expiration of its lease in 2001, the Company would be required to
renegotiate the term of the lease because it does not have an ownership interest
in the facilities or such facilities' leasehold improvements, and upon
termination of its lease such improvements would revert to the owner of the
facilities. No assurance can be given as to the ability of the Company to renew
or relocate its existing facilities on acceptable terms and at an acceptable
cost, and the inability of the Company to do so would have a material adverse
effect on the Company's business, financial condition and results of operations.

In order to increase manufacturing capacity, in December 1995 Hua Yang (now the
Company's book and packaging division) entered into a three-year agreement to
lease additional facilities and a dormitory located adjacent to its existing
factory. The existing lease will expire in March 2001. There currently is a
dispute between the local government and the purported lessor with respect to
the ownership of the land on which the additional facilities are located. The
Company's book and packaging division continues to occupy and operate from such
premises and does not anticipate being required to vacate prior to expiration of
the lease in 2001. However, the Company could be required to vacate the premises
with little or no notice if its leasehold interest were successfully challenged,
which could result in production delays and have an adverse effect on the book
and packaging division's business, financial condition and results of
operations.

If a natural disaster, such as a typhoon, fire or flood, were to destroy or
significantly damage any of the Company's facilities or if any such facility
were to otherwise become unavailable or inoperable, the Company would need to
obtain alternative facilities from which to conduct its operations, which would
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, would



                                     - 10 -
<PAGE>   11

have a material adverse effect on the Company's business, financial condition
and results of operations.

Dependence on PRC Parties. The Dongguan Facility is owned by a Sino-foreign
contractual joint venture in which the Company has a majority interest. The
other party to this contractual joint venture is an entity that is controlled by
PRC governmental bodies. Upon moving to the Dongguan Facility, the Company also
entered into a subcontract processing agreement with a local industrial
development authority, which provides the Company with a labor pool for certain
production needs. Hua Yang operates its facility through a similar contractual
joint venture. The joint ventures for Zindart's and Hua Yang's facilities differ
in that the land use rights related to the Dongguan Facility, which are for a
term of 50 years, are in the name of Zindart while the land use rights and
leasehold improvements related to Hua Yang's facility are owned by Hua Yang's
PRC joint venture partners.

The efficient and cost-effective operation of these facilities depends upon the
cooperation and support of the development authorities and the joint venture
partners (collectively, the "PRC Parties"). Should a dispute develop between the
Company and any of the PRC Parties, there can be no assurance that the Company
would be able to enforce its understanding of its agreements or interests with
any of such PRC Parties, which could result in a significant loss of, or
depreciation in the value of, the Company's property and facilities. In any
event, ownership interests of land and improvements are considerably more
attenuated in the PRC. The Company's investment in property, facilities and
improvements, particularly at the Dongguan Facility, are significant and could
not be replaced without a considerable new investment, if at all. The lack of
cooperation by any of the PRC Parties could subject the Company to additional
risks and costs, including the interruption or cessation of its present
operations in the PRC, all of which would have a material adverse effect on the
Company's business, financial condition and results of operations. In this
regard, the Company's book and packaging division occupies its manufacturing
facilities pursuant to a joint venture agreement with a third party located in
the PRC. Pursuant to that agreement, the PRC party is obligated to contribute
the land upon which the facilities are built to the joint venture. Instead, the
PRC party has leased the land to the joint venture. This is a breach by the PRC
party of the terms of the joint venture, and the Company is currently seeking to
rectify the situation. No assurance can be given as to the ability of the
Company to cause the PRC party to cure the breach. The Company is unable to
assess the effect, if any, if the Company were unable to do so.

Dependence on Raw Materials. The Company uses zinc alloy, various plastic resins
and paper in its manufacturing operations. The Company's financial performance
is dependent to a substantial extent on the cost of such raw materials. The
supply and demand for paper, zinc alloy and for both plastic resins and the
petrochemical intermediates from which plastic resins are produced are subject
to cyclical and other market factors and may fluctuate significantly. As a
result, the cost of raw materials to the Company is subject to substantial
increases and decreases over which the Company has no control except by seeking
to time its purchases in order to take advantage of favorable market conditions.
In the past, the Company has experienced significant increases in the price of
certain raw materials, which resulted in an increase in the Company's production
costs that the Company was not able to pass on fully to its customers. To the
extent that future increases in the cost of raw materials cannot be passed on to
customers, such increases could have a material adverse effect on the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

The Company purchases its raw materials from a limited number of suppliers. The
Company has no formal written agreements with any of its suppliers, but the
Company is not dependent upon any single supplier for key materials. The Company
has not experienced any difficulty in obtaining needed materials and thus
believes that the lack of written agreements with its suppliers does not present
a risk to its business; however, no assurance can be given that the Company will
be able to obtain sufficient quantities of such raw materials to meet its needs.
Any lack of sufficient raw materials for its needs would have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company believes that it could continue to obtain needed raw materials in
the event that it experiences significant rapid growth, in light of the current
availability of such raw materials on the world markets. However, to the extent
the Company is unable to obtain needed raw materials in such circumstances in
sufficient quantities or at affordable prices, such inability would have a
material adverse effect on the Company's business, financial condition and
results of operations.

Reliance on Key Personnel. The success of the Company is substantially dependent
upon its executive management, as well as upon its ability to attract and retain
additional qualified design, manufacturing and marketing personnel. Upon Mr.
George Sun's retirement as the Company's Chief Executive Officer in May 1998,
Mr. Alexander M. K. Ngan was appointed President and Chief Executive Officer of
the Company. Mr. Ngan has served as a director of the Company since October 1995
and is a partner of ChinaVest, which has assisted the Company with, among other
things, executive recruitment and financial management. The loss of the services
of any of the Company's current executive management for any reason could have a
material adverse effect on the business, financial condition and results of
operations of the Company. The Company is not the beneficiary of any "key
person" life insurance policy on any such person. Successful expansion of the
Company's business will require additional management resources and may require
the hiring of additional senior management personnel. See "Directors, Executive
Officers and Certain Key Employees."



                                     - 11 -
<PAGE>   12

Possible Fluctuation in Operating Results; Reduced Revenue in the Fourth Fiscal
Quarter. The Company's operating results in the past have fluctuated and those
results may fluctuate in the future. The Company ceases production for a
two-week period during January or February of each year due to the Chinese New
Year holiday, which has caused revenues during the fourth quarter of each year
to be lower than revenues during the other three quarters. The Company may also
experience fluctuations in quarterly sales and related net income compared with
other quarters due to the timing of receipt of orders from customers and the
shipment of products. Sales of books are weighted toward the Christmas season;
as a result, book sales in the first half of the fiscal year are generally
higher than the second half. The Company may experience annual and quarterly
variations in operating results and, accordingly, the trading price of the ADSs
may be subject to fluctuations in response to such variations. In any event, it
is likely that the Company's operating results from time to time will not meet
the expectations of the Company's public market analysts, which will have an
adverse effect on the trading price of the ADSs. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."

Potential Product Liability. The Company is engaged in businesses that could
result in possible claims for injury or damage resulting from its products. The
Company is not currently, nor has it been in the past, a defendant in any
product liability lawsuit. The Company does not maintain product liability
insurance. A successful claim brought against the Company by a customer of the
Company or a consumer and the adverse publicity that could accompany any harm
caused to a consumer by a product manufactured by the Company could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Government Regulations. U.S. customers of the Company are subject to the
provisions of, among other laws, 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 from the market articles
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 Canada and Europe. The Company relies on its
customers to design products that comply with such safety standards and to test
the products to ensure compliance with applicable regulatory safety standards.
While the Company believes that its customers design and test the products the
Company manufactures for compliance with regulatory standards, and the Company
itself maintains quality assurance, there can be no assurance that the Company's
products will not be found to violate applicable laws, rules and regulations,
which could have a material adverse effect on the business, financial condition
and results of operations of the Company. In addition, there can be no assurance
that more restrictive laws, rules and regulations will not be adopted in the
future, or that the Company's products will not be marketed in the future in
countries with more restrictive laws, rules and regulations, either of which
could make compliance more difficult or expensive, and which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

Effect of Principal Shareholders. Funds controlled by ChinaVest Ltd. currently
beneficially own 23.3% of the outstanding Shares. As a principal shareholder,
ChinaVest has the ability to significantly influence, if not control, the
election of the Company's directors and most corporate actions of the Company.
Robert A. Theleen, Chairman of the Board of the Company, and Mr. Ngan,
President, Chief Executive Officer and a director of the Company, are partners
in ChinaVest. See "Principal Shareholders".

Taxation. The Hong Kong statutory income tax rate is currently 16%, and the PRC
income tax rate on the Company's Sino-foreign joint ventures is currently a
maximum of 27.0% (24% state income tax and 3% local income tax). The Company
presently is exempt from PRC income tax pursuant to tax holidays that decreased
to partial exemptions in March 1997 and terminate as early as March 2001. The
Company will be required to pay taxes in the PRC based on the income, if any, of
its subsidiaries as this tax holiday expires. The Company's effective tax rate
on a pro forma basis was 12.0% in fiscal year 1998 and on actual was 9.6% for
1999. The amount of income realized is based in a large measure on the transfer
prices the Company pays for the products manufactured in its joint ventures
located in the PRC. In the event that the PRC were to successfully challenge the
transfer prices established by the Company, the Company would become subject to
increased taxation in that jurisdiction. As a result, the effective tax rate of
the Company would increase, which in turn could have a material adverse effect
on the Company's business, financial condition and results of operations. Under
interpretations relating to allocation of income under Hong Kong tax law,
Zindart recognizes one-half of the gross profit of Zindart as taxable income in
Hong Kong, regardless of the amount of gross profit realized in the PRC. In the
event that these interpretations change or are held invalid, the Company could
be required to recognize more taxable income in Hong Kong. As a result, the
effective tax rate of the Company would increase, which would in turn have a
material adverse effect on the Company's business, financial condition and
results of operations. See Note 13 of the Notes to Consolidated Financial
Statements of Zindart.

Year 2000 Compliance. The Company's operation may suffer if the computer systems
on which it depends are not Year 2000 compliant. The Company has undertaken a
systematic approach to address the Year 2000 issue. It has completed



                                     - 12 -
<PAGE>   13


an upgrade of its current systems to pass through the Year 2000 and the
implementation and test results are satisfactory. The Company is also building
up completed inventory lists and obtaining Year 2000 compliance letters from its
supply chain in order to reduce exposure to Year 2000 problems. The Company has
also obtained backup generators to reduce its exposure to any disruption of
plant operation as a result of Year 2000 problems. In addition, the Company has
adopted general procedures in its contingency plans for the safeguard of data
and protection of communications between its Hong Kong office and factories in
the PRC. Despite these measures, there can be no assurance that the Company will
not fall victim to Year 2000 problems. If systems material to our operations
fail during the Year 2000 changeover, the Company's business may suffer.

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

Environmental Matters. The Company's operations involve the use of certain toxic
substances, including plastic resins, oil-based paints and cleaning solvents.
The Company is, and is likely to continue to be, subject to PRC national,
provincial and local environmental protection laws and regulations. Such laws
and regulations currently impose a 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, regulations or decrees and provide for
possible closure by the central, provincial or local government of any facility
that fails to comply with orders requiring it to cease or cure certain
activities deemed by such authorities to be causing environmental damage. The
Company currently disposes of its waste substances in a manner it believes is
consistent with similarly-situated companies operating in the PRC. Such disposal
practices may not be consistent with those of companies operating in the U.S.
There can be no assurance that the Company will be in compliance with applicable
laws and regulations and will avoid incurring the consequences of
non-compliance, or that PRC authorities will not impose additional regulatory
requirements that would necessitate additional expenditures for environmental
compliance. Any such occurrence could have a material adverse effect on the
Company's business, financial condition and results of operations.

Employees. Substantially all of the Company's manufacturing and assembly workers
are young women 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
employees typically work for the Company for two to five years and then return
to their communities. In addition, approximately 20% of the factory employees do
not return to the Company each year after the Chinese New Year holiday, and the
Company must hire replacements. If these employees were able to earn similar
wages in their home provinces or higher wages in other industries, the Company
could experience labor shortages or could be required to increase salaries to
meet its labor needs, either of which could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company's employees are not unionized, and the Company has not experienced any
labor strike. Union organizing and worker unrest are not common in the PRC. No
assurance can be given that labor conflicts will not develop. Any labor
conflicts could have a material adverse effect on the Company's business,
financial condition and results of operations.

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

Country Risks

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



                                     - 13 -
<PAGE>   14

Market Decline in Southeast Asia. Several countries in Southeast Asia, including
Korea, Thailand and Indonesia, have recently experienced significant devaluation
of their currencies and a decline in the value of their capital markets. In
addition, these countries have experienced a number of bank failures and
consolidations. Hong Kong and the PRC, where the Company conduct its sales,
production and administrative activities, are still in a recession and there can
be no assurance that the Company's operation results will not be affected by the
general economic climate in these areas. Because virtually all of the Company's
products are sold into developed countries not experiencing these declines, the
Company does not believe that the declines in Southeast Asia will affect the
demand for the Company's products. Furthermore, because most of the Company's
products are, or at the Company's request may be, paid for in U.S. dollars, the
Company believes that it is less susceptible to the effects of a devaluation, if
subsequently experienced, in the Hong Kong dollar or the PRC Renminbi. The
decline in the currencies of these countries may, however, render the Company's
products less competitive if competitors in Southeast Asia are able to
manufacture competitive products at a lower effective cost. No assurance can be
given as to the ability of the Company's products to continue to compete with
the products of competitors from these countries or that currency devaluation or
other effects of the decline in Southeast Asia will not have a material adverse
effect on the Company's business, financial condition and results of operations.

Exchange Rate Risk. All of the Company's sales are denominated either in U.S.
Dollars or Hong Kong Dollars. The largest portion of the Company's expenses are
denominated in Hong Kong Dollars, followed by Renminbi and U.S. Dollars. The
Company is subject to a variety of risks associated with changes among the
relative values of the U.S. Dollar, the Hong Kong Dollar and Renminbi. The
Company does not currently hedge its foreign exchange positions. Any material
increase in the value of the Hong Kong Dollar or Renminbi relative to the U.S.
Dollar would increase the Company's expenses and therefore would have a material
adverse effect on the Company's business, financial condition and results of
operations.

Since 1983, the Hong Kong government has maintained a policy of linking the U.S.
Dollar and the Hong Kong dollar at an exchange rate of approximately HK$7.80 to
US$1.00. There can be no assurance that this link will be continued, although
the Company is not aware of any intention of the Hong Kong government or the PRC
to abandon the link. There has been significant volatility in the exchange rates
of Renminbi to U.S. Dollars in recent years. Over the last five years, the
Renminbi has experienced significant devaluation against most major currencies.
The rates at which exchanges of Renminbi into U.S. Dollars may take place in the
future may vary.

Risks Relating to Hong Kong

The Company's business, financial condition and results of operations may be
influenced by the political situation in Hong Kong and by the general state of
the Hong Kong economy. On July 1, 1997, sovereignty over Hong Kong was
transferred from the United Kingdom 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 has a high degree of autonomy
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 the current political conditions and the Company's understanding
of the Basic Law, the Company does not believe that the transfer of sovereignty
over Hong Kong has had or will have a material adverse effect on the Company's
business, financial condition or results of operations. There can be no
assurance, however, that changes in political, legal or other conditions will
not result in such an adverse effect.

Risks Relating to the PRC

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

MFN Status. The PRC currently enjoys Most-Favored-Nation ("MFN") status granted
by the U.S., pursuant to which the U.S. imposes the lowest applicable tariffs on
PRC exports to the U.S. The U.S. annually reconsiders the renewal of MFN trading
status for the PRC. No assurance can be given that the PRC's MFN status will be
renewed in future years. The



                                     - 14 -
<PAGE>   15

PRC's loss of MFN status could adversely affect the Company's business by
raising prices for its products in the U.S., which could result in a reduction
in demand for the Company's products by its U.S. customers. Furthermore, trade
friction between the PRC and the U.S. may have an influence on after-market
prices of the ADSs offered hereby.

Loss of PRC Facilities; Nationalization; Expropriation. If for any reason the
Company were required to move its manufacturing operations outside of the PRC,
the Company's profitability, competitiveness and market position could be
materially jeopardized, and there could be no assurance that the Company could
continue its manufacturing operations. The Company's business and prospects are
dependent upon agreements with various entities controlled by PRC governmental
instrumentalities. Not only would the Company's operations and prospects be
materially and adversely affected by the failure of such entities to honor these
contracts, but it might also be difficult to enforce these contracts in the PRC.
The Company's investment in property, facilities and improvements in the PRC,
particularly at the Dongguan Facility, are significant and comprise
substantially all the Company's assets. There can be no assurance that assets
and business operations in the PRC will not be nationalized, which could result
in the total loss of the Company's investments in that country, or that the
Company's ownership interest in its properties and facilities will not otherwise
be impaired, which could result in a significant loss of, or depreciation in the
value of, such assets. Following the formation of the PRC in 1949, the PRC
government renounced various debt obligations incurred by predecessor
governments, which obligations remain in default, and expropriated assets
without compensation. Accordingly, an investment in the Company involves a risk
of total loss.

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

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

ITEM 2 - PROPERTIES

The Company is headquartered in approximately 26,100 square feet in Hong Kong.
The facilities in Hong Kong are owned by the Company, and the land on which such
facilities are located is subject to medium-term leases.

The Company's manufacturing operations are conducted in the Dongguan Facility
and the Shenzhen Facility. The Company's die-cast and injection-molded
production facilities are located in the Dongguan Facility. The Company's
hand-made book, specialty packaging and paper production facilities are located
in the Shenzhen Facility. The Company's manufacturing facilities have an
aggregate of approximately 1,962,000 square feet of manufacturing space and
approximately 643,000 square feet of dormitory space. Virtually all land in the
PRC is state-owned, but can be leased from the government on a long-term basis.
The Dongguan Facility is built on land held by Zindart pursuant to a 50-year
lease of this nature. The operation of the Dongguan Facility is structured as a
contractual joint venture with a PRC governmental entity, Dongguan Hengli
Trading General Company, which receives an annual fee from the Company but does
not share in the profits or losses of the joint venture. This contractual joint
venture has a term of 15 years. At the end of this term, the Company will
continue to own the principal assets of the joint venture, including the 50-year



                                     - 15 -
<PAGE>   16

land lease. Part of the operation of the Shenzhen Facility is structured as a
15-year contractual joint venture known as Shenzhen Huaxuan Printing Product
Co., Ltd. with Goshu Economic Development Company, Shenzhen, which receives an
annual fee from the Company but does not share in the profits or losses of the
joint venture. Unlike the Dongguan Facility, the Company does not own but leases
its factory building and land at the Shenzhen Facility. At the end of the joint
venture term, the Company will continue to own the other assets of the joint
venture, but the land and building will revert to the PRC party of the joint
venture company. See "Risk Factors -- Risks Relating to the Company --
Production Facilities; Capacity Limitations" and "-- Dependence on PRC Parties."
The plants and equipment owned and operated or leased by the Company are subject
to comprehensive PRC laws and regulations that involve substantial risks. See
"Risk Factors -- Country Risks" and "-- Risks Relating to the PRC" and
"Business-- Manufacturing."

ITEM 3 -  LEGAL PROCEEDINGS

The Company is not a party to any material litigation.

The Company currently maintains insurance coverage with the China Ping An
Insurance (HK) Company Limited on its property, plant and equipment in an amount
in excess of the current net book value of such assets. It carries business
interruption and third-party liability insurance to cover claims arising out of
bodily injury or property or environmental damage caused by accidents on its
property, or otherwise relating to its operations. Zindart also maintains
Directors & Officers Liability insurance for all of its Directors and Officers.

ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS; CONTROL OF
         REGISTRANT.

No matters were submitted to a vote of the Company's security holders during the
fourth quarter of fiscal year 1999.

PART II

ITEM 5 -  MARKET FOR REGISTRANT'S EQUITY AND RELATED STOCKHOLDER MATTERS.

The ADSs are traded on the Nasdaq National Market under the symbol "ZNDT". The
table below sets forth the high and low sales prices for the ADSs (as reported
on the Nasdaq National Market) during the periods indicated. The reported last
sale price of the ADSs on the Nasdaq National Market on June 24, 1999 was $7.50.

<TABLE>
<CAPTION>
                                           Price Range of ADSs
                                         -----------------------
                                           High           Low
                                         ---------     ---------
<S>                                      <C>           <C>
Fiscal Year Ending March 31, 1998

1st Quarter                              $   12.63     $    8.75
2nd Quarter                                  14.00          9.50
3rd Quarter                                  16.50         11.63
4th Quarter                                  14.50         12.00

Fiscal Year Ending March 31, 1999

1st Quarter                              $   15.50     $   12.06
2nd Quarter                                  15.13          6.50
3rd Quarter                                   8.63          5.25
4th Quarter                                   7.38          4.88
</TABLE>

As of May 28, 1999, there were two holders of record of the Shares (including
the Depositary on behalf of the holders of ADSs) and twenty-nine holders of
record of ADSs. Zindart's Shares are not traded on any market. Since certain of
the ADSs are held by nominees, the above number is not representative of the
actual number of U.S. beneficial holders or the number of ADSs beneficially held
by U.S. persons. The depositary for the ADSs is The Bank of New York, New York,
New York.

While the Company may pay dividends in the future, the Company intends to retain
substantially all of its earnings for expansion of its operations in accordance
with its business strategy.

In fiscal 1992 through fiscal 1995, Zindart declared and paid dividends per
Share in the amount of $0.44, $0.29, $0.39, and $0.21, respectively. The
aggregate amount of dividends paid in these fiscal years was $2,222,000,
$1,473,000, $1,959,000, and $1,073,000, respectively. In fiscal 1996, Zindart
distributed a dividend in kind of approximately $0.60 per Share consisting of
$2,994,000 of a loan receivable and amounts due from a debtor of Zindart.
Zindart did not



                                     - 16 -
<PAGE>   17

declare a cash dividend in fiscal 1997, 1998 and 1999. Hua Yang has never
declared any dividends.

Hua Yang redeemed outstanding preferred stock for $5.0 million upon completion
of the Hua Yang Acquisition.

RECENT SALES OF UNREGISTERED SECURITIES

The Company granted incentive stock options and/or non-statutory stock options
to employees, directors and consultants. Under its 1997 Equity Incentive Plan,
the Company may grant up to an aggregate of 672,500 shares of the Registrant's
Shares. In May 1998, the number of shares of common stock reserved for issuance
under the plan was increased to 1,320,000. The Shares issued pursuant to the
Company's 1997 Equity Incentive Plan were registered on a registration statement
on Form S-8, filed with the Securities and Exchange Commission on October 31,
1997.

In connection with the Hua Yang Acquisition, the Company reserved to issue an
aggregate of 666,667 Shares to Karl Chan, HYP Holdings Limited and Mr. Karl Chan
(BVI) Holdings Limited, the shareholders of Hua Yang (the "Hua Yang
Shareholders"), pursuant to Regulation S and Regulation D of the Securities Act.
In the Hua Yang Acquisition, the Hua Yang Shareholders exchanged all outstanding
ordinary shares and preferred shares of Hua Yang for $35.0 million in cash and
up to 1.0 million Shares. Of the 1.0 million Shares, 666,667 shares were issued
at the closing of the Hua Yang Acquisition and placed in escrow for a period of
six months to secure the indemnification obligations of Hua Yang, the Hua Yang
Shareholders, ChinaVest and certain funds managed by Advent under the Exchange
Agreement. As of March 31, 1999, the Company was still in the process of issuing
the 666,667 shares reserved in connection of with the Hua Yang acquisition from
escrow.

CERTAIN FOREIGN ISSUER CONSIDERATIONS

The Company is a limited liability company incorporated under the Companies
Ordinance of Hong Kong. The Company is therefore governed by and subject to the
provisions of Hong Kong law.

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

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

In accordance with Hong Kong law, share certificates are only issued in the name
of corporations or individuals. In the case of an applicant acting in a special
capacity (for example, as an executor or trustee), certificates may, at the
request of the applicant, record the capacity in which the applicant is acting.
Notwithstanding the recording of any special capacity, the Company is not bound
to investigate or incur any responsibility in respect of the proper
administration of any such estate or trust. The Company will take no notice of
any trust applicable to any of its securities whether or not it had notice of
such trust.

The rights and liabilities of the shareholders of the Company are governed by
the Companies Ordinance and the Memorandum of Association and Articles of
Association. 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-a-vis the Company in their capacity as shareholders.
See "Taxation -- Hong Kong Taxation."

TAXATION

The following discussion under "United States Federal Income Taxation" generally
summarizes the principal United States federal income tax consequences of an
investment in the ADSs. The discussion under "Hong Kong Taxation" generally
summarizes the material Hong Kong tax consequences of an investment in the ADSs
and the material Hong Kong taxes applicable to the Company's operations in Hong
Kong. The discussion under "PRC Taxation" generally summarizes the material PRC
taxes applicable to the Company's investment in the PRC. The discussion does not
deal with all possible tax consequences relating to an investment in the ADSs
and does not purport to deal with the tax consequences applicable to all
categories of investors, some of which (such as dealers in securities, insurance
companies and tax-exempt entities) 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 the United States, Hong Kong and
the PRC. Accordingly, prospective investors should consult their own tax
advisors regarding the particular tax consequences to them of an investment in
the ADSs. The following discussion is based upon laws and relevant
interpretations thereof in effect as of the date of this Annual Report on Form
10-K, all of which are subject to change, possibly with retroactive effect.



                                     - 17 -
<PAGE>   18

United States Federal Income Taxation

The following discussion summarizes the United States federal income tax
considerations that are likely to be material to a holder of the ADSs who is a
United States citizen or resident, a United States domestic corporation or
partnership, an estate the income of which is subject to United States federal
income taxation regardless of its source, or a trust if (i) a court within the
United States is able to exercise primary supervision over its administration,
(ii) one or more United States persons have the authority to control all
substantial decisions who owns the ADSs as a capital asset (a "United States
Investor"). For purposes of the following discussion, a United States Investor
who acquires the ADSs shall be deemed to own the Shares represented thereby. The
summary does not address the United States federal income tax treatment of
certain types of investors (such as non-United States Investors, insurance
companies, tax-exempt entities, financial institutions, broker-dealers and
investors who hold Shares as part of hedging, conversion or other risk reduction
transactions or are subject to the alternative minimum tax provisions of the
Code (defined below)), all of whom may be subject to tax rules that differ
significantly from those summarized below. Prospective investors, including
investors other than United States Investors, are advised to consult their own
tax advisors with respect to their particular circumstances and with respect to
the effects of state, local or foreign tax laws to which they may be subject.

This summary is based on the Code, Treasury regulations, court decisions and
current administrative rulings and pronouncements of the United States Internal
Revenue Service ("IRS") in effect as of the date of this Annual Report on Form
10-K, all of which are subject to change, possibly with retroactive effect.
There can be no assurance that future changes in applicable law or
administrative and judicial interpretations thereof will not adversely affect
the tax consequences discussed herein. The Company has not requested and does
not intend to request a ruling from the IRS or an opinion of counsel with
respect to the United States federal income tax consequences discussed herein.
Prospective purchasers are advised to consult their own tax advisors regarding
the tax consequences of acquiring, holding or disposing of the Shares in light
of their particular circumstances.

Taxation of the Company. The Company will be subject to United States federal
income tax only to the extent it has income which has its source in the United
States or is effectively connected with a United States trade or business.
Income derived by the Company from its business in the PRC or Hong Kong should
not constitute United States source income. It is possible that the Company may
invest in United States securities or cash equivalents. Income derived from
United States securities or cash equivalents will generally constitute United
States source income and may therefore be subject to United States federal
income tax unless a statutory or income tax treaty exemption applies.

Taxation of Shareholders. The following discussion does not purport to address
the tax consequences to non-United States Investors or to a person who owns,
directly or indirectly (or is deemed to own after the application of certain
complex attribution rules), the Company's Shares giving the holder the right to
exercise 10% or more of the total voting power of the Company's outstanding
Shares (a "10-Percent Shareholder" of the Company), other than as discussed
below under "-- Special United States Federal Income Tax Considerations --
Controlled Foreign Corporations." Non-United States Investors and any person
contemplating or at risk of becoming a 10-Percent Shareholder are advised to
consult their own tax advisors regarding the tax consequences to them of an
investment in the Shares.

Basis in Shares. A United States Investor will generally have a basis in the
Shares equal to such investor's purchase price for United States federal income
tax purposes.

Dividends. A United States Investor receiving a distribution on the Shares will
be required to include such distribution in gross income as a taxable dividend
to the extent such distribution is paid from current or accumulated earnings and
profits of the Company as determined for United States federal income tax
purposes. Distributions in excess of the current and accumulated earnings and
profits of the Company will first be treated, for United States federal income
tax purposes, as a nontaxable return of capital to the extent of the United
States Investor's basis in the Shares and then as gain from the sale or exchange
of a capital asset. Dividends paid by the Company will not be eligible for the
corporate dividends received deduction.

The Company has officially adopted the United States dollar as the currency in
which it keeps its books and records. Accordingly, any dividend would be paid in
U.S. dollars. Nevertheless, the amount of any dividend paid in Hong Kong dollars
or any other foreign currency will be equal to the United States dollar value of
the Hong Kong dollars or such other currency on the date of receipt, regardless
of whether the United States Investor converts the payment into United States
dollars. Gain or loss, if any, recognized by a United States Investor on the
sale or disposition of Hong Kong dollars or another foreign currency will
generally be United States source ordinary income or loss.

In general, a United States Investor (other than a 10-Percent Shareholder of the
Company) will be entitled to claim a foreign tax credit only for taxes (such as
withholding taxes), if any, imposed on dividends paid to such United States
Investor and not for taxes, if any, imposed on the Company or on any entity in
which the Company has made an investment. Dividends received with respect to
Shares will generally be characterized as "passive income" for purposes



                                     - 18 -
<PAGE>   19
of applying the foreign tax credit limitation. To the extent that the Company's
income is derived from United States sources, dividends which it pays to United
States Investors may be considered United States source income for purposes of
applying the foreign tax credit limitation.

Dispositions of Shares. Subject to the discussion below of the consequences of
the Company being treated as a Passive Foreign Investment Company or a Foreign
Investment Company, gain or loss realized by a United States Investor (other
than a 10-Percent Shareholder of the Company) on the sale or other disposition
of Shares will be subject to United States federal income tax as capital gain or
loss in an amount equal to the difference between such United States Investor's
basis in the Shares and the amount realized on the disposition. Such capital
gain or loss will be long-term capital gain or loss if the United States
Investor has held the Shares for more than one year at the time of the sale or
exchange. The maximum rate of tax on long-term capital gains on most capital
assets held by an individual for more than one year is 20%. The maximum rate of
tax on short-term capital gains or capital assets held by an individual for one
year or less is 39.6%.

SPECIAL UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

Passive Foreign Investment Company. The Company has not been a passive foreign
investment company ("PFIC") for United States federal income tax purposes for
prior taxable years and believes that it will not be treated as a PFIC for the
current and future taxable years, but this conclusion is a factual determination
made annually and thus is subject to change. The Company will be a PFIC with
respect to a United States Investor if, for any taxable year in which such
United States Investor held the Company's Shares, either (i) at least 75% of the
gross income of the Company for the taxable year is passive income, or (ii) at
least 50%, on average for the Company's taxable year, of the Company's assets
(by value or, if the Company so elects, by adjusted basis, or for tax years
beginning after March 31, 1998 by fair market value) is attributable to assets
that produce or are held for the production of passive income (in each case
taking into account the Company's pro rata share of the gross income and the
value of the assets of any company in which the Company owns, directly or
indirectly, 25% or more of the stock by value (the "look-through" rule)). For
this purpose, passive income generally includes dividends, interest, royalties,
rents (other than rents and royalties derived in the active conduct of a trade
or business and not derived from a related person), annuities and gains from
assets that produce passive income. The Company anticipates that, under the
"look-through" rules described above, most of the income that it derives from
manufacturing in the PRC will not constitute passive income and that most of its
investment in such manufacturing will not constitute assets held for the
production of passive income. The Company anticipates, therefore, that it will
not be a PFIC.

If the Company were to be treated as a PFIC, then, unless a United States
Investor who owns Shares in the Company elects to have the Company treated as a
"qualified electing fund" (a "QEF") as described below, the following rules
apply:

1.      Distributions made by the Company during a taxable year to a United
        States Investor who owns Shares in the Company that are an "excess
        distribution" (defined generally as the excess of the amount received
        with respect to the Shares in any taxable year over 125% of the average
        received in the shorter of either the three previous years or such
        United States Investor's holding period before the taxable year) must be
        allocated ratably to each day of such shareholder's holding period. The
        amount allocated to the current taxable year must be included as
        ordinary income in gross income for that year. Amounts allocated to the
        current taxable year and to periods prior to the first day of the first
        taxable year in which the Company became a PFIC must be included as
        ordinary income in gross income for the current year. With respect to
        amounts allocated to each prior taxable year during which the Company
        was a PFIC, that tax is calculated at the highest rate in effect for
        such shareholder in that prior year. The tax is subject to an interest
        charge at the rate applicable to deficiencies in income taxes, and such
        tax liability (including the interest charge) is added to the U.S.
        Investors tax liability for the current year without regard to his, her,
        or its other tax characteristics.

2.      The entire amount of any gain realized upon the sale or other
        disposition of the Shares will be treated as an excess distribution made
        in the year of sale or other disposition and as a consequence will be
        treated as ordinary income and, to the extent allocated to years prior
        to the year of sale or disposition, will be subject to the interest
        charge described above.

A shareholder that makes a QEF election will be currently taxable on his, her or
its pro rata share of the Company's ordinary earnings and net capital gain (at
ordinary income and capital gains rates, respectively) for each taxable year of
the Company, regardless of whether or not distributions were actually received.
A shareholder that makes a QEF election for the first taxable year in which the
Company is a PFIC and in which the shareholder owns shares in the Company and
maintains this election for all subsequent years in which the shareholder owns
shares in the Company will be subject to the foregoing treatment only in such
years in which the Company actually satisfies the income or asset tests for PFIC
status described above. The shareholder's basis in his, her or its Shares will
be increased to reflect taxed but undistributed income. Distributions of income
that had previously been taxed will result in a corresponding reduction of basis
in the Shares and will not be taxed again as a distribution to the shareholder.

In addition, under recently enacted tax legislation, a shareholder of a PFIC may
make a mark-to-market election with respect to the stock of certain PFICs with
marketable stock. The election may be made for tax years beginning after



                                     - 19 -
<PAGE>   20

March 31, 1998. Under such an election, the shareholder would determine his, her
or its income or loss with respect to the PFIC stock as of the close of each
taxable year. For example, an electing shareholder would include in income each
year an amount equal to the excess, if any, of the fair market value of the PFIC
stock as of the close of the taxable year over the shareholder's adjusted basis
in such stock. Any income included in income pursuant to the mark-to-market
election would be treated as ordinary income. Alternatively, for tax years where
the shareholder's adjusted basis in the PFIC stock exceeds its fair market
value, an electing shareholder may, subject to certain limitations, be entitled
to a deduction.

Special rules apply with respect to the calculation of the amount of the foreign
tax credit with respect to excess distributions by a PFIC or inclusions under a
QEF.

A United States Investor who owns Shares in the Company during any year that the
Company is a PFIC must file Internal Revenue Service Form 8621 with the Internal
Revenue Service (as well as attaching a copy to his, her or its income tax
return).

Controlled Foreign Corporations. Sections 951 through 964 and Section 1248 of
the Code relate to controlled foreign corporations ("CFC"). The CFC provisions
may impute some portion of such a corporation's undistributed income to certain
shareholders on a current basis and convert into dividend income some portion of
gains on dispositions of stock which would otherwise qualify for capital gains
treatment. In general, the CFC provisions will apply to the Company only if 10-
Percent Shareholders who are United States Investors own in the aggregate (or
are deemed to own after application of complex attribution rules), more than 50%
(measured by voting power or value) of the Shares of the Company. The Company
does not believe that it is currently a CFC. It is possible that the Company
could become a CFC in the future. Even if the Company were classified as a CFC
in a future year, however, the CFC rules referred to above would apply only with
respect to 10-Percent Shareholders who are United States Investors.

Personal Holding Company/Foreign Personal Holding Company/Foreign Investment
Company. A corporation will be classified as a personal holding company (a
"PHC") if at any time during the last half of a tax year (i) five or fewer
individuals (without regard to their citizenship or residence) directly or
indirectly or by attribution own more than 50% in value of the corporation's
stock and (ii) at least 60% of its ordinary gross income, as specially adjusted,
consists of personal holding company income (defined generally to include
dividends, interest, royalties, rents and certain other types of passive
income). A PHC is subject to a United States federal income tax of 39.6% on its
undistributed personal holding company income (generally limited, in the case of
a foreign corporation, to United States source income).

A corporation will be classified as a foreign personal holding company (an
"FPHC") and not a PHC if at any time during a tax year (i) five or fewer
individual United States citizens or residents directly or indirectly or by
attribution own more than 50% of the total combined voting power or value of the
corporation's stock and (ii) at least 60% of its gross income consists of
foreign personal holding company income (defined generally to include dividends,
interest, royalties, rents and certain other types of passive income). Each
United States shareholder in an FPHC is required to include in gross income, as
a dividend, an allocable share of the FPHC's undistributed foreign personal
holding company income (generally the taxable income of the FPHC, as specially
adjusted).

A corporation will be classified as a foreign investment company (a "FIC") if
for any taxable year it (i) is registered under the Investment Company Act of
1940, as amended, as a management company or share investment trust or is
engaged primarily in the business of investing or trading in securities or
commodities (or any interest therein) and (ii) 50% or more of the value or the
total combined voting power of all the corporation's stock is owned directly or
indirectly (including stock owned through the application of attribution rules)
by United States persons. In general, unless an FIC elects to distribute 90% or
more of its taxable income (determined under United States tax principles as
specially adjusted) to its shareholders, gain on the sale or exchange of FIC
stock is treated as ordinary income (rather than capital gain) to the extent of
such shareholder's ratable share of the corporation's earnings and profits for
the period during which such stock was held. The Company believes that it is not
currently a PHC, FPHC or FIC. However, no assurance can be given as to the
Company's future status.

U.S. Information Reporting and Backup Withholding. Dividends paid in the United
States are generally subject to the information reporting requirements of the
Code. Dividends paid in the United States may be subject to backup withholding
at the rate of 31% unless the holder provides a taxpayer identification number
on a properly completed Form W-9 or otherwise establishes an exemption. The
amount of any backup withholding will not constitute additional tax and will be
allowed as a credit against the United States Investor's federal income tax
liability.



                                     - 20 -
<PAGE>   21

Filing of Information Returns. Under a number of circumstances, a United States
Investor acquiring Shares of the Company may be required to file an information
return. In particular, any United States Investor who becomes the owner,
directly or indirectly, of 10% or more of the Shares of the Company will be
required to file such a return. Other filing requirements may apply, and United
States Investors should consult their own tax advisors concerning these
requirements.

HONG KONG TAXATION

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

Profits Tax. The Company is subject to profits tax on all profits (excluding
capital profits) arising in or derived from Hong Kong. The source of income is
therefore the relevant factor, and this is generally regarded as a question of
fact. There are certain situations in which the Hong Kong tax authorities are
prepared to accept apportionment of chargeable profits, for example when a Hong
Kong-based company has manufacturing facilities in the PRC. The proportion of
income originating from the PRC and Hong Kong respectively in such situations 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 16% for corporations and
15.0% for unincorporated entities. Generally speaking, business losses may be
carried forward indefinitely to be offset against future profits of the Company.
See "Risk Factors -- Risks Relating to the Company -- Taxation."

Capital Gains/Taxation of Dividends. Hong Kong does not have any form of capital
gains tax. Neither does it have any form of dividend taxation or withholding
taxes, and hence profits accumulated in a Hong Kong company can be distributed
as dividends without tax deduction 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 for 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. 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 rate
of HK$1.25 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 practices 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.

PRC TAXATION

The following discussion summarizes the taxes applicable to the Company's
investment in the PRC under PRC law:

Income Tax. The Company'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 generally
are subject to an income tax at an effective rate of 33%, which is comprised of
a state tax of 30% and a local tax of 3%. The Foreign Investment Enterprise Tax
Law generally exempts Sino-foreign equity and contractual joint venture
enterprises engaged in manufacturing with an operating term of more than ten
years from state and local income taxes for two years starting from the first
profitable year of operations, followed by a 50% reduction for the next three
years. The first profitable year for the Dongguan Facility begun on January 1,
1999. The tax exemption period of Shenzhen Huaxuan Printing Product Co., Ltd.
expired on December 31, 1997, and it is subject to PRC income tax at the rate of
7.5% thereafter.

Value-Added Tax ("VAT"). Effective January 1, 1994, all goods produced or
processed in the PRC, other than real property 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 VAT rate for the
Company is 17% of the sale price of the item. The seller of the goods adds 17%
to the sale price of the item, separately invoiced (except in the case of retail
sales), and collects the applicable amount of VAT through the sale of the item.
The amount of the seller's VAT liability to the Tax Bureau is calculated as the
amount of sales multiplied by the applicable VAT rate. The amount of the
seller's VAT liability may be reduced by deducting the invoiced amount of VAT
included in the materials, parts and other items



                                     - 21 -
<PAGE>   22

purchased by the seller and used in producing the goods.

For foreign investment enterprises ("FIEs") established before December 31,
1993, goods produced for export sales were exempt from VAT. However, with effect
from January 1, 1999, such FIEs shall apply the "Exempt, Credit, Refund" method
(hereinafter the "ECR method") with respect to goods produced for export sales.

Under the ECR method, for those FIEs that are production enterprises that export
self-produced goods on their own account with import-export rights or that
export through an import/export agent, export products are exempt from VAT.
However, before the input VAT paid on raw materials can be used to offset the
sales VAT of goods sold to the domestic market, the tax bureau will calculate
the "non-creditable & non-refundable" amount of VAT. This amount is the
difference between the applicable export sales VAT rate and the VAT refund rate,
multiplied by the export product's FOB sales price less the taxable value of any
bonded raw materials. This amount of VAT is not eligible to be treated as input
VAT for offset or refund.

Based on the products produced by the Company, the input VAT rate is 11%
effective from January 1, 1999, pursuant to the Circular [1999] 17 issued by the
Ministry of Finance and the State Administration of Taxation. The applicable
export sales VAT rate is 17%. Accordingly, the non-creditable & non-refundable
amount of VAT would equal 6% of the export product's FOB sales price after
deducting the taxable value of any bonded raw materials and would become the
Company's additional cost of sales if the input VAT paid is smaller than the
non-creditable & non-refundable amount.

The Value-Added Tax Provisional Regulations do not permit the seller to deduct
from its VAT liability the amount of 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 Company will be the depreciated
cost (ordinarily the purchase price plus VAT) paid at the time of such purchase,
the Company is not permitted to deduct from its VAT liability in respect of
products sold.

Taxation of Dividends from the PRC. Dividends distributed to the Company can be
remitted from the PRC without any PRC taxation. 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
foreign investors from a foreign investment enterprise are exempt from
withholding tax. The Company's PRC subsidiaries are qualified as foreign
investment enterprises, so withholding tax is not applicable to dividends
received by the Company from these subsidiaries.

Taxation of Disposition of Interest in PRC Subsidiaries. In the event the
Company transfers its interest in its PRC subsidiaries, the amount received in
excess of its original capital contribution would be subject to PRC withholding
tax at the rate of 20%.

In the event that the Company'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 Company'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 Company's income
as described under "Income Tax."



                                     - 22 -
<PAGE>   23

ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA
         (In Thousands, Except Per Share Data)

RESTATED COMPANY

The following selected consolidated financial data are that of Zindart and after
inclusion of the operating results of Hua Yang, as a result of giving
retroactive effect for fiscal 1995 to fiscal 1998 presented, to the Hua Yang
Acquisition as a reorganization of companies under common control, similar to a
pooling of interests. Under such presentation, net income is reduced through the
minority interests for the portion of shareholdings in Hua Yang not held under
common control. The following consolidated financial data presented for fiscal
1999 are actual. The following selected consolidated statement of operations
data for the fiscal years ended March 31, 1997, 1998 and 1999 and the following
selected consolidated balance sheet data as of March 31, 1998 and 1999 are
derived from the audited Consolidated Financial Statements of the Company and
notes thereto appearing elsewhere in this Annual Report on Form 10-K, which have
been audited by Arthur Andersen & Co., independent public accountants. The
selected consolidated statement of operations data for the year ended March 31,
1995 and 1996 and the selected consolidated balance sheet data as of March 31,
1996 and 1997 not included elsewhere in this Annual Report have been prepared in
accordance with United States Generally Accepted Accounting Principles ("U.S.
GAAP") and are audited by Arthur Andersen & Co., independent public accountants.
The selected consolidated balance sheet data as of March 31, 1995 have been
derived from unaudited financial statements of the Company not included
elsewhere in this Annual Report.

The following selected consolidated financial data should be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," and the Consolidated Financial Statements of the Company and the
notes thereto contained elsewhere in this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
                                                                                Years Ended March 31,
                                                    ------------------------------------------------------------------------------
                                                    1995(1)            1996             1997             1998              1999
                                                    --------         --------         --------         ---------         ---------
<S>                                                 <C>              <C>              <C>              <C>               <C>
Statement of Operations Data:-

Net sales                                           $ 43,479         $ 83,333         $ 95,616         $ 111,534         $ 113,605
Cost of goods sold                                   (30,471)         (56,910)         (69,388)          (77,422)          (78,323)
                                                    --------         --------         --------         ---------         ---------
  Gross profit                                        13,008           26,423           26,228            34,112            35,282
Selling, general and administrative expenses          (8,504)         (13,158)         (14,833)          (19,140)          (20,479)
Interest income (expense), net                            92             (375)            (878)              389                35
Other income (expense), net                              515             (430)             330              (314)             (537)
                                                    --------         --------         --------         ---------         ---------
  Income before income taxes                           5,111           12,460           10,847            15,047            14,301
Provision for income taxes                              (483)            (488)            (781)           (1,419)           (1,377)
                                                    --------         --------         --------         ---------         ---------
  Income before minority interests                     4,628           11,972           10,066            13,628            12,924
Minority interests                                      (394)          (4,514)          (2,920)           (3,632)             (757)
                                                    --------         --------         --------         ---------         ---------
  Net income                                        $  4,234         $  7,458         $  7,146         $   9,996         $  12,167
                                                    ========         ========         ========         =========         =========
Earnings per common share

  -- Basic                                          $   0.80         $   1.41         $   1.33         $    1.41         $    1.38
                                                    ========         ========         ========         =========         =========
  -- Diluted(2)                                     $   0.80         $   1.41         $   1.33         $    1.40         $    1.38
                                                    ========         ========         ========         =========         =========

Weighted average number of common
  shares outstanding(3)

  -- Basic                                             5,280            5,280            5,383             7,109             8,804
                                                    ========         ========         ========         =========         =========
  -- Diluted                                           5,280            5,280            5,383             7,155             8,827
                                                    ========         ========         ========         =========         =========
</TABLE>



                                     - 23 -
<PAGE>   24

<TABLE>
<CAPTION>
                                                              As of March 31,
                                        ------------------------------------------------------------
                                         1995         1996         1997          1998         1999
                                        -------      -------      -------      --------      -------
<S>                                     <C>          <C>          <C>          <C>           <C>
Balance Sheet Data :-

Cash and bank deposits                  $ 4,313      $ 6,267      $21,286      $ 22,373      $17,061
Working capital                          12,356       16,221       34,096        40,246       27,429
Property, machinery, equipment
   and capital leases, net               11,054       21,034       21,662        29,177       30,311
Total assets                             43,953       60,330       77,568       105,827       90,911
Short-term debt(4)                        2,074       10,212        3,920          --           --
Long-term debt and capital lease
  obligations, non-current portion          859        4,321        2,888        30,000         --
Shareholders' equity                     15,989       20,448       39,836        50,827       67,778
</TABLE>

---------

(1)     Includes approximately 42% of the operating results of Hua Yang for the
        period from January 1, 1995 (the date Hua Yang became beneficially owned
        by the ChinaVest IV Funds) to March 31, 1995.

(2)     Diluted earnings per common share reflects the dilution that would have
        resulted from the exercise of stock options. Diluted earnings per common
        share is computed by dividing net income for each period by the weighted
        average number of common shares outstanding and all dilutive securities
        outstanding during the periods and is adjusted for the issuance of
        279,863 shares, which represents an approximately 42% effective interest
        in the number of Shares reserved to issue at the closing of the Hua Yang
        Acquisition.

(3)     The weighted average number of common shares outstanding is adjusted for
        the issuance of 279,863 Shares up to February 13, 1998 (date of
        completion of Hua Yang Acquisition), which represents an approximately
        42% effective interest in the number of Shares reserved to issue at the
        closing of the Hua Yang Acquisition.

(4)     Includes current portions of long-term debt and capital lease
        obligations.

PRO FORMA FINANCIAL DATA
(In Thousands, Except per Share Data)

The following unaudited pro forma consolidated statement of operations data give
effect to the Hua Yang Acquisition as if it had occurred on April 1, 1997 for
the year ended March 31, 1998, with the expenses relating to the acquisition
recorded in the year ended March 31, 1998. The unaudited pro forma financial
data sets forth below reflect pro forma adjustments that are based upon
available information and certain assumptions that the Company believes are
reasonable. The unaudited pro forma financial data are not necessarily
indicative of the results that would have been achieved had such transaction
been consummated as of the dates indicated or of the results that may be
achieved in the future. The following unaudited pro forma consolidated financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations," and the Consolidated Financial
Statements of the Company and the notes thereto contained elsewhere in this
Annual Report.



                                     - 24 -
<PAGE>   25

            Unaudited Pro Forma Consolidated Statement of Operations

<TABLE>
<CAPTION>
                                                                 Year Ended March 31, 1998
                                                         -------------------------------------------
                                                                        Pro Forma
                                                         Restated(a)    Adjustments       Pro Forma
                                                         -----------    -----------       ----------
<S>                                                      <C>            <C>              <C>
Net Sales                                                 $ 111,534                       $ 111,534
Cost of goods sold                                          (77,422)                        (77,422)
                                                          ---------                       ---------
  Gross profit                                               34,112                          34,112
Selling, general and administrative expenses                (19,140)        (309)(b)        (19,449)
Interest expenses                                              (698)      (1,963)(d)         (2,661)
Interest income                                               1,087         (392)(d)            695
Other expenses, net                                            (229)                           (229)
Amortization of goodwill                                        (85)        (525)(c)           (610)
                                                          ---------                       ---------
  Income before income taxes                                 15,047                          11,858
Provision for income taxes                                   (1,419)                         (1,419)
                                                          ---------                       ---------
  Income before minority interests                           13,628                          10,439
Minority interests                                           (3,632)       2,901(e)            (731)
                                                          ---------                       ---------
  Net income                                              $   9,996                       $   9,708
                                                          =========                       =========
Earnings per common share

  -- Basic                                                $    1.41                       $    1.30
                                                          =========                       =========
  -- Diluted                                              $    1.40                       $    1.30
                                                          =========                       =========
Weighted average number of common shares outstanding

  -- Basic                                                    7,109                           7,447
                                                          =========                       =========
  -- Diluted                                                  7,155                           7,493
                                                          =========                       =========
</TABLE>




                                     - 25 -
<PAGE>   26

(a)     The financial statements of the company include approximately 42% of the
        results of Hua Yang prior to February 13, 1998 (the date the Hua Yang
        Acquisition was completed) to give retroactive effect to the Hua Yang
        Acquisition as a reorganization of companies under common control,
        similar to a pooling of interests.

(b)     To record amortization of deferred debt costs on a straight-line basis
        with respect to the revolving credit facility obtained to finance the
        Hua Yang Acquisition.

(c)     To record amortization of goodwill resulting from the Hua Yang
        Acquisition over 20 years.

(d)     To provide for interest expenses that would have been incurred under the
        revolving credit facility obtained to finance the Hua Yang Acquisition,
        and the reduction of interest income due to utilization of cash for the
        payment of part of the consideration for Hua Yang Acquisition and the
        redemption by Hua Yang of certain of its outstanding preferred stock
        prior to the completion of the Hua Yang Acquisition by the Company.

(e)     To reverse minority interests in the results of Hua Yang relating to
        shareholdings in Hua Yang not held under common control. The remaining
        balance of the pro forma minority equity interest represents Zindart's
        minority equity interest in its mold-making subsidiaries.

<TABLE>
<CAPTION>
                                                               Year Ended
                                                             March 31, 1998
                                                             --------------
<S>                                                             <C>
Purchase Consideration(1)                                       $ 43,833
Transaction Cost Related to the Hua Yang Acquisition               1,163
                                                                --------
                                                                  44,996

Less: Net tangible assets of Hua Yang (excluding goodwill)
      after adjustment for the redemption of certain
      outstanding preferred stock of Hua Yang for $5.0
      million(2)                                                 (24,347)
                                                                --------
                                                                  20,649

Ownership of Hua Yang not held under common control                 58.0%
                                                                --------
Goodwill                                                          11,981

                                                                --------
Amortization for a 12 month period                              $    599
Less: Amortization already recorded in the
      consolidated statements of operations                          (74)
                                                                --------
                                                                $    525
                                                                ========
</TABLE>

(1)     Includes $35.0 million in cash and 666,667 shares of Zindart issued at a
        price of $13.25 per share .

(2)     The details of the net tangible assets of Hua Yang acquired were:

<TABLE>
<S>                                                              <C>
        Net tangible assets of Hua Yang include:-
        Cash and bank deposits                                   $  4,383
        Accounts receivable                                        12,817
        Due from related companies                                     70
        Deposits and prepayments                                      290
        Inventories                                                 4,764
        Property, machinery, equipment and capital leases           9,379
        Capital lease obligations                                  (1,354)
        Accounts payable                                           (2,071)
        Accrued liabilities                                        (3,230)
        Taxation payable                                             (701)
                                                                 --------
                                                                 $ 24,347
                                                                 ========
</TABLE>



                                     - 26 -

<PAGE>   27



ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS

The financial data presented herein for fiscal 1999 are actual. The following
discussion relating to statement of operations for fiscal 1998 and 1997 are on
both a restated and pro forma basis.

The restated financial information is presented after inclusion of the operating
results of Hua Yang, to give retroactive effect for all periods presented to the
acquisition of Hua Yang as a reorganization of companies under common control,
similar to a pooling of interests. Under such presentation, for periods prior to
completion of the acquisition of Hua Yang, net income is reduced through the
minority interests for the portion of shareholdings in Hua Yang not held under
common control. See Note 2 of Notes to Consolidated Financial Statements.

The pro forma data give effect to the acquisition of Hua Yang as if it had
occurred on April 1, 1996 and 1997 for the years ended March 31, 1997 and 1998.
The pro forma financial data set forth reflects pro forma adjustments that are
based upon available information and certain assumptions that the Company
believes are reasonable. Pro forma adjustments are comprised primarily of (i) an
increase in interest expense arising from borrowings to finance the acquisition
and the reduction of interest income due to utilization of cash for the payment
of part of the consideration of the Hua Yang Acquisition and the redemption by
Hua Yang of certain of its outstanding preferred stock prior to the acquisition;
(ii) an increase in goodwill amortization resulting from the acquisition; (iii)
a reversal of the minority interests in the results of Hua Yang relating to
shareholdings in Hua Yang not held under common control; and (iv) amortization
of underwriting and management fees with respect to the borrowings to finance
the acquisition.

The fiscal year ended March 31, 1999 is referred to herein as fiscal 1999, the
fiscal year ended March 31, 1998 is referred to herein as fiscal 1998 and the
fiscal year ended March 31, 1997 is referred to herein as fiscal 1997.

The following discussion and analysis should be read in conjunction with the
consolidated financial statements and the notes thereto and the information
contained in this Annual Report.

Overview

The Company is a turnkey manufacturer of high-quality die-cast, injection-molded
and paper products that require a significant degree of engineering and
hand-assembly expertise to produce. The Company manufactures die-cast
collectibles, collectible holiday ornaments, toys, hand-made books, specialty
packaging and other paper products. The Company is headquartered in Hong Kong,
and its manufacturing operations are located in the neighboring Guangdong
Province of the PRC.

The Company's customers for die-cast and injection-molded products include
Hallmark, Ertl, Mattel(R) and Sieper Werke GmbH. For books, paper and packaging
products, the Company's customers include Mattel(R), Intervisual Books, Inc.,
Penguin Putnam Inc. and Imago Publishing Limited. The Company is dependent on
sales to Hallmark, Ertl and Mattel (R). See "Risk Factors - Risks Relating to
the Company - Dependence on Major Customers."

After the completion of Phase III construction of its Dongguan plant in December
1998, including an additional dormitory and a warehouse, the Company now has an
aggregate of 1,962,000 square feet of manufacturing space with the capacity for
up to 15,700 workers in its two manufacturing facilities. See "Risk Factors -
Country Risks - Dependence on PRC Parties" and "Risks Relating to the PRC - Loss
of PRC Facilities; Nationalization; Expropriation."

The Company's operating results in the past have fluctuated and those results
may fluctuate in the future. The Company ceases production for a two-week period
during January or February of each year due to the Chinese New Year holiday,
which has caused revenues during the fourth fiscal quarter of each year to be
lower than revenues during the other three quarters. The Company may also
experience fluctuations in quarterly sales and related net income compared with
other quarters due to the timing of receipt of orders from customers and the
shipment of products. Sales of books are weighted toward the Christmas season;
as a result, book sales in the first half of the fiscal year are generally
higher than the second half. The Company may experience annual and quarterly
variations in operating results and, accordingly, the trading price of the ADSs
may be subject to fluctuations in response to such variations. See "Risk Factors
- Risks Relating to the Company Ability to Manage Growth and Fluctuations" and
"Possible Fluctuations in Operating Results; Reduced Revenue in the Fourth
Fiscal Quarter."



                                     - 27 -
<PAGE>   28

The table below sets forth certain statement of operations data as a percentage
of net sales for the fiscal years ended March 31, 1997, 1998 and 1999. Figures
presented for the fiscal years ended March 31, 1997 and 1998 are on a restated
basis whereas the figures for the fiscal year ended March 31, 1999 are actual.

<TABLE>
<CAPTION>
                                        1997            1998            1999
                                        -----           -----           -----
<S>                                     <C>             <C>             <C>
Net sales                               100.0%          100.0%          100.0%

Gross profit                             27.4%           30.6%           31.1%

Selling, general and
    administrative expenses              15.5%           17.2%           18.0%

Operating income                         11.9%           13.4%           13.0%

Interest income (expenses), net          (0.9)%           0.3%             --

Other income (expenses), net              0.4%           (0.2)%           0.1%

Amortization of goodwill                   --              --            (0.6)%

Income before income taxes               11.3%           13.5%           12.6%

Provision for income taxes                0.8%            1.3%            1.2%

Minority interests                        3.1%            3.3%            0.7%

Net income                                7.5%            9.0%           10.7%
</TABLE>

The table below sets forth certain statement of operations data as a percentage
of net sales for the fiscal years ended March 31, 1997, 1998 and 1999. Figures
presented for the fiscal years ended March 31, 1997 and 1998 are on pro forma
basis whereas the figures for fiscal year ended March 31, 1999 are actual.

<TABLE>
                                        1997           1998            1999
                                       ------         ------          ------
<S>                                    <C>            <C>             <C>
Net sales                               100.0%         100.0%          100.0%

Gross profit                             27.4%          30.6%           31.1%

Selling, general and
    administrative expenses              15.8%          17.4%           18.0%

Operating income                         11.6%          13.1%           13.0%

Interest income (expenses), net           3.7%           1.8%             --

Other income (expenses), net              0.4%          (0.2)%           0.1%

Amortization of goodwill                  0.6%           0.5%           (0.6)%

Income before income taxes                7.6%          10.6%           12.6%

Provision for income taxes                0.8%           1.3%            1.2%

Minority interests                        0.9%           0.7%            0.7%

Net income                                5.8%           8.7%           10.7%
</TABLE>



                                     - 28 -
<PAGE>   29

Year Ended March 31, 1999 and 1998

Net Sales. The Company's net sales were $113.6 million for fiscal 1999, an
increase of $2.1 million, or 1.9%, from $111.5 million in fiscal 1998. The
increase was primarily due to the increase in sales of Zindart's die-cast
collectibles to Ertl and Mattel(R), and was partially offset by a reduction in
packaging orders from Mattel(R) as a result of the slowdown in Barbie sales over
the past year.

Gross Profit. The Company's gross profit was $35.3 million for fiscal 1999, an
increase of $1.2 million, or 3.5%, from $34.1 million in fiscal 1998. Gross
margin was 31.1% in fiscal 1999 and 30.6% in fiscal 1998. Gross margin increased
due to a change in product mix and overhead savings as a result of the merger of
several divisions of Zindart and Hua Yang.

Selling, General and Administrative Expenses. The Company's selling, general and
administrative expenses were $20.5 million for fiscal 1999, an increase of $1.4
million, or 7.3%, from $19.1 million in fiscal 1998. Selling, general and
administrative expenses constituted 18.0% of net sales in fiscal 1999 and 17.2%
in fiscal 1998. Selling, general and administrative expenses for the Company
increased due to (i) a $137,000 commitment fee paid during the year for the
revolving credit facility of Credit Suisse First Boston ("CSFB") and (ii) a
$928,000 amortization and one-off write off of the debt issuance cost in the
last quarter of fiscal 1999 upon full repayment of the CSFB loan and
cancellation of this revolving credit facility. The Company's selling, general
and administrative expenses were $20.5 million for fiscal 1999, an increase of
$1.1 million, or 5.7% from $19.4 million in fiscal 1998 on a pro forma basis.

Interest Income (Expenses), Net. The Company's interest income (expense), net,
was $35,000 in fiscal 1999, as compared to $389,000 in fiscal 1998. The decrease
was due to the Company's acquisition of Hua Yang in February 1998 and the
Company's gradual repayment of the CSFB loan of $30 million during the year. The
Company's interest income (expenses), net, was $35,000 in fiscal 1999, as
compared to ($1,966,000) in fiscal 1998 on a pro forma basis. The increase in
net interest income was due to a decrease in interest expenses for CSFB loan as
a result of full repayment of this loan during fiscal 1999.

Other Income (Expenses), Net. The Company's other income (expenses), net, was
$161,000 in fiscal 1999, as compared to ($229,000) in fiscal 1998. The increase
in other income was due to a one-time transaction cost of $488,000 expensed in
fiscal 1998.

Amortization of Goodwill. The Company's amortization of goodwill was $698,000 in
fiscal 1999, an increase of $614,000 from $84,000 in fiscal 1998. On a pro forma
basis, the Company's amortization of goodwill in fiscal 1999 represented an
increase of $88,000 over the pro forma goodwill amortization of $610,000 in
fiscal 1998. The increase of $88,000 in goodwill amortization expenses was due
to the acquisition of an additional 39% ownership interest in Luen Tat Mould
Manufacturing Limited and an additional 33% ownership interest in Luen Tat Model
Design Company Limited during the year.

Provision For Income Taxes. The effective income tax rate for the Company was
9.6% in fiscal 1999 and 9.4% in fiscal 1998.

Minority Interests. The Company's minority interests were $0.8 million in fiscal
1999 and $3.6 million in fiscal 1998. The decrease in minority interests was due
to the Company's acquisition of an additional 39% ownership interest in Luen Tat
Mould Manufacturing Limited during the year. On a pro forma basis, the Company
incurred an increase of $26,000 in minority interests expenses over the $731,000
incurred in fiscal 1998.

Net Income. The Company's net income was $12.2 million in fiscal 1999, an
increase of $2.2 million or 22.0% from $10.0 million in fiscal 1998 on a
restated basis and an increase of $2.5 million or 25.8% from $9.7 million in
fiscal 1998 on a pro forma basis.



                                     - 29 -
<PAGE>   30

Year Ended March 31, 1998 and 1997

Net Sales. The Company's net sales were $111.5 million for fiscal 1998, an
increase of $15.9 million, or 16.6%, from $95.6 million in fiscal 1997. The
increase was primarily due to an increase in sales of Zindart's die-cast
collectibles to Mattel (R) in the second and third quarters, partially offset by
constrained sales growth in the first quarter resulting from one-time labor
shortages that abated early in the second quarter. The increase was also due in
part in additional marketing efforts at the Company's Hua Yang book and
packaging division as well as a rebound in market share after the book and
packaging division reduced prices in last fiscal 1997.

Gross Profit. The Company's gross profit totaled $34.1 million for fiscal 1998,
an increase of $7.9 million, or 30.2%, from $26.2 million in fiscal 1997. Gross
margin was 30.6% in fiscal 1998 and 27.4% in fiscal 1997. Gross margin increased
due to a change in product mix and saving of overhead as a result of the
consolidation of old factories into the expanded Dongguan Facility. During
fiscal 1997, Zindart incurred costs associated with operating the Dongguan
Facility at less than full capacity and training new employees.

Selling, General and Administrative Expenses. The Company's selling, general and
administrative expenses were $19.1 million for fiscal 1998, an increase of $4.3
million, or 29.1%, from $14.8 million in fiscal 1997. Selling, general and
administrative expenses constituted 17.2% of net sales in fiscal 1998 and 15.5%
in fiscal 1997. Selling, general and administrative expenses for Zindart
increased due to additional professional expenses associated with Zindart's
status as a public company. Expenses for the book and packaging division
increased primarily due to higher freight costs and bad debt provision due to
slippage and claims made in the second and third quarters. Pro forma selling,
general and administrative expenses would have been $19.4 million for fiscal
1998 and $15.1 million for fiscal 1997. The difference between the pro forma and
restated expenses is due to the amortization of underwriting and management fees
with respect to the borrowings to finance the Hua Yang Acquisition.

Interest Income (Expenses), Net. The Company's interest income (expenses), net,
was $389,000 in fiscal 1998 as compared to ($878,000) in fiscal 1997. On a pro
forma basis, the Company would have had interest expense of approximately $2.0
million in fiscal 1998 and $3.6 million in fiscal 1997. The decrease in interest
expenses on a pro forma basis from the restrained operating results would have
been due to an increase in interest income generated from the proceeds of two
public offerings received in March 1997 and 1998.

Other Income (Expenses), Net. The Company's other income (expenses), net,
totaled ($229,000) in fiscal 1998 as compared to other income of $340,000 in
fiscal 1997. On a pro forma basis, the Company would have had other expense of
$229,000 in fiscal 1998 and other income of $340,000 in fiscal 1997. The
increase in other expenses on a pro forma basis would have been due to an
increase in amortization expense of debt issuance expenses incurred as a result
of the acquisition.

Amortization of goodwill. The Company's amortization of goodwill on a pro forma
basis would have been substantially higher than on a restated basis for fiscal
1998 and 1997 due to an increase in goodwill amortization that would have
resulted from the Hua Yang Acquisition. On a restated basis, amortization of
goodwill resulting from the acquisition of $75,000 is included only for the
period from the date of acquisition in February 1998 through the end of March in
fiscal 1998.

Provision For Income Taxes. The effective income tax rate for the Company was
9.4% in fiscal 1998 and 7.2% in fiscal 1997. See "Business -- Risk Factors --
Risks Relating to the Company -- Taxation."

Minority Interests. The Company's minority interests were $3.6 million in fiscal
1998 and $2.9 million in fiscal 1997. The pro forma minority interests would
have been $731,000 in fiscal 1998 and $887,000 in fiscal 1997. The decrease on a
pro forma basis is due to the reversal of the minority interests in the results
of Hua Yang relating to shareholdings in Hua Yang not held under common control.

Net Income. The Company's net income increased to approximately $10.0 million in
fiscal 1998 from $7.1 million in fiscal 1997. Pro forma net income would have
increased to $9.7 million in fiscal 1998 from $5.6 million in fiscal 1997. For
the reasons discussed above, the Company believes that the pro forma operating
data may better present the Company's historical performance than the restated
operating data. Earnings per share in fiscal 1998 on both a restated and pro
forma basis were affected by a substantial increase in the number of shares
outstanding due to the Company's initial public offering in March 1997, the
shares reserved to issue in connection with the Hua Yang Acquisition in February
1998 and the shares issued in connection with the Company's secondary offering
in March 1998.



                                     - 30 -
<PAGE>   31

Liquidity and Capital Resources

The Company has financed its operations through cash from operations and sales
of equity securities. Cash and bank deposits were $17.1 million at March 31,
1999. Cash generated from operating activities was $26.5 million for fiscal
1999. Cash used in investing activities for fiscal 1999 was $6.5 million,
primarily as a result of (i) acquisition of an additional ownership interest in
Luen Tat Mould Manufacturing Limited, a subsidiary of the Company and (ii)
capital expenditures of $4.8 million for the acquisition of plant and equipment
($9.4 million for fiscal 1998 and $3.9 million for fiscal 1997). The Company's
cash used in financing activities during fiscal 1999 was $25.2 million,
primarily for repayment of the CSFB loan.

The Company has revolving lines of credit with two banks: Standard Chartered
Bank and The Hong Kong and Shanghai Banking Corporation Limited. As of March 31,
1999, the Company had banking facilities of up to $16.8 million and unused
facilities as of the same date amounted to $16.0 million. During fiscal 1999,
the Company repaid the $30.0 million CSFB loan and canceled the revolving credit
facility in February 1999.

Consistent with practice in industry, the Company offers accounts receivable
terms to its customers. This practice has created working capital requirements
that the Company generally has financed with net cash balances, through
internally generated cash flow and loans. The Company's accounts receivable
balance at March 31, 1999 was $18.9 million. As of March 31, 1999, the Company
had capital commitments amounting to approximately $214,000 relating to purchase
of machinery and tools. The Company anticipates that its capital expenditures in
fiscal 2000 will be approximately the same as that of fiscal 1999, or
approximately $5.5 million. See "Risk Factors -- Risks Relating to the Company
-- Production Facilities; Capacity Limitations."

The Company's principal source of cash to fund its liquidity needs will be net
cash from operating activities. The Company believes that this source will be
adequate to meet the Company's anticipated future requirements for working
capital and capital expenditures. However, there can be no assurance that these
resources will be adequate to meet the Company's needs. In the event that the
Company requires additional capital, it may be required to issue additional
equity securities, which could result in additional dilution to existing
stockholders, or to borrow such funds, which could adversely affect operating
results. No assurance can be given that such capital will be available. See
"Risk Factors -- Risks Relating to the Company -- Production Facilities;
Capacity Limitations".

In May 1999, the Company entered into a credit agreement with Intervisual Books,
Inc. ("IBI"). Under the terms of IBI agreement, the Company agreed to provide a
$2,300,000 revolving credit facility to IBI, due to mature in May 2000 and
secured by certain assets of IBI. The IBI agreement may be extended for an
additional year in exchange for certain warrants in IBI stock.

Exchange Rate Risk

The Company's sales are denominated either in U.S. Dollars or Hong Kong dollars.
The largest portion of the Company's expenses are denominated in Hong Kong
Dollars, followed by Renminbi (the PRC's currency) and U.S. Dollars. The Company
is subject to a variety of risks associated with changes among the relative
values of the U.S. Dollar, the Hong Kong dollar and Renminbi. The Company does
not currently hedge its foreign exchange positions. Any material increase in the
value of the Hong Kong dollar or Renminbi relative to the U.S. Dollar would
increase the Company's expenses and therefore would have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Risk Factors -- Country Risks -- Exchange Rate Risks" and "-- Market
Decline in Southeast Asia."

The Year 2000 Issues

The Company has undertaken a systematic approach to address the Year 2000 issue.
It has completed an upgrade of its current systems to pass through the Year 2000
and the implementation and test results are satisfactory. In addition, a
detailed contingency plan has been established to deal with any unpredictable
situations. Moreover, the Company has adopted general procedures in its
contingency plans for the safeguard of data and the protection of communications
between its Hong Kong offices and factories in the PRC.



                                     - 31 -
<PAGE>   32

ITEM 8 - REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of Zindart Limited:

We have audited the accompanying consolidated balance sheets of Zindart Limited
(incorporated in Hong Kong; "the Company") and Subsidiaries ("the Group") as of
March 31, 1998 and 1999, and the related consolidated statements of operations,
cash flows and changes in shareholders' equity for the years ended March 31,
1997, 1998 and 1999. The financial statements for the years ended March 31, 1997
and 1998 give retroactive effect to the acquisition of Hua Yang Holdings Co.,
Ltd. as a reorganization of companies under common control as described in Note
2 to the accompanying financial statements. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Zindart Limited and
Subsidiaries as of March 31, 1998 and 1999, and the results of their operations
and their cash flows for the years ended March 31, 1997, 1998 and 1999, after
giving retroactive effect to the acquisition of Hua Yang Holdings Co., Ltd. as a
reorganization of companies under common control as described in Note 2 to the
accompanying financial statements, in conformity with generally accepted
accounting principles in the United States of America.

ARTHUR ANDERSEN & CO.

Certified Public Accountants
Hong Kong

Hong Kong,
June 10, 1999.



                                     - 32 -
<PAGE>   33

                        ZINDART LIMITED AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                          AS OF MARCH 31, 1998 AND 1999

      (Amounts expressed in United States dollars unless otherwise stated)

<TABLE>
<CAPTION>
                                                     Note       1 9 9 8          1 9 9 9
                                                     ----       --------         -------
                                                                   $'000             $'000
<S>                                                  <C>        <C>              <C>
        ASSETS

        Current assets:
          Cash and bank deposits                                  22,373          17,061
          Accounts receivable, net                     5          24,645          18,871
          Bills receivable                                            55             256
          Deposits and prepayments                     6           1,897           1,379
          Inventories, net                             7          13,950          11,078
                                                                --------         -------

                Total current assets                              62,920          48,645

        Property, machinery and equipment, net         8          29,177          30,311
        Construction-in-progress                                     403            --
        Long-term investment                                         179            --
        Goodwill, net                                  9          11,963          11,955
        Deferred expenditures                         10           1,185            --
                                                                --------         -------

                Total assets                                     105,827          90,911
                                                                ========         =======

        LIABILITIES, MINORITY INTERESTS AND
          SHAREHOLDERS' EQUITY

        Current liabilities:

          Accounts payable                                         6,362           5,421
          Receipts in advance                                      3,278           1,802
          Accrued liabilities                         11          12,670          12,557
          Taxation payable                            13             364           1,436
                                                                --------         -------

                Total current liabilities                         22,674          21,216

        Revolving credit facility                     12          30,000            --
        Deferred taxation                             13             910             971
                                                                --------         -------

                Total liabilities                                 53,584          22,187
                                                                --------         -------

        Minority interests                                         1,416             946
                                                                --------         -------

Shareholders' equity:
  Common stock, par value $0.0646
    (equivalent of HK$0.5):
    - authorized - 15,000,000 shares as
          of March 31, 1998 and 1999;
    - outstanding and fully paid -
          7,733,000 shares as of March 31,
          1998 and 8,146,958 shares as of
          March 31, 1999;                             15             500             527
    - reserved and to be issued - 666,667
          shares as of March 31, 1998 and 1999                        43              43
  Additional paid-in capital                                      33,593          38,497
  Reorganization adjustment                                       (8,180)         (8,180)
  Retained earnings                                               24,857          37,024
  Cumulative translation adjustments                                  14            (133)
                                                                --------         -------

        Total shareholders' equity                                50,827          67,778
                                                                --------         -------

        Total liabilities, minority
         interests and shareholders' equity                      105,827          90,911
                                                                ========         =======
</TABLE>

   The accompanying notes are an integral part of these financial statements.



                                     - 33 -
<PAGE>   34

                        ZINDART LIMITED AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF OPERATIONS
                FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999

                  (Amounts expressed in United States dollars)

<TABLE>
<CAPTION>
                                              Note      1 9 9 7         1 9 9 8          1 9 9 9
                                              ----      -------         --------         --------
                                                         $'000           $'000            $'000
<S>                                           <C>        <C>             <C>              <C>
Net sales                                     21.a       95,616          111,534          113,605
Cost of goods sold                                      (69,388)         (77,422)         (78,323)
                                                        -------         --------         --------

      Gross profit                                       26,228           34,112           35,282

Selling, general and
   administrative expenses                              (14,833)         (19,140)         (20,479)
Interest income                                             272            1,087              743
Interest expenses                                        (1,150)            (698)            (708)
Other income (expenses), net                                340             (229)             161
Amortization of goodwill                                    (10)             (85)            (698)
                                                        -------         --------         --------

      Income before income taxes                         10,847           15,047           14,301

Provision for income taxes                    13           (781)          (1,419)          (1,377)
                                                        -------         --------         --------

      Income before minority interests                   10,066           13,628           12,924

Minority interests                                       (2,920)          (3,632)            (757)
                                                        -------         --------         --------

      Net income                                          7,146            9,996           12,167
                                                        =======         ========         ========

Earnings per common share

   - Basic                                              $  1.33         $   1.41         $   1.38
                                                        =======         ========         ========

   - Diluted                                            $  1.33         $   1.40         $   1.38
                                                        =======         ========         ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.



                                     - 34 -
<PAGE>   35

                        ZINDART LIMITED AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999

                  (Amounts expressed in United States dollars)

<TABLE>
<CAPTION>
                                                                 1 9 9 7         1 9 9 8         1 9 9 9
                                                                 -------         -------         -------
                                                                  $'000           $'000           $'000
<S>                                                              <C>             <C>             <C>
Cash flows from operating activities:

Net income                                                         7,146           9,996          12,167
Adjustments to reconcile net income to
  net cash provided by operating activities-
  Amortization of goodwill                                            10              85             698
  Amortization of deferred expenditures                             --              --             1,185
  Depreciation of property, machinery and equipment                2,817           3,331           4,237
  Net gain on disposals of property,
    machinery and equipment                                          (51)             (5)            (21)
  Provision for permanent diminution in
    value on investment in a subsidiary                               84            --              --
  Minority interests                                               2,920           3,632             757
  Deferred taxation                                                 --               790              61
(Increase) Decrease in operating assets-
  Accounts receivable, net                                          (451)         (7,834)          6,189
  Bills receivable                                                   351             (55)           (201)
  Deposits and prepayments                                           178            (233)            521
  Inventories, net                                                  (182)            (68)          2,872
Increase (Decrease) in operating liabilities-
  Accounts payable                                                (1,689)          1,845          (1,105)
  Receipts in advance                                                839           1,481          (1,597)
  Accrued liabilities                                              3,812           3,898            (338)
  Taxation payable                                                   224            (343)          1,072
                                                                 -------         -------         -------
      Net cash provided by operating activities                   16,008          16,520          26,497
                                                                 -------         -------         -------

Cash flows from investing activities:
Net cash outflow for acquisition of Hua
  Yang Holdings Co., Ltd.                                           --           (40,648)           --
Increase in investment of subsidiaries                              (323)           --            (1,663)
Decrease in investment of a subsidiary                               239            --              --
Acquisition of property, machinery and
  equipment and construction-in-progress                          (3,903)         (9,415)         (4,840)
Proceeds from disposals of property,
  machinery and equipment                                            109              22              29
Addition to deferred expenditures                                   --              (254)           --
Decrease in due from immediate holding company                         3            --              --
Decrease in due from related companies                               351             166            --
Effect of reorganization adjustment                                   41            --              --
                                                                 -------         -------         -------

      Net cash used in investing activities                       (3,483)        (50,129)         (6,474)
                                                                 -------         -------         -------
</TABLE>

                                                               (To be continued)



                                     - 35 -

<PAGE>   36



                        ZINDART LIMITED AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
                FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999

                  (Amounts expressed in United States dollars)


<TABLE>
<CAPTION>
                                                                 1 9 9 7         1 9 9 8         1 9 9 9
                                                                 -------         -------         -------
                                                                  $'000           $'000           $'000
<S>                                                              <C>             <C>             <C>
Cash flows from financing activities:
Net proceeds from issuance of common stock                        12,201          12,779           4,931
Decrease in bank overdrafts                                         (203)         (2,163)             --
New short-term bank loans                                         14,588              --              --
Repayment of short-term bank loans                               (18,297)             --              --
New import trust receipts bank loans                               9,079           2,151              --
Repayment of import trust receipts bank loans                    (10,356)         (2,510)             --
Repayment of long-term bank loans                                 (2,660)           (305)             --
Cash inflow from revolving credit facility                            --          30,000              --
Repayment of revolving credit facility                                --              --         (30,000)
Payment of debt costs                                                 --            (931)             --
Repayment of capital element of capital
  lease obligations                                               (1,327)         (3,981)             --
Finance from minority interests                                      (87)             --              --
Dividends paid by subsidiaries to their
  minority shareholders                                             (444)           (358)           (151)
                                                                 -------         -------         -------

      Net cash provided by (used in) financing activities          2,494          34,682         (25,220)
                                                                 -------         -------         -------

Effect of cumulative translation adjustments                          --              14            (115)
                                                                 -------         -------         -------

Net increase (decrease) in cash and bank deposits                 15,019           1,087          (5,312)

Cash and bank deposits, as of beginning of year                    6,267          21,286          22,373
                                                                 -------         -------         -------

Cash and bank deposits, as of end of year                         21,286          22,373          17,061
                                                                 =======         =======         =======
</TABLE>


   The accompanying notes are an integral part of these financial statements.



                                     - 36 -
<PAGE>   37

                        ZINDART LIMITED AND SUBSIDIARIES

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                FOR THE YEARS ENDED MARCH 31, 1997, 1998 AND 1999

                  (Amounts expressed in United States dollars)


<TABLE>
<CAPTION>
                                                    Common stock                                                       Accumulated
                                        -------------------------------------                                             other
                                                                Reserved                                                comprehen-
                                              Issued        and to be issued                                              sive
                                        ------------------  ----------------- Additional                                income-
                                        Number of           Number of           paid-in   Reorganization   Retained    translation
                                         shares     Amount   shares    Amount   Capital     adjustment     earnings    adjustments
                                        ---------   ------  ---------  ------ ----------  --------------   -------     -----------
<S>                                     <C>         <C>     <C>        <C>    <C>         <C>              <C>         <C>
                                          `000       $'000     `000    $'000     $'000         $'000         $'000       $'000

Balance as of March 31, 1996              5,000        323      280       18     3,690         5,132        11,285        --

Issuance of common stock                  1,500         97      --       --     14,903          --            --          --

Common stock issuance expenditures         --          --       --       --     (2,799)         --            --          --

Change in effective interest
  in Hua Yang Holdings Co.,  Ltd.          --          --       --       --       --              41          --          --

Net income                                 --          --       --       --       --            --           7,146        --

Transfer to reorganization adjustment      --          --       --       --       --           1,471        (1,471)       --
                                          -----      -----    -----    -----   -------       -------       -------       ----

Balance as of March 31, 1997              6,500        420      280       18    15,794         6,644        16,960        --

Issuance of common stock                  1,233         80      --       --     14,993          --            --          --

Common stock issuance expenditures         --          --       --       --    (2,294)          --            --          --

Change in net asset value of
  Hua Yang Holdings Co.,
  Ltd. by redemption of
  preferred stock                          --          --       --       --       --          (2,099)         --          --

Consideration for acquisition of
  Hua Yang Holdings Co., Ltd.              --          --       387       25     5,100       (14,824)         --          --

Net income                                 --          --       --       --       --            --           9,996        --

Transfer to reorganization adjustment      --          --       --       --       --           2,099        (2,099)       --

Translation adjustments                    --          --       --       --       --            --            --           14
                                          -----      -----    -----    -----   -------       -------       -------       ----

Balance as of March 31, 1998              7,733        500      667       43    33,593        (8,180)       24,857         14

Issuance of common stock                    414         27      --       --      5,213          --            --          --

Common stock issuance expenditures         --          --       --       --      (309)          --            --          --

Net income                                 --          --       --       --       --            --          12,167        --

Translation adjustments                    --          --       --       --       --            --            --         (147)
                                          -----      -----    -----    -----   -------       -------       -------       ----

Balance as of March 31, 1999              8,147        527      667       43    38,497        (8,180)       37,024       (133)
                                          =====      =====    =====    =====   =======       =======       =======       ====
</TABLE>



   The accompanying notes are an integral part of these financial statements.



                                     - 37 -
<PAGE>   38

                        ZINDART LIMITED AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

      (Amounts expressed in United States dollars unless otherwise stated)

1.      ORGANIZATION AND PRINCIPAL ACTIVITIES

Zindart Limited ("the Company") was incorporated in Hong Kong in July 1977.

During the period from April 1, 1996 (the earliest date covered by these
financial statements) to December 1997, the Company was wholly owned by Zindart
Pte Limited ("ZPL"; a company incorporated in Singapore). ZPL was majority-owned
by ZIC Holdings Limited ("ZICHL"; a company incorporated in the Cayman Islands),
which was majority-owned by the ChinaVest IV Funds. In December 1997, ZPL
initiated a voluntary liquidation and distributed its entire interest in
5,000,000 shares of common stock of the Company to its shareholders in February
1998. Immediately thereafter, the Company became majority-owned (3,800,000
shares of common stock) by ZICHL, which in turn was majority-owned by the
ChinaVest IV Funds.

On February 13, 1998, the Company completed its acquisition of the entire issued
capital stock of Hua Yang Holdings Co., Ltd. ("HYHCL"; a company incorporated in
the Cayman Islands), which was 74.3% owned by HYP Holdings Limited (a company
incorporated in the Cayman Islands), which in turn was majority-owned (56.5%) by
the same ChinaVest IV Funds as ZICHL. The acquisition consideration was (i)
$35,000,000 in cash, and (ii) up to 1,000,000 shares of common stock of the
Company, of which 666,667 shares of common stock of the Company, valued at
$13.25 per share, were reserved for and issuable upon expiry of the
indemnification period which is 180 days after completion of the acquisition,
and the remaining 333,333 shares of common stock of the Company will be issuable
contingent upon HYHCL's attainment of certain financial results according to a
pre-determined formula over the two years ended March 31, 1999. In connection
with the acquisition of HYHCL, the Company drew down a loan of $30,000,000 under
a revolving credit facility (see Note 12). The aforementioned indemnification
period expired in August 1998 and, as of March 31, 1999, the Company was in the
process to issue the 666,667 shares of common stock of the Company reserved for
issuance in connection with acquisition of HYHCL. The Company is not obliged to
issue the remaining 333,333 shares of common stock of the Company as HYHCL did
not attain the financial results according to the pre-determined formula over
the two years ended March 31, 1999.

The Company and its subsidiaries ("the Group") are principally engaged in the
manufacturing of die-cast, injection-moulded plastic and paper products. The
Group maintains its head office in Hong Kong where it coordinates sales,
marketing and certain administrative functions. Its production facilities are
located in Guangdong Province, the People's Republic of China.



                                     - 38 -
<PAGE>   39

2.      BASIS OF PRESENTATION

The acquisition of HYHCL by the Company on February 13, 1998 (see Note 1) is
accounted for (i) as to the effective interest of approximately 42% owned by the
ChinaVest IV Funds as a reorganization of companies under common control,
similar to a pooling of interests, and (ii) as to the remaining approximately
58% interest as an acquisition. The financial information prior to February 13,
1998 has been presented to consolidate retroactively an approximately 42%
interest in HYHCL. Under such presentation, net income and net asset value is
reduced through minority interests for the approximately 58% shareholdings in
HYHCL not held under common control. The excess of the purchase price over the
fair values of the net assets acquired (i) for the approximately 42% interest
accounted for as a reorganization of companies under common control of
approximately $8,180,000 has been recorded as a reorganization adjustment, and
(ii) for the remaining approximately 58% interest accounted for as an
acquisition of approximately $11,981,000 has been recorded as goodwill and
amortized on a straight-line basis over 20 years. The cost of acquisition (i)
for the approximately 42% interest accounted for as a reorganization of
companies under common control of approximately $488,000 was expensed, and (ii)
for the remaining approximately 58% interest accounted for as an acquisition of
approximately $675,000 was capitalized as cost of acquisition.

3.      SUBSIDIARIES

Details of the Company's subsidiaries as of March 31, 1999 were as follows:


<TABLE>
<CAPTION>
                                                   Percentage
                                                   of equity
                                     Place of       interest
              Name                 incorporation      held         Principal activities
-------------------------------    -------------  -------------  ------------------------
<S>                                <C>            <C>            <C>
Dongguan Xinda Giftware Company      Mainland     100% - Note a  Manufacturing of
  Limited                              China                       die-cast and
                                                                   injection-moulded
                                                                   plastic products

Hua Yang Holdings Co., Ltd.           Cayman          100%       Investment holding
                                      Islands

Luen Tat Mould Manufacturing        The British   90% - Note b   Provision of technical
  Limited                             Virgin                       support service on
                                      Islands                      mould production

Onchart Industrial Limited          The British       55%        Provision of technical
                                      Virgin                       support service on
                                      Islands                      mould production

Wealthy Holdings Limited            The British       100%       Inactive
                                      Virgin
                                      Islands

Hua Yang Printing Holdings Co.,      Hong Kong        100%       Printing and assembly of
  Limited                                                          books and specialty
                                                                   packaging

Guangzhou Jin Yi Advertising         Mainland     90% - Note c   Inactive
  Company Ltd.                         China

Luen Tat Model Design Company       The British   46% - Note d   Design and production of
  Limited                             Virgin                       moulds and tooling
                                      Islands                      models

Shenzhen Huaxuan Printing            Mainland     100% - Note e  Printing and assembly of
  Product Co., Ltd.                    China                       books and specialty
                                                                   packaging
</TABLE>



                                     - 39 -
<PAGE>   40

3.      SUBSIDIARIES (Cont'd)

Notes -

a.      Dongguan Xinda Giftware Company Limited is a contractual joint venture
        established in the open coastal area in Mainland China to be operated
        for 15 years until November 2009. Under the joint venture agreement and
        the supplemental agreement thereto, the Group is entitled to 100% of the
        joint venture's profit after paying its joint venture partner a
        pre-determined annual fee (see Note 17.c). In view of the profit sharing
        arrangement, the joint venture is regarded as 100% owned by the Company.

b.      On July 1, 1998, the Company acquired an additional 39% equity interest
        in Luen Tat Mould Manufacturing Limited for cash consideration of
        approximately $1,652,000 and consequently the Group's equity interest in
        the company was increased from 51% to 90%. Following the acquisition,
        the Group is entitled to share 90% of the profit of the company; while
        prior to July 1, 1998, the Group was entitled to share 41% of the profit
        of the company according to a shareholders' agreement dated October 10,
        1994.

c.      On April 25, 1996, the Group acquired a 90% interest in Guangzhou Jin Yi
        Advertising Company Limited, a contractual joint venture established in
        Mainland China, for approximately $323,000. During the year ended March
        31, 1997, the Group recovered approximately $239,000 and recorded full
        provision against the remaining balance of approximately $84,000. As of
        March 31, 1999, the Group was in the process of dissolving this joint
        venture.

d.      On April 1, 1998, Luen Tat Mould Manufacturing Limited acquired an
        additional 33% equity interest in Luen Tat Model Design Company Limited
        for cash consideration of $17,000 and consequently Luen Tat Mould
        Manufacturing Limited's equity interest in Luen Tat Model Design Company
        Limited was increased from 18% to 51%.

e.      Shenzhen Huaxuan Printing Product Co., Ltd. is a contractual joint
        venture established in a special economic zone in Mainland China to be
        operated for 15 years until October 2010. Under the joint venture
        agreement, the Group has contributed 100% of the registered capital of
        the joint venture and is entitled to 100% of the joint venture's profit
        after paying its joint venture partner a pre-determined annual fee (see
        Note 17.c). In view of the profit sharing arrangement, the joint venture
        is regarded as 100% owned by the Company.

In November 1997, the Company terminated the contractual joint venture agreement
regarding Guangzhou Zindart (Xin Xing) (Giftware) Company Limited, a contractual
joint venture established in Mainland China, prior to the expiry of the
contractual period. Upon termination, the Company acquired all the assets and
liabilities of Guangzhou Zindart (Xin Xing) (Giftware) Company Limited at its
net book value of approximately $1,811,000.



                                     - 40 -
<PAGE>   41

4.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.      Basis of consolidation

        The consolidated financial statements include the accounts of the
        Company, its subsidiaries and its contractual joint ventures which are
        considered as de facto subsidiaries. All material intra-group balances
        and transactions have been eliminated on consolidation.

b.      Goodwill

        Goodwill, being the excess of cost over fair value of the Group's share
        of the net assets of subsidiaries acquired, is amortized on a
        straight-line basis over 10 to 20 years. The amortization recorded
        during the years ended March 31, 1997, 1998 and 1999 was approximately
        $10,000, $85,000 and $698,000, respectively. Accumulated amortization as
        of March 31, 1998 and 1999 was approximately $115,000 and $813,000,
        respectively.

        Management reviews and evaluates the recoverability of goodwill
        periodically as part of its assessment of the recoverability of the
        Group's share of net assets of subsidiaries to which it relates. The
        determinants used for this evaluation include management's estimate of
        the underlying assets' ability to generate positive income from
        operations and positive cash flow in future periods. In the opinion of
        the management, no impairment exists as of March 31, 1999.

c.      Contractual joint ventures

        A contractual joint venture is an entity established between the Group
        and one or more other parties, with the rights and obligations of the
        joint venture partners governed by a contract. If the Group owns more
        than 50% of the joint venture and is able to govern and control its
        financial and operating policies and its board of directors, such joint
        venture is considered as a de facto subsidiary and is accounted for as a
        subsidiary.

d.      Inventories

        Inventories are stated at the lower of cost, on a first-in, first-out
        basis, or market. Costs of work-in-progress and finished goods are
        composed of direct materials, direct labour and an attributable portion
        of production overheads.

e.      Property, machinery and equipment

        Property, machinery and equipment are recorded at cost. Gains or losses
        on disposals are reflected in current operations. Depreciation for
        financial reporting purposes is provided using the straight-line method
        over the estimated useful lives of the assets as follows: land - 50
        years, buildings - 25 to 50 years, machinery and tools - 3 to 10 years,
        furniture and office equipment - 5 to 8 years, and motor vehicles - 4
        years. Major expenditures for betterments and renewals are capitalized.
        All ordinary repair and maintenance costs are expensed as incurred.



                                     - 41 -
<PAGE>   42

4.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

e.      Property, machinery and equipment (Cont'd)

        The carrying value of property, machinery and equipment is assessed
        annually and when factors indicating an impairment are present. The
        Group determines such impairment by measuring undiscounted future cash
        flows. If an impairment is present, the assets are reported at the lower
        of carrying value or fair value.

f.      Construction-in-progress

        Construction-in-progress represents factories and office buildings under
        construction and machinery pending installation.

        Interest costs incurred during the period of construction or
        installation are capitalized and amortized over the estimated useful
        lives of the related assets. Interest costs capitalized during the years
        ended March 31, 1997, 1998 and 1999 were approximately $68,000, Nil and
        Nil, respectively.

g.      Sales

        Sales represent the invoiced value of merchandise supplied to customers.
        Sales are recognized when merchandise is shipped and title is passed to
        customers.

        Deposits or advance payments from customers prior to delivery of goods
        and passage of title of merchandise are recorded as receipts in advance.

h.      Income taxes

        The Group accounts for income tax under the provisions of Statement of
        Financial Accounting Standards ("SFAS") No. 109, which requires an asset
        and liability approach to account for income taxes. Deferred income
        taxes are provided using the liability method. Under the liability
        method, deferred income taxes are recognized for all temporary
        differences between the tax and financial statement bases of assets and
        liabilities.

i.      Operating leases

        Operating leases represent those leases under which substantially all
        the risks and rewards of ownership of the leased assets remain with the
        lessors. Rental payments under operating leases are charged to expense
        on the straight-line basis over the period of the relevant leases.



                                     - 42 -
<PAGE>   43

4.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

j.      Comprehensive income

        The Company has adopted Statement of Financial Accounting Standard
        ("SFAS") No. 130, which establishes guidance for the reporting and
        display of comprehensive income and its components. The purpose of
        reporting comprehensive income is to report a measure of all changes in
        equity that resulted from recognized transactions and other economic
        events of the period other than transactions with shareholders. Adoption
        of the standard had no economic impact on the Company's consolidated
        financial position, results of operations or cash flows, although the
        presentation of certain items has changed. The components of accumulated
        other comprehensive income included in the consolidated balance sheets
        consist of cumulative translation adjustments as of the end of each
        year. Prior year financial statements have been restated to conform to
        the requirements of SFAS No. 130.

k.      Foreign currency translation

        The Company's functional currency is United States dollars as a
        substantial portion of the Group's business activities is based in
        United States dollars.

        The translation of the financial statements into United States dollars
        is performed for balance sheet accounts using the closing exchange rate
        in effect at the balance sheet date and for revenue and expense accounts
        using an average exchange rate during each reporting period. The gains
        or losses resulting from translation are included in shareholders'
        equity separately as components of accumulated other comprehensive
        income.

        Aggregate losses from foreign currency transactions included in the
        results of operations for the years ended March 31, 1997, 1998 and 1999
        were approximately $85,000, $48,000 and $62,000, respectively.

l.      Earnings per common share

        Basic earnings per common share is computed in accordance with Statement
        of Financial Accounting Standards ("SFAS") No. 128, by dividing net
        income for each year by the weighted average number of shares of common
        stock outstanding during the years, as if the Company had acquired the
        effective interest in HYHCL owned by the ChinaVest IV Funds prior to
        February 13, 1998 as a reorganization of companies under common control,
        similar to a pooling of interests (see Note 2).



                                     - 43 -
<PAGE>   44

4.      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)

l.      Earnings per common share (Cont'd)

        The computation of diluted earning per common share is similar to basic
        earnings per common share, except that the denominator is increased to
        include the number of additional common shares that would have been
        outstanding if all dilutive securities outstanding during the years were
        exercised.

        The numerator in calculating both basic and diluted earnings per share
        for each year is the reported net income. The denominator is based on
        the following weighted-average number of common shares:

<TABLE>
<CAPTION>
                                           1 9 9 7        1 9 9 8        1 9 9 9
                                          ---------      ---------      ---------
<S>                                       <C>            <C>            <C>
        Basic                             5,383,000      7,109,000      8,804,000
        Diluted                           5,383,000      7,155,000      8,827,000
</TABLE>

        The difference between basic and diluted weighted average common shares
        results from the assumption that dilutive stock options outstanding were
        exercised.

m.      Use of estimates

        The preparation of financial statements in conformity with generally
        accepted accounting principles in the United States of America requires
        management to make estimates and assumptions that affect certain
        reported amounts and disclosures. Accordingly, actual results could
        differ from those estimates.

n.      Fair value of financial instruments

        All financial instruments of the Group are carried at cost, which
        approximate their fair values.

5.      ACCOUNTS RECEIVABLE

Accounts receivable comprised:

<TABLE>
<CAPTION>
                                                            1 9 9 8       1 9 9 9
                                                            -------       -------
                                                             $'000         $'000
<S>                                                         <C>           <C>
Trade receivables                                           25,908        20,920
Less: Allowance for doubtful accounts                       (1,263)       (2,049)
                                                            -------       ------

Accounts receivable, net                                    24,645        18,871
                                                            ======        ======
</TABLE>




                                     - 44 -
<PAGE>   45

6.      DEPOSITS AND PREPAYMENTS

Deposits and prepayments comprised:

<TABLE>
<CAPTION>
                                                       1 9 9 8    1 9 9 9
                                                       -----      -----
                                                       $'000      $'000
<S>                                                    <C>        <C>
Deposits for acquisition of moulds                     1,440        650
Rental and utility deposits                               91        122
Prepayments                                              232        457
Others                                                   134        150
                                                       -----      -----

                                                       1,897      1,379
                                                       =====      =====
</TABLE>

7.      INVENTORIES

Inventories comprised:

<TABLE>
<CAPTION>
                                                      1 9 9 8       1 9 9 9
                                                      -------       -------
                                                       $'000         $'000
<S>                                                    <C>           <C>
Raw materials                                           8,549         6,641
Work-in-process                                         3,977         3,287
Finished goods                                          2,550         2,212
                                                      -------       -------
                                                       15,076        12,140
Less: Allowance for slow-moving and
         obsolete inventories                          (1,126)       (1,062)
                                                      -------       -------
Inventories, net                                       13,950        11,078
                                                      =======       =======
</TABLE>



                                     - 45 -
<PAGE>   46

8.      PROPERTY, MACHINERY AND EQUIPMENT

Property, machinery and equipment comprised:

<TABLE>
<CAPTION>
                                                   1 9 9 8       1 9 9 9
                                                   -------       -------
                                                    $'000         $'000
<S>                                                 <C>           <C>
Property, machinery and equipment:
   Land                                              2,456         2,456
   Buildings                                        13,219        14,255
   Machinery and tools                              19,644        22,871
   Furniture and office equipment                    4,613         5,662
   Motor vehicles                                      867           867
                                                   -------       -------
Cost                                                40,799        46,111

Less: Accumulated depreciation                     (11,622)      (15,800)
                                                   -------       -------
Property, machinery and equipment, net              29,177        30,311
                                                   =======       =======
</TABLE>

As of March 31, 1998 and 1999, land and buildings with a net book value of
approximately $680,000 and $666,000, respectively, were situated in Hong Kong
and were held under leases expiring in 2047, and land and buildings with a net
book value of approximately $13,587,000 and $14,054,000, respectively, were
situated in Mainland China and were held under land use rights of 50 years until
2044 and 2047.

9.      GOODWILL

<TABLE>
<CAPTION>
                                                   1 9 9 8       1 9 9 9
                                                   -------       -------
                                                    $'000         $'000
<S>                                                 <C>           <C>
Goodwill                                            12,078        12,768
Less: Accumulated amortization                        (115)         (813)
                                                   -------       -------

Goodwill, net                                       11,963        11,955
                                                   =======       =======
</TABLE>



                                     - 46 -
<PAGE>   47

10.     DEFERRED EXPENDITURES

Deferred expenditures comprised:

<TABLE>
<CAPTION>
                                              1 9 9 8      1 9 9 9
                                              -------      -------
                                               $'000       $'000
<S>                                           <C>          <C>
Debt costs                                       931         --
Others                                           254         --
                                              ------       -------

                                               1,185         --
                                              ======       =======
</TABLE>

Deferred debt costs of approximately $931,000 relating to the revolving credit
facility (see Note 12) were deferred and amortized on a straight-line basis over
the term of the facility. During the year ended March 31, 1999, the Company
repaid all the borrowings under revolving credit facility and cancelled the
facility. Accordingly, the deferred debt costs were all charged to the current
year's statement of operations.

11.     ACCRUED LIABILITIES

Accrued liabilities comprised:

<TABLE>
<CAPTION>
                                                  1 9 9 8     1 9 9 9
                                                  -------     -------
                                                   $'000       $'000
<S>                                               <C>         <C>
Accruals for operating expenses

   -  Workers' wages, salaries and bonus            1,496       1,540
   -  Management bonus                                552         890
   -  Rental expenses                                  86          13
   -  Freight charges and packing fee                 728         565
   -  Others                                        1,202       2,220
Commission                                            390         414
Raw materials purchases                             4,408       4,449
Subcontracting charges                                686       1,350
Repair and maintenance expenses                       460         390
Common stock issuance expenditures                    736         100
Costs for the acquisition of HYHCL                    616        --
Interest expense on borrowing under revolving
   credit facility                                    325        --
Provision for claims                                  349          24
Others                                                636         602
                                                   ------      ------
                                                   12,670      12,557
                                                   ======      ======
</TABLE>




                                     - 47 -
<PAGE>   48

12.     REVOLVING CREDIT FACILITY

On February 9, 1998, the Company entered into a revolving credit agreement with
two banks, which provides a five-year revolving credit facility in an amount up
to $30,000,000 for financing the acquisition of HYHCL and for general working
capital purposes. The lending banks have an option to demand repayment after
three years. Borrowings under the revolving credit facility bear interest at
three-month LIBOR plus 2% per annum. The facility is secured by pledges over the
Company's shareholding in HYHCL, including assignment of its entitlement to
dividends, distributions and income in respect of this shareholding. The
facility requires the Company to comply with restrictive financial covenants,
including maintaining certain levels of net worth, and limiting the level of
indebtedness and dividends.

During the year ended March 31, 1999, the Company repaid all of the $30,000,000
borrowings under the revolving credit facility and thereafter the facility has
been cancelled.

13.     INCOME TAXES

The Company and its subsidiaries are subject to income taxes on an entity basis
on income arising in or derived from the tax jurisdiction in which they operate.
The Company and the Hong Kong subsidiaries are subject to Hong Kong profits tax
at a rate of 16%. 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 Cayman Islands subsidiary is incorporated under the Companies Law of
the Cayman Islands as a limited liability exempted company and, accordingly, is
exempted from payment of the Cayman Islands income taxes until 2014. The joint
venture established in the open coastal area of Mainland China is subject to
Chinese income taxes at a rate of 27% (24% state income tax and 3% local income
tax), while the joint venture established in a special economic zone in Mainland
China is subject to Chinese income taxes at a rate of 15%. However, these joint
venture enterprises are exempted from state income tax and local income tax for
two years starting from the first year of profitable operations, followed by a
50% reduction in state income tax for the next three years. The tax exemption
period of Dongguan Xinda Giftware Company Limited started on January 1, 1999.
The tax exemption period of Shenzhen Huaxuan Printing Product Co., Ltd. expired
on December 31, 1997 and it is subject to Chinese state income tax at the rate
of 7.5% for the years ended March 31, 1998 and 1999.

If the tax holiday for the joint venture established in Mainland China did not
exist, the Group's income tax provisions would have been increased by
approximately $298,000, $704,000 and $120,000 for the years ended March 31,
1997, 1998 and 1999, respectively. Basic earnings per common share would have
been approximately $1.27, $1.31 and $1.37 for the years ended March 31, 1997,
1998 and 1999, respectively. Diluted earnings per common share would have been
approximately $1.27, $1.30 and $1.36 for the years ended March 31, 1997, 1998
and 1999, respectively.



                                     - 48 -
<PAGE>   49

13.     INCOME TAXES (Cont'd)

Provision for income taxes comprised:

<TABLE>
<CAPTION>
                                      1 9 9 7      1 9 9 8      1 9 9 9
                                      -------      -------      -------
                                       $'000        $'000        $'000
<S>                                   <C>          <C>          <C>
Current taxes

   -  Hong Kong profits tax               903          744        1,332
   -  Chinese income taxes                --            39           94
   -  Utilization of tax loss
         carried forward                 (122)        (154)         (75)
   -  Special rebate by Hong Kong
         Government                       --           --           (35)

Deferred taxes                            --           790           61
                                       ------       ------       ------

                                          781        1,419        1,377
                                       ======       ======       ======
</TABLE>

The reconciliation of the Hong Kong statutory profits tax rate to the effective
income tax rate based on income before income taxes stated in the consolidated
statements of operations is as follows:

<TABLE>
<CAPTION>
                                         1 9 9 7       1 9 9 8       1 9 9 9
                                         -------       -------       -------
<S>                                      <C>           <C>           <C>
Hong Kong statutory tax rate                16.5%         16.5%         16.0%
Effect of tax exemption/reduction
   for the Chinese joint ventures           (3.0)%        (5.8)%        (0.8)%
Non-taxable income arising from
   activities which qualified as
   offshore                                 (4.6)%        (3.7)%        (6.3)%
Other non-taxable/non-deductible
   activities                               (1.7)%         2.4%          0.7%
                                         -------       -------       -------

Effective income tax rate                    7.2%          9.4%          9.6%
                                         =======       =======       =======
</TABLE>

Components of deferred tax liabilities as of March 31, 1998 and 1999 are as
follows:

<TABLE>
<CAPTION>
                                                         1 9 9 8    1 9 9 9
                                                         -------    -------
                                                          $'000      $'000
<S>                                                      <C>        <C>
Accumulated difference between taxation allowance
   and depreciation expenses                                 910        971
                                                         =======    =======
</TABLE>



                                     - 49 -
<PAGE>   50

14.     COMPREHENSIVE INCOME

Comprehensive income and its components net of tax, comprised:

<TABLE>
<CAPTION>
                                                 1 9 9 7        1 9 9 8        1 9 9 9
                                                 -------        -------        -------
                                                  $'000          $'000          $'000
<S>                                              <C>            <C>            <C>
Net income                                         7,146          9,996         12,167
Other comprehensive income, net of tax --
   Translation adjustments                          --               14           (147)
                                                 -------        -------        -------
Comprehensive income                               7,146         10,010         12,020
                                                 =======        =======        =======
</TABLE>

15.     COMMON STOCK

During the period from April 1, 1996 (the earliest date covered by these
financial statements) to December 10, 1996, the Company had 250,000 shares of
common stock, par value HK$10.00 each, authorized and outstanding. On December
11, 1996, the Company consummated a 20 for 1 stock split ("the Share Split") and
as a result 5,000,000 shares of common stock, par value HK$0.50 each, were
outstanding. The Share Split has been reflected retroactively in these financial
statements and in all per share computations. On January 31, 1997, the Company
increased its authorized share capital from HK$2,500,000 to HK$5,000,000, by the
creation of 5,000,000 new shares of common stock, par value HK$0.50 each,
ranking pari passu in all respects with the then existing shares. In March 1997,
the Company issued 1,500,000 shares of common stock, par value HK$0.50 each, for
cash consideration of $10.00 per share through a public offering, and raised net
proceeds of approximately $12,201,000.

In April 1997, the Company issued 225,000 shares of common stock, par value
HK$0.50 each, for cash consideration of $10.00 per share pursuant to options
granted to the underwriters of the aforesaid public offering, and raised net
proceeds of approximately $1,942,000. In October 1997, the Company issued 8,000
shares of common stock, par value HK$0.50 per share, for cash consideration of
$9.125 per share in respect of the exercise of stock options granted under the
Company's 1997 equity incentive plan. On December 31, 1997, the Company
increased its authorized share capital from HK$5,000,000 to HK$7,500,000, by the
creation of 5,000,000 new shares of common stock, par value HK$0.50 per share,
ranking pari passu in all respects with the then existing shares.



                                     - 50 -
<PAGE>   51

15.     COMMON STOCK (Cont'd)

In February 1998, the Company reserved to issue 666,667 shares of common stock,
par value HK$0.50 each, in connection with its acquisition of HYHCL, and
contracted to issue an additional 333,333 shares of common stock, par value
HK$0.50 each, contingent upon HYHCL's attainment of certain financial results
according to a pre-determined formula over a two-year period ended March 31,
1999 (see Note 1). The financial statements as of March 31, 1998 and for the
years ended March 31, 1997 and 1998 have given retroactive effect to the
issuance of the 279,863 shares of common stock relating to the acquisition of
the effective interest of HYHCL owned by the ChinaVest IV Funds, on the basis of
reorganization of companies under common control, similar to a pooling of
interests (see Note 2).

In March 1998, the Company issued 1,000,000 shares of common stock, par value
HK$0.50 each, for cash consideration of $12.75 per share through a public
offering, and raised net proceeds of approximately $10,764,000.

In April 1998, the Company issued 403,333 shares of common stock, par value
HK$0.50 each, for cash consideration of $12.75 per share pursuant to options
granted to the underwriters of the aforesaid public offering, and raised net
proceeds of approximately $4,834,000. In July 1998, the Company issued 10,625
shares of common stock, par value HK$0.50 per share, for cash consideration of
$9.125 per share in respect of the exercise of stock options granted under the
Company's 1997 equity incentive plan.

16.     STOCK OPTIONS

The Company has stock-based compensation plan, under which non-qualified stock
options may be granted to certain employees and directors. Under the 1997 equity
incentive plan, the Company may grant up to 672,500 shares of common stock to
its employees and directors. In May 1998, the number of shares of common stock
reserved for issuance under the plan is increased to 1,320,000. The options
granted under the plan are to purchase common stock of the Company at not less
than fair market value at the date of grant. Employees options are generally
exercisable one year from date of grant in cumulative annual installments of
25%. Part of the non-employee director options are exercisable in full at the
date of grant. The options expire 10 years after issuance.




                                     - 51 -
<PAGE>   52

16.     STOCK OPTIONS (Cont'd)

Changes in outstanding options under the plan during the years ended March 31,
1998 and 1999 are as follows:

<TABLE>
<CAPTION>
                                               1 9 9 8                       1 9 9 9
                                      ------------------------     ---------------------------
                                                      Exercise                      Exercise
                                      Options           price      Options         price range
                                      --------        --------     --------        -----------
                                                          $                              $
<S>                                   <C>              <C>         <C>              <C>
Outstanding, beginning of year            --              --        188,000               9.13
Granted at market price                196,000            9.13      595,500         6.75-14.25
Exercised                               (8,000)           9.13      (10,625)              9.13
Forfeited                                 --              --        (23,375)         6.75-9.13
                                      --------         -------     --------         ----------

Outstanding, end of year               188,000            9.13      749,500               6.75
                                      ========         =======     ========         ==========

Exercisable, end of year                28,000            9.13      293,090               6.75
                                      ========         =======     ========         ==========
</TABLE>

The Company continues to account for stock-based compensation using the
intrinsic value method prescribed by Accounting Principles Board ("APB") Opinion
No. 25, under which no compensation cost for stock options is recognized for
stock option awards granted at or above fair market value. On December 15, 1998,
the exercise price of the then outstanding options granted pursuant to 1997
equity incentive plan was reduced to the fair market value at the same date. No
compensation cost is recognized as in accordance with APB Opinion No. 25. Had
compensation expense for the Company's stock-based compensation plan been
determined based upon fair values at the grant dates in accordance with SFAS No.
123, the Company's pro forma net income during the years ended March 31, 1998
and 1999 would be approximately $9,894,000 and $10,627,000, respectively. The
Company's pro forma basic and diluted earnings per common share would
approximately $1.39 and $1.38 for the year ended March 31, 1998 and $1.21 and
$1.20 for the year ended March 31, 1999. The pro forma effects of applying SFAS
No. 123 may not be representative of actual results had the Company accounted
for stock option awards using the fair-value-based method.

The weighted average fair value of options granted during the years ended March
31, 1998 and 1999 is estimated on the date of grant using the Black-Scholes
option-pricing model to be $3.63 and $5.82, respectively. The fair value of the
1998 and 1999 options granted is estimated on the date of grant using the
following assumptions:

<TABLE>
<CAPTION>
                                         1 9 9 8       1 9 9 9
                                         -------       -------
<S>                                      <C>           <C>
Risk-free interest rate                     5.18%         4.49%
Expected dividend yield                        0%            0%
Expected option life                     5 years       5 years
Expected stock price volatility            35.32%       120.40%
</TABLE>



                                     - 52 -
<PAGE>   53

16.     STOCK OPTIONS (Cont'd)

A summary of stock options outstanding and exercisable as of March 31, 1999 is
as follows:

<TABLE>
<CAPTION>
                                Options outstanding                        Options exercisable
                     -----------------------------------------         ----------------------------
                                      Weighted
                                       average        Weighted                           Weighted
                                      remaining        average                           average
                        Number         life in        exercise           Number          exercise
     Exercise price  outstanding         years          price          exercisable         price
     --------------  -----------      ---------       ---------        -----------       ----------
<S>                    <C>                 <C>        <C>                <C>              <C>
        $ 6.75         749,500             9.06         $6.75            293,090            $6.75
</TABLE>



17.     COMMITMENTS

a.      Capital commitments

        As of March 31, 1999, the Group had capital commitments amounting to
        approximately $214,000 in respect of purchase of machinery and tools.

b.      Operating lease commitments

        The Group has various operating lease agreements for factory premises
        and staff quarters, which extend through March 2004. Rental expenses for
        the years ended March 31, 1997, 1998 and 1999 were approximately
        $1,719,000, $1,329,000 and $859,000, respectively. As of March 31, 1999,
        future minimum payments under agreements classified as operating leases
        with non-cancellable terms are analyzed as follows:

<TABLE>
<CAPTION>
                                                                    1 9 9 9
                                                                    -------
                                                                     $'000
<S>                                                                 <C>
        Payable during the following period

           -  Within one year                                          449
           -  Over one year but not exceeding two years                453
           -  Over two years but not exceeding three years             169
           -  Over three years but not exceeding four years            127
           -  Over four years but not exceeding five years              52
                                                                     -----
                                                                     1,250
                                                                     =====
</TABLE>



                                     - 53 -
<PAGE>   54

17.     COMMITMENTS (Cont'd)

c.      Commitment relating to contractual joint ventures

        Under the supplementary joint venture agreement for the establishment of
        Dongguan Xinda Giftware Company Limited and the joint venture agreement
        for the establishment of Shenzhen Huaxuan Printing Product Co., Ltd.,
        the Group has committed to pay pre-determined annual fees to the
        third-party joint venture partners for the period from November 1994 to
        October 2010. Pre-determined annual fees paid to joint venture partners
        are charged to expense on the straight-line basis over the period of the
        relevant agreements. As of March 31, 1999, future fees payable under the
        aforesaid agreements are analyzed as follows:

<TABLE>
<CAPTION>
                                                                    1 9 9 9
                                                                    -------
<S>                                                                 <C>
                                                                     $'000
        Payable during the following period
           -  Within one year                                          430
           -  Over one year but not exceeding two years                450
           -  Over two years but not exceeding three years             471
           -  Over three years but not exceeding four years            493
           -  Over four years but not exceeding five years             515
           -  Thereafter                                             3,977
                                                                     -----
                                                                     6,336
                                                                     =====
</TABLE>

18.     RETIREMENT PLAN

The Group's employees in Hong Kong, after completing a probation period, may
join the Group's defined contribution provident fund managed by an independent
trustee. Both the Group and its Hong Kong employees make monthly contributions
to the scheme of 5% of the employees' basic salaries. The Hong Kong employees
are entitled to receive their entire contribution together with accrued interest
thereon at any time upon leaving the Group, and 100% of the Group's employer
contribution and the accrued interest thereon upon retirement or leaving the
Group after completing ten years of service or at a reduced scale of between 30%
to 90% after completing three to nine years of service. Any forfeited
contributions made by the Group and the accrued interest thereon are used to
reduce future employer's contributions. The Group has no other post-retirement
or post-employment benefit plans.

Dongguan Xinda Giftware Company Limited contributes to a state-sponsored
retirement plan with amounts stipulated by local government of Mainland China
and has no further obligations for the actual pension payments or
post-retirement benefits. The state-sponsored retirement plan is responsible for
the entire pension obligations payable to retired employees. Shenzhen Huaxuan
Printing Product Co., Ltd. hires employees on a contractual basis and
consequently has no obligation for pension liabilities to its employees.



                                     - 54 -
<PAGE>   55

18.     RETIREMENT PLAN (Cont'd)

The aggregate amount of the Group's employer contributions (net of forfeited
contributions) for the years ended March 31, 1997, 1998 and 1999 was
approximately $90,000, $154,000 and $299,000, respectively.

19.     BANKING FACILITIES

As of March 31, 1999, the Group had banking facilities of approximately
$16,774,000 for overdrafts, loans and trade financing. Unused facilities as of
the same date amounted to approximately $16,204,000. These facilities were
secured by a corporate guarantee provided by HYHCL.

20.     RELATED PARTY TRANSACTIONS

The Group entered into the following transactions with related parties:

<TABLE>
<CAPTION>
                                                  1 9 9 7       1 9 9 8        1 9 9 9
                                                  -------       -------        -------
                                                   $'000         $'000          $'000
<S>                                               <C>           <C>            <C>
        Sales to ERTL and ERTL's related
           company (Note a)                        17,694        13,528          --

        Management fee paid to Advent Funds
           (Note b)                                  --             227          --

        Management fee paid to ChinaVest IV
           Funds (Note c)                            --            --             125
                                                   ======        ======        ======
</TABLE>

Notes -

a.      ERTL (Hong Kong) Ltd. ("ERTL") had a minority interest in the Company
        during the years ended March 31, 1997 and 1998 (until March 10, 1998).
        Consequently, sales to ERTL after March 11, 1998 was not classified as
        related party transactions.

b.      Advent Funds was a minority shareholder of ZICHL, an intermediate
        holding company of the Company for the years ended March 31, 1997 and
        1998 (until December 1997) and a shareholding company thereafter.

c.      ChinaVest IV Funds was a majority shareholder of ZICHL, an intermediate
        holding company, for the years ended March 31, 1997 and 1998 (until
        December 1997) and a shareholding company thereafter.




                                     - 55 -
<PAGE>   56

21.     SEGMENT INFORMATION

The Group operates in two business segments: (i) die-cast and injection-moulded
plastic and (ii) paper. The die-cast and injection-moulded plastic segment is
primarily engaged in the trading and manufacturing of die-cast and
injection-moulded plastic products. The paper segment is primarily engaged in
trading and manufacturing of hand-made books, specialty packaging and other
paper products.

a.      Net sales
        ------------------------------

        Net sales comprised:

<TABLE>
<CAPTION>
                                               1 9 9 7        1 9 9 8        1 9 9 9
                                               -------        -------        -------
                                                $'000          $'000          $'000
<S>                                            <C>            <C>            <C>
        Die-cast and injection-moulded
           plastic
        ------------------------------
           Unrelated customers
        ------------------------------
           Sales of die-cast products            5,216         23,205         54,313
           Sales of injection-moulded
              plastic products                  29,601         23,574         18,332
           Sales of moulds and others            9,696         11,218         14,144
                                               -------        -------        -------

                                                44,513         57,997         86,789

           ERTL and ERTL's related
              company (see Note 20)
        ------------------------------
           Sales of die-cast products           17,694         13,528           --
                                               -------        -------        -------

           Sub-total                            62,207         71,525         86,789
                                               -------        -------        -------

        Paper
        ------------------------------
           Unrelated customers
        ------------------------------
           Sales of books                       17,697         23,160         15,160
           Sales of paper box packaging         13,053         15,687         10,752
           Others                                2,659          1,162            904
                                               -------        -------        -------

           Sub-total                            33,409         40,009         26,816
                                               -------        -------        -------

        Total                                   95,616        111,534        113,605
                                               =======        =======        =======
</TABLE>




                                     - 56 -
<PAGE>   57

21.     SEGMENT INFORMATION (Cont'd)

a.      Net sales (Cont'd)
        ------------------------------
        Geographical analysis of net sales is as follows:

<TABLE>
<CAPTION>
                                              1 9 9 7        1 9 9 8        1 9 9 9
                                              -------        -------        -------
<S>                                           <C>            <C>            <C>
                                               $'000          $'000          $'000
<S>                                           <C>            <C>            <C>
        Die-cast and injection-moulded
           plastic
        ------------------------------
        U.S.A                                  45,312         65,489         79,238
        Europe                                 16,259          6,036          7,551
        Others                                    636           --             --
                                              -------        -------        -------

        Sub-total                              62,207         71,525         86,789
                                              -------        -------        -------

        Paper
        ------------------------------
        Hong Kong                               5,418          5,085          5,474
        U.S.A                                  19,248         22,539         13,108
        Europe                                  6,890          8,390          6,274
        Others                                  1,853          3,995          1,960
                                              -------        -------        -------

        Sub-total                              33,409         40,009         26,816
                                              -------        -------        -------

        Total                                  95,616        111,534        113,605
                                              =======        =======        =======
</TABLE>

b.      Operating profit *
        ------------------------------
<TABLE>
<CAPTION>
                                             1 9 9 7       1 9 9 8       1 9 9 9
                                             -------       -------       -------
                                              $'000         $'000         $'000
<S>                                          <C>           <C>           <C>
        Die-cast and injection-moulded
           plastic                             7,520         9,367        11,499
        Paper                                  3,865         5,520         2,606
                                              ------        ------        ------

        Total                                 11,385        14,887        14,105
                                              ======        ======        ======
</TABLE>

        *       Operating profit represents gross profit less selling, general
                and administrative expenses and amortization of goodwill.



                                     - 57 -
<PAGE>   58

21.     SEGMENT INFORMATION (Cont'd)

c.      Identifiable assets **, capital expenditures, depreciation and
        --------------------------------------------------------------
        amortization
        ------------
<TABLE>
<CAPTION>
                                             1 9 9 7       1 9 9 8       1 9 9 9
                                             -------       -------       -------
                                              $'000         $'000         $'000
<S>                                           <C>           <C>           <C>
        Identifiable assets
        ------------------------------
        Die-cast and injection-moulded
           plastic                            45,544        62,627        51,210
        Paper                                 31,957        30,052        27,746
        Corporate                               --           1,185          --
                                              ------        ------        ------

        Total                                 77,501        93,864        78,956
                                              ======        ======        ======

        Capital expenditures
        ------------------------------
        Die-cast and injection-moulded
           plastic                             3,011         8,771         4,350
        Paper                                    892           644           490
                                              ------        ------        ------

        Total                                  3,903         9,415         4,840
                                              ======        ======        ======

        Depreciation and amortization
        ------------------------------
        Die-cast and injection-moulded
           plastic                             1,675         2,087         3,049
        Paper                                  1,152         1,254         1,287
        Corporate                               --              75           599
                                              ------        ------        ------

        Total                                  2,827         3,416         4,935
                                              ======        ======        ======
</TABLE>

        **      Identifiable assets represent total assets less goodwill, net.

        Substantially all of the Group's identifiable assets are located, and
        capital expenditures, depreciation and amortization are incurred in Hong
        Kong and Mainland China.

d.      Major customers
        ------------------------------
        Details of individual customers accounting for more than 5% of the
        Group's sales are as follows:

<TABLE>
<CAPTION>
                                                 1 9 9 7      1 9 9 8      1 9 9 9
                                                 -------      -------      -------
<S>                                              <C>          <C>          <C>
        Mattel Toys (HK) Ltd./Mattel
           Vendor Operations Asia Ltd.               8.4%        24.1%        26.1%
        ERTL and ERTL's related company *           18.5%        12.1%        17.1%
        Hallmark Cards (HK) Limited (a
           subsidiary of Hallmark
           Cards, Inc.)                             18.5%        15.4%        15.2%
        Sieper Werke GmbH                            4.2%         3.0%         5.9%
                                                 =======      =======      =======
</TABLE>

Note:

        *       ERTL (Hong Kong) Ltd. ("ERTL") had a minority interest in the
                Company during the years ended March 31, 1997 and 1998 (until
                March 10, 1998).



                                     - 58 -
<PAGE>   59

22.     OPERATING RISK

a.      Country risk

        The Group's operations are conducted in Hong Kong and Mainland China.
        Accordingly, the Group's business, financial position and results of
        operations may be influenced by the political, economic and legal
        environments in Hong Kong and Mainland China, and by the general state
        of the Hong Kong and Mainland China economies.

        On July 1, 1997, sovereignty over Hong Kong was transferred from the
        United Kingdom to the People's Republic of China ("PRC"), and Hong Kong
        became a Special Administrative Region of the PRC ("the Hong Kong SAR").
        As provided in the Basic Law of the Hong Kong SAR of the PRC, the Hong
        Kong SAR will have full economic autonomy and its own legislative, legal
        and judicial systems for fifty years. The Group's management does not
        believe that the transfer of sovereignty over Hong Kong will have an
        adverse impact on the Company's financial and operating environment.
        There can be no assurance, however, that changes in political or other
        conditions will not result in such an adverse impact.

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

b.      Dependence on strategic relationship

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

c.      Concentration of credit risk

        Concentration of accounts receivable as of March 31, 1998 and 1999 is as
        follows:

<TABLE>
<CAPTION>
                                                1 9 9 8    1 9 9 9
                                                -------    -------
<S>                                             <C>        <C>
        Five largest accounts receivable             46%        59%
                                                =======    =======
</TABLE>

        The Group performs ongoing credit evaluation of each customer's
        financial condition. It maintains reserves for potential credit losses
        and such losses in the aggregate have not exceeded management's
        projections.



                                     - 59 -
<PAGE>   60

22.     OPERATING RISK (Cont'd)

d.      Dependence on a limited number of suppliers

        The Group purchases raw materials from a limited number of suppliers.
        Concentration on the Group's suppliers for the years ended March 31,
        1997, 1998 and 1999 is as follows:

<TABLE>
<CAPTION>
                                           1 9 9 7    1 9 9 8    1 9 9 9
                                           -------    -------    -------
<S>                                        <C>        <C>        <C>
        Purchases from five largest
           suppliers                            22%        22%        32%
                                           =======    =======    =======
</TABLE>

23.     SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

a.      During the year, the Group acquired an additional 39% equity interest in
        Luen Tat Mould Manufacturing Limited for cash consideration of
        approximately $1,652,000 and acquired an additional 33% equity interest
        in Luen Tat Model Design Company Limited for cash consideration of
        approximately $17,000. Details of assets acquired and liabilities
        assumed for the acquisitions were as follows:

<TABLE>
<CAPTION>
                                                                          $'000
                                                                          ------
<S>                                                                       <C>
        Cash and bank deposits                                                 6
        Accounts receivable                                                  415
        Deposits and prepayments                                               3
        Machinery and equipment                                              136
        Accounts payable                                                    (164)
        Receipts in advance                                                 (121)
        Accrued liabilities                                                 (225)
                                                                          ------

        Net assets of Luen Tat Model Design Company Limited                   50
        The Group's share                                                     33%
                                                                          ------

        Cash consideration                                                    17
                                                                          ======

        Minority interests of Luen Tat Mould Manufacturing Limited
           acquired                                                        1,115
        Goodwill on acquisition                                              537
                                                                          ------

        Cash consideration                                                 1,652
                                                                          ======

        Aggregate cash consideration                                       1,669
        Less: Cash and bank deposits acquired                                 (6)
                                                                          ------

                                                                           1,663
                                                                          ======
</TABLE>



                                     - 60 -
<PAGE>   61

23.     SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION (Cont'd)

b.      Cash paid for interest and income taxes is as follows:

<TABLE>
<CAPTION>
                           1 9 9 7      1 9 9 8      1 9 9 9
                           -------      -------      -------
                            $'000        $'000        $'000
<S>                        <C>          <C>          <C>
        Interest            1,218          698          707
                            =====        =====        =====

        Income taxes          557          938          680
                            =====        =====        =====
</TABLE>

c.      Non-cash investing activities:

        During the year ended March 31, 1997, the Group entered into capital
        lease arrangements in respect of newly acquired assets with a capital
        value of approximately $1,451,000.

24.     OTHER SUPPLEMENTAL INFORMATION

The following items were included in the consolidated statements of operations:

<TABLE>
<CAPTION>
                                                     1 9 9 7        1 9 9 8       1 9 9 9
                                                     -------        -------       -------
<S>                                                  <C>            <C>           <C>
                                                      $'000          $'000         $'000
Depreciation of property, machinery
   and equipment
   -  owned assets                                    1,897          2,725         4,237
   -  assets held under capital leases                  920            606          --

Provision for/Write-off of doubtful accounts            543            938           590

Provision for/Write-off of
   slow-moving and obsolete inventories                 335            618           474

Provision for claims                                   --              388           100

Interest expenses for
   -  bank overdrafts and loans                         766             17             2
   -  revolving credit facility                        --              325           705
   -  capital lease obligations                         452            356          --
                                                    -------        -------       -------
                                                      1,218            698           707
Less: amount capitalized as property, machinery
      and equipment and construction-in-progress        (68)          --            --
                                                    -------        -------       -------

                                                      1,150            698           707
Operating lease rentals for
   -  premises                                        1,710          1,328           859
   -  machinery and equipment                             9              1          --

Repairs and maintenance expenses                        682            516           875

Net foreign exchange loss                                85             48            62

Interest income from bank deposits                      272          1,087           743
                                                    =======        =======       =======
</TABLE>



                                     - 61 -
<PAGE>   62

25.     SUBSEQUENT EVENT

On May 13, 1999, the Company entered into an agreement to provide to a customer
a one-year revolving credit facility of $2,300,000. The facility bears interest
at a rate of 5% above LIBOR per annum, and is collateralized by selected assets
of the customer with the collateral subordinated to a borrower of the customer.
The customer may opt to extend the maturity date of all or a portion of the
facility until May 13, 2001 by issuing warrants to be exercisable according to a
pre-determined formula.

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL REPORTING DISCLOSURE

None.

PART III

ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES

The following table sets forth certain information with respect to the
directors, executive officers and certain key employees of the Company and their
ages as of March 31, 1999:

<TABLE>
<CAPTION>
Name                     Age           Position
-------                 -----          ----------
<S>                      <C>           <C>
Robert A. Theleen(1)(2)  53            Chairman of the Board
Alexander M.K. Ngan      48            President, Chief Executive Officer and Director
Feather S.Y. Fok         37            Chief Financial Officer and Director
Tony D.H. Lai            57            Senior Vice President of Production
Koulman N. Zheng         43            Senior Vice President of Engineering
C.W. Ng                  40            Vice President of Operations
Kevin Murphy             40            Vice President of Operations
James E. Gilleran(2)     66            Director
Leo Paul Koulos(1)       65            Director
Gordon L.M. Seow         66            Director
George B. Volanakis      51            Director
Stanley Wang(1)(2)       56            Director
Victor J.H.P. Yang       53            Director
Monique Lau              42            Director
</TABLE>

--------------
(1)     Member of Compensation Committee

(2)     Member of Audit Committee



                                     - 62 -
<PAGE>   63

Robert A. Theleen serves as Chairman of the Board of the Company and is the
founder and Chairman of ChinaVest. Mr. Theleen joined the Board of Directors in
January 1997. Mr. Theleen is a director of several ChinaVest portfolio
companies. Mr. Theleen is a founding member of the executive committee of the
Hong Kong-Taipei Business Cooperation Committee of the Hong Kong General Chamber
of Commerce. Mr. Theleen received a B.A. degree from Duquesne University and an
M.B.A. from the American School of International Management.

Alexander M.K. Ngan has served as President and Chief Executive Officer since
May 8, 1998 and as a Director since October 1995. Mr. Ngan is a partner of
ChinaVest, which he joined in 1993. Mr. Ngan is a director of several privately
held ChinaVest portfolio companies. Prior thereto, Mr. Ngan worked for over 20
years in banking and financial consulting in Canada and Hong Kong. Mr. Ngan
received a Bachelors of Mathematics degree from the University of Waterloo,
Ontario. Mr. Ngan is a representative of ChinaVest on the Board.

Feather S.Y. Fok has served as a Director since August 1993 and has served as
Chief Financial Officer since 1993. Ms. Fok joined the Company in January 1989.
Before joining the Company, Ms. Fok worked in the Audit and Business Advisory
division of Arthur Andersen & Co. in Hong Kong. Ms. Fok is a Certified Public
Accountant in Hong Kong and an associate member of the Hong Kong Society of
Accountants. Ms. Fok is also a member of the Chartered Association of Certified
Accountants, United Kingdom. Ms. Fok received a Bachelor's degree in Business
Administration from the Chinese University of Hong Kong.

Tony D.H. Lai has served as a Senior Vice President of Production since April
1998 and is responsible for Zindart's production in the PRC. Mr. Lai served as
Director of the Company from October 1994 until his resignation from the Board
on May 16, 1997. Mr. Lai graduated from Shanghai Education University. He joined
the Company in 1989.

Koulman N. Zheng has served as Senior Vice President of Engineering since
September 1998, and is responsible for the Engineering and tooling operations of
Zindart. Prior to joining the Company in 1993, Mr. Zheng worked for many years
as an engineer and operations manager in Dyna Mechtronics, U.S.A. in the U.S..
Mr. Zheng holds a B.S. and an M.S. degree in Mechanical Engineering from San
Francisco State University and Northeastern University, respectively. Mr. Zheng
also received a B.S. degree in Mechanical Engineering from the South Chinese
Institute of Technology in the PRC.

C.W. Ng joined the Company in May 1997 as Vice President of Production, and was
responsible for Quality and Industrial Engineering. Since September 1998, Mr. Ng
has served as Vice President of Operations and is responsible for the Company's
marketing activities. Prior to joining the Company, Mr. Ng worked for seven
years at Mattel(R). Mr. Ng has 14 years of production experience. Mr. Ng
received a B.S. degree in Industrial Engineering from the University of Hong
Kong in 1982 and an M.B.A. from Andrew University.

Kevin Murphy has served as Vice President of Operations since April 1999 and is
responsible for the China Operations of Hua Yang. He joined the Company in
November 1998. Prior to joining the Company, Mr. Murphy worked as a managing
director, general manager in Jinmei Industrial SDN. BHD. -Malaysia, and
independent consultant for various companies. Mr. Murphy received a M. Sc.
Degree in Manufacturing Systems Engineering from the Cranfield Institute of
Technology.

James E. Gilleran joined the Board in March 1997. Mr. Gilleran has served as
Chairman of the Board and Chief Executive Officer of Bank of San Francisco and
its holding company since 1994. Prior thereto, Mr. Gilleran served as
Superintendent of Banks of the California State Banking Department. In addition,
Mr. Gilleran serves as a director of The Fritz Companies Inc.. Mr. Gilleran
received a B.B.A. degree from Pace University, and a J.D. from Northwestern
California University.

Leo Paul Koulos joined the Board in March 1997. Mr. Koulos is President and
Chief Executive Officer of National Coupon Redemption Service, Inc., a national
clearinghouse for manufacturers' cents-off coupons. Mr. Koulos is also Chairman
and Chief Executive Officer of Coupon Processing Associates, Inc. and of its
Mexican affiliate, Enlace Vital, S.A. de C.V. Mr. Koulos received a B.A. degree
from the University of San Francisco.

Gordon L.M. Seow joined the Board in March 1998. He is a barrister-at-law from
Lincoln's Inn, United Kingdom. Mr. Seow was a director of Shell Eastern
Petroleum (Pte) Ltd., Singapore and retired from the company in 1987 after 30
years of service. He then joined the Ministry of Foreign Affairs in 1988 and
served as Singapore's Commissioner to Hong Kong from 1988 to 1994 and
subsequently retired. Mr. Seow is currently a director of several companies in
Singapore, including Hotel Properties Ltd, Kim Eng Holdings Ltd and Pacific
Century Regional Developments Ltd. He is a member of the advisory board of
ChinaVest IV-B.



                                     - 63 -
<PAGE>   64

George B. Volanakis has served as a Director since November 1992. Mr. Volanakis
joined Ertl in 1988 and served as President and Chief Executive Officer of Ertl
from 1993 until his resignation on February 27, 1998. Prior to joining Ertl, Mr.
Volanakis was Senior Vice President of Marketing for Mattel Inc. Mr. Volanakis
has served as President of Matchbox Toys U.S.A., Ltd. and as President and Chief
Operating Officer of Playskool Inc., a subsidiary division of Milton Bradley
Company, Inc. Mr. Volanakis is a former Chairman of the Toy Manufacturing
Association in the United States. Mr. Volanakis received a B.A. degree from
Union College.

Stanley Wang joined the Board in March 1997. Mr. Wang is President and Chief
Executive Officer of PanTronix Corporation, which provides manufacturing
services for semiconductor components, subsystems and modules. Mr. Wang received
a business degree from the National Taiwan University and an M.B.A. degree from
Temple University.

Victor Yang joined the Board in March 1998. He is a founding partner of and has
practiced for over 20 years with the Canadian law firm Boughton Peterson Yang
Anderson, Solicitors and resides currently in the firm's Hong Kong office. Mr.
Yang has served on the Board of Directors of various publicly listed companies
in Canada, Singapore and Hong Kong. He is also a member of the law societies of
B.C., Canada, Hong Kong and United Kingdom.

Monique Lau joined the Board in September 1998 and has served as a Senior Vice
President of ChinaVest since July 1997. Before that, Mrs. Lau held various
positions with Citibank, N.A. for 14 years, most recently as the Corporate
Banking Group Head for the bank's Hong Kong operations. Mrs. Lau holds a B. Soc.
Sc. from the University of Hong Kong.

ITEM 11 - EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference from the
section captioned "Executive Compensation" contained in the 1999 Proxy Statement
filed on Form 6-K.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference from the
section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the 1999 Proxy Statement filed on Form 6-K.

ITEM 13 - CERTAIN TRANSACTIONS

The information required by this item is incorporated by reference from the
section captioned "Certain Transactions" contained in the 1999 Proxy Statement
filed on Form 6-K.

PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORT ON FORM 8-K

(a)     FINANCIAL STATEMENTS

        The consolidated financial statements and related notes, together with
        the report thereon of Arthur Andersen & Co. certified public accountants
        in Hong Kong.

(b)     REPORTS ON FORM 8-K

        Not applicable.

(c)     EXHIBITS

  2.1(3)      Exchange Agreement among Zindart Limited, Hua Yang
              Holdings Co., Ltd., Hua Yang Printing Holdings Co.,
              Limited, the shareholders of Hua Yang Holdings Co., Ltd.
              and certain beneficial owners of such shareholders.

  3.1(1)      Amended and Restated Memorandum of Association of the
              Company.

  3.2(3)      Amended and Restated Articles of Association of the
              Company.


                                     - 64 -
<PAGE>   65

  4.1(1)      Deposit Agreement by and among Zindart Limited, The Bank
              of New York and Owners and Holders of American
              Depositary Receipts, dated as of December __, 1996.

  4.2(2)      1997 Equity Incentive Plan of the Company.

  10.1(a)(1)  Sino-Foreign Co-Operation Contract, Zindart Toys
              (Dongguan) Company Limited, between Dongguan Hengli
              Trading General Company and Zindart Industrial Company
              Limited, dated September 8, 1994.

  10.1(b)(1)  Sino-Foreign Co-Operation Contract, Zindart Toys
              (Dongguan) Company Limited, Supplemental Contract,
              between Dongguan Hengli Trading General Company and
              Zindart Industrial Company Limited, dated December 5,
              1995.

  10.1(c)(1)  Land Use Certificate for State-Owned Land, Dongguan
              Government State-Owned (1993) No. 49.

  10.1(d)(1)  Land Use Certificate for State-Owned Land, Dongguan
              Government State-Owned (1994) No. 664.

  10.1(e)(1)  Land Use Certificate for State-Owned Land, Dongguan
              Government State-Owned (1994) No. 665.

  10.1(f)(1)  Land Use Certificate for State-Owned Land, Dongguan
              Government State-Owned (1994) No. 666.

  10.2(3)     Processing Agreement between Zindart Limited and
              Dongguan Hengli Industry Development Company, dated
              August 18, 1997.

  10.3(3)     Sino-Foreign Cooperation Contract between Shenzhen City
              Boan District Xixian Town Gushu Economic Development
              Company Limited and Hua Yang Printing Holdings Co.
              Limited, dated May 28, 1995.

  10.4(3)     Standard Chartered Bank, Banking Facilities, dated May
              12 and October 4, 1997.

  10.5(3)     Hong Kong Bank, Banking Facilities, dated January 22,
              1997

  10.6(1)     Agreement Regarding Future Share Distributions between
              Van Kasper & Company, Zindart Limited and Zindart Pte.
              Limited, dated January 31, 1997.

  10.7(3)     Form of First Amendment to Agreement Regarding Future
              Share Distributions among Van Kasper & Company, Zindart
              Limited, ZIC Holdings Limited, Ertl (Hong Kong) Limited
              and Longvest Management Limited.

  10.8(3)     Form of Service Agreement.

  10.9(3)     Form of Sales Restriction Agreement.

  10.10(3)    Revolving Credit Facility Agreement among Zindart
              Limited, Credit Suisse First Boston Hong Kong Branch,
              Credit Suisse First Boston Singapore Branch, Credit
              Suisse First Boston Labuan Branch and Standard Chartered
              Bank, dated as of February 9, 1998.

  10.11(3)    Termination Agreement regarding the Zhong Xin factory
              between the Company and the Guangzhou Light Industry
              Holdings Toys Import and Export Company, effective
              December 31, 1997.

  10.12(3)    Termination Agreement regarding the Xin Xing factory
              between the Company and the Guangzhou Xinjiap Huangpu
              Economic Development Company, dated May 7, 1997.

  10.13(3)    Agreement of Utilization of Factory, Warehouse and
              Dormitory, dated January 24, 1995.

  10.14(3)    Tenancy Agreement for the Nan Yang factory between Bo An
              Area Xi Heung Zhen Goo Yung Cheun Committee and Hua
              Yang, dated April 1, 1997.

  10.15(3)    Tenancy Agreement for Dong Sand Factory, dated December
              22, 1995.

  10.16(3)    Tenancy Agreement of Dormitory between Goo Yung
              Economics Development Co. and Hua Yang, dated August
              1997.



                                     - 65 -
<PAGE>   66

  10.17(3)    Management Agreement between the Company and Karl K.W.
              Chan, dated January 31, 1998.

  17.1(4)     Letter of resignation as director from George K.D. Sun.

  21.1(3)     Subsidiaries of the Registrant.

  23.1        Consent of Arthur Andersen & Co., Independent Auditors
              (See Item 8).

  24.1        Power of Attorney (See signature page).


(d)     FINANCIAL STATEMENT SCHEDULES

        All schedules for which provision is made in the applicable accounting
        regulations of the Securities and Exchange Commission are not required
        under the related instructions or are inapplicable and therefore have
        been omitted.

(1)     Incorporated by reference to the Registrant's Registration Statement on
        Form F-1, as amended (File No. 333-17973).

(2)     Incorporated by reference to the Registrant's Registration Statement on
        Form S-8 (File No. 333-7786).

(3)     Incorporated by reference to the Registrant's Registration Statement on
        Form F-1, as amended (File No. 333-08134).

(4)     Incorporated by reference to the Registrant's Form 10-K for the year
        ended March 31, 1998.

                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 25th day of
June, 1999.

                                        ZINDART LIMITED

                                        By: /s/ Alexander M.K. Ngan
                                           -------------------------------------
                                           Alexander M.K. Ngan
                                           Chief Executive Officer

                                        By: /s/ Feather S.Y. Fok
                                           -------------------------------------
                                           Feather S.Y. Fok
                                           Chief Financial Officer

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below, with the exception of Alexander M.K. Ngan and Feather S.Y. Fok,
constitutes and appoints Alexander M.K. Ngan and Feather S.Y. Fok, jointly and
severally, his attorneys-in-fact, each with the power of substitution, for him
in any and all capacities, to sign any amendments to this report on Form 10-K,
and to file the same, with exhibits thereto and other documents in connection
herewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his or her substitute or
substitutes, may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.



                                     - 66 -
<PAGE>   67

<TABLE>
<S>                                                       <C>
By: /s/ Feather S.Y. Fok                                  Date:  June 25, 1999
   ---------------------------------
        Feather S.Y. Fok
        Chief Financial Officer
        and Director

By: /s/ James E. Gilleran                                 Date:  June 25, 1999
   ---------------------------------
        James E. Gilleran
        Director

By: /s/ Leo Paul Koulos                                   Date:  June 25, 1999
   ---------------------------------
        Leo Paul Koulos
        Director

By: /s/ Monique Lau                                       Date:  June 25, 1999
   ---------------------------------
        Monique Lau
        Director

By: /s/ Alexander M.K. Ngan                               Date:  June 25, 1999
   ---------------------------------
        Alexander M.K. Ngan
        President, Chief Executive Officer and Director

By: /s/ Gordon L.M. Seow                                  Date:  June 25, 1999
   ---------------------------------
        Gordon L.M. Seow
        Director

By: /s/ Robert A. Theleen                                 Date:  June 25, 1999
   ---------------------------------
        Robert A. Theleen
        Chairman of the Board

By:                                                       Date:  June 25, 1999
   ---------------------------------
        George B. Volanakis
        Director

By:                                                       Date:  June 25, 1999
   ---------------------------------
        Stanley Wang
        Director

By: /s/ Victor Yang                                       Date:  June 25, 1999
   ---------------------------------
        Victor Yang
        Director
</TABLE>



                                     - 67 -