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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

Form 20-F

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

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|-- | ------------------------------------------------------------------------------------------
|   |                                                                                           
|x  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
      THE SECURITIES EXCHANGE ACT OF 1934
|   |                                                                                           
|   | For the fiscal year ended March 31, 2005                                                  
|   |                                                                                           
|or

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|- | ----------------------------------------------------------------------------------------------
|  |                                                                                               
|o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
      OF THE SECURITIES EXCHANGE ACT OF 1934
|  |                                                                                               
|  | For the transition period from                to                                              

Commission file number 000-22161

Zindart Limited(Exact name of Registrant as specified in its
charter)

Hong Kong, S.A.R., China(Jurisdiction of incorporation or
organization)

1203 East Wing, New World Office Building, 24 Salisbury Road, 
  Tsimshatsui, Hong Kong, S.A.R. China(Address of principal executive offices)

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

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

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

American Depositary Shares (Representing Ordinary
Shares)(Title of Class)

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

Not Applicable(Title of Class)

The number of the issuers ordinary shares outstanding at July 8, 2005 was 9,636,943, of which 9,636,942 were represented by American Depositary Shares.

Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.xYesoNo

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

o Item 17 x Item 18




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|



ZINDART LIMITED

INDEX TO ANNUAL REPORT ON FORM 20-FFOR THE FISCAL YEAR ENDED MARCH 31,
  2005

|           |                                                            | Page | 
|---------- | ---------------------------------------------------------- | ---- | 
|           |                                                            |      | 
|PART I    
|Item 3.    | Key Information                                            | 3    | 
|Item 4.    | Information on the Company                                 | 10   | 
|Item 5.    | Operating and Financial Review and Prospects               | 15   | 
|Item 6.    | Directors, Senior Management and Employees                 | 24   | 
|Item 7.    | Major Shareholders and Related Party Transactions          | 31   | 
|Item 8.    | Financial Information                                      | 32   | 
|Item 9.    | The Offer and Listing                                      | 33   | 
|Item 10.   | Additional Information                                     | 34   | 
|Item 11.   | Quantitative and Qualitative Disclosures About Market Risk | 39   | 
|          
|PART II   
|Item 15.   | Controls and Procedures                                    | 41   | 
|Item 16A.  | Audit Committee Financial Expert                           | 41   | 
|Item 16B.  | Code of Ethics                                             | 41   | 
|Item 16C.  | Principal Accountant Fees and Services                     | 42   | 
|          
|PART III  
|Item 18.   | Financial Statements                                       | 43   | 
|Item 19.   | Exhibits                                                   | 76   | 
|Signatures | 79                                                         |     

1

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DEFINITIONS

Unless the context otherwise requires, references in this annual report on Form 20-F (the Annual
Report) to the Company refers to Zindart Limited and the term Group
refers to Zindart Limited and its subsidiaries (including Hua Yang and Corgi). The term Zindart
Manufacturing refers to Zindart Limited and its subsidiaries (excluding Hua Yang, Corgi and
the Groups corporate office). The term Hua Yang refers to Hua Yang Holdings Co.,
Limited and its subsidiaries. The Company completed the sale of Hua Yang in May 2004. In March 2005,
the Companys board of directors resolved to sell the Companys manufacturing division
(Zindart Manufacturing) and initiated an active program to locate a buyer. Certain references
to the Group that are relevant to the continuing operations for the fiscal year ended
March 31, 2005 exclude Zindart Manufacturing and Hua Yang. The term Corgi refers to Corgi
Classics Holdings Limited (Corgi Holdings), its main operating subsidiaries, Corgi Classics
Limited (Corgi U.K.), Corgi USA, Inc. (Corgi U.S.), and its other subsidiaries.

|DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
|-----------------------------------------------

This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the Exchange Act)
regarding events and trends which may affect the Groups future operating results and financial
position. These statements are subject to risks, assumptions and uncertainties that could cause actual
results to differ materially from those anticipated. These risks, assumptions and uncertainties include,
but are not limited to, dependence on certain customers, competition, access to credit facilities,
market demand for our products, changes in general economic conditions, changes in governmental regulations,
a decline in capital markets, changes in the political, social and economic situations of the United
States (the U.S.), Hong Kong and the Peoples Republic of China (excluding Hong
Kong, the PRC), and other risks described in Risk Factors in Item 3 of this Annual Report.
In some cases, forward-looking statements can be identified by terminology such as may,
will, should, could, predicts, potential,
continue, expects, anticipates, future, intends,
plans, believes, estimates, and similar expressions. The forward-looking
statements are based on information available to the Group on the date of this Annual Report. The
Group undertakes no obligation to revise or publicly release the results of any revision to these
forward-looking statements to reflect subsequent events or circumstances. Readers should carefully
review the risk factors described in this Annual Report as well as in other documents that we file
from time to time with the Securities and Exchange Commission (the SEC).

NOTE REGARDING FINANCIAL PRESENTATION

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

2

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PART I

Item 3.Key Information

Selected Financial Data

The selected consolidated statements of operations data for the years ended March 31, 2005, 2004 and
  2003, and selected consolidated balance sheets data as of March 31, 2005 and 2004, are derived from
  the consolidated financial statements included in Item 18 of this Annual Report. The selected consolidated
  statements of operations data for the years ended March 31, 2002 and 2001, and selected consolidated
  balance sheets data at March 31, 2003, 2002 and 2001 were derived from the consolidated financial
  statements of the Group previously filed with the SEC. As discussed in our March 31, 2004 Annual
  Report on Form 20-F, the selected consolidated financial data for the years ended March 31, 2002
  and 2001 were restated to reflect the correction of misstatements in those prior financial statements.

The selected consolidated statements of operations data for the years ended March 31, 2003, 2002 and
2001 have been reclassified to reflect Hua Yang and Zindart Manufacturing as discontinued operations,
as described in note 2 to Consolidated Financial Statements in Item 18 of this Annual Report. The
selected consolidated statements of operations data and the selected consolidated balance sheet data
as of and for the years ended March 31, 2005 and 2004 have been presented to reflect Zindart Manufacturing
and Hua Yang as discontinued operations. The following selected consolidated financial data should
be read in conjunction with Item 5 and Item 18 of this Annual Report.

|                                                            | Year Ended March 31, |        
|----------------------------------------------------------- | -------------------- | -------
|
|
|
|
|**Consolidated Statements of Operations
   Data:**          |                      |        
|Net sales                                                   | $                    | 43,214 
|Cost of goods sold                                          |                      | (26,883
|                                                            |                      |        
|Gross profit                                                |                      | 16,331 
|Selling, general, and administrativeexpenses                |                      | (24,171
|Amortization of goodwill                                    |                      |       
|                                                            |                      |        
|Operating (loss) income                                     |                      | (7,840 
|Other (expense) income:                                     |                      |        
|Interest income                                             |                      | 138    
|Interest expense                                            |                      | (682   
|Other income (loss)                                         |                      | 37     
|                                                            |                      |        
|(Loss) income from continuingoperations before income taxes |                      | (8,347 
|Income tax benefit (expense)                                |                      | 941    
|                                                            |                      |        
|(Loss) income from continuingoperations                     |                      | (7,406 
|(Loss) income from discontinuedoperations, net of tax       |                      | (115   
|                                                            |                      |        
|(Loss) income before extraordinaryitems                     |                      | (7,521 
|Extraordinary gain                                          |                      | 418    
|                                                            |                      |        
|Net (loss) income                                           | $                    | (7,103 
|                                                            |                      |        

3

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|                                                          | Year Ended March 31, |          
|--------------------------------------------------------- | -------------------- | ---------
|
|
|
|
|(Loss) earnings per common share:                         |                      |          
|Basic:                                                    |                      |          
|(Loss) income from continuingoperations                   | $                    | (0.78    
|(Loss) income from discontinuedoperations                 |                      | (0.01    
|Extraordinary gain                                        |                      | 0.04     
|
|Net (loss) income                                         | $                    | (0.75    
|
|Diluted:                                                  |                      |          
|(Loss) income from continuingoperations                   | $                    | (0.78    
|(Loss) income from discontinuedoperations                 |                      | (0.01    
|Extraordinary gain                                        |                      | 0.04     
|
|Net (loss) income                                         | $                    | (0.75    
|
|Weighted average number of commonshares outstanding:(1)   |                      |          
|Basic                                                     |                      | 9,487,129
|
|Diluted                                                   |                      | 9,487,129
|
|
|**Consolidated Balance Sheets Data:**                     |                      |          
|Cash and cash equivalents                                 | $                    | 7,012    
|Assets of discontinued operations                         |                      | 29,243   
|Liabilities of discontinued operations                    |                      | 23,073   
|Working capital(2)                                        |                      | 12,692   
|Property, plant, and equipment and landuse rights, net    |                      | 7,933    
|Total assets                                              |                      | 98,644   
|Short-term debt and current installmentsof long-term debt |                      | 3,876    
|Long-term debt and obligations under                      |                      |          
|capital leases, excluding current                         |                      |          
|installments                                              |                      |         
|Stockholders equity                                      |                      | 63,053   

|        |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
|(1)     | Stock options outstanding for the years ended March 31, 2005 and 2004 were not included in computing
diluted (loss) earnings per common share since their effects were anti-dilutive due to the net loss
from continuing operations for the year. The difference between basic and diluted weighted average
number of common shares for the year ended March 31, 2003 is due to the dilutive effect of stock
options outstanding by application of the treasury stock method. Stock options and convertible note
outstanding for the years ended March 31, 2002 and 2001 were not included in computing diluted (loss)
earnings per common share since their effects were anti-dilutive. Stock options and convertible note
for the year ended March 31, 2002 were anti-dilutive due to the net loss from continuing operations
for the year. Stock options for the year ended March 31, 2001 were anti-dilutive because they had
an exercise price greater than the average market price during the year. Similarly, convertible note
was anti-dilutive because its interest per common share obtainable on conversion exceeded basic earnings per share.

4

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

RISK FACTORS

Risks Related to the Groups Business

Business Environment

The Group has incurred losses in prior periods, and may incur losses in future periods as well. The Group can make no assurances that sustained operating profitability or net profitability can be achieved due to several factors including, but not limited to:

| |  | as the Group seeks to achieve organic growth, additional investment in product development activities will be necessary;                                                                
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |   |                                                                                                                                                                                         
| |  | product costs and profit margins may be unfavorably impacted due to appreciation of the Renminbi;                                                                                       
| |   |                                                                                                                                                                                         
| |  | ongoing efforts to comply with the regulations promulgated under the Sarbanes-Oxley Act of 2002 will continue to increase general and administrative expenses;                          
| |   |                                                                                                                                                                                         
| |  | changes in accounting standards such as recognition of compensation costs relating to employee stock option plan in accordance to SFAS 123R may increase the Groups operating expenses;
| |   |                                                                                                                                                                                         
| |  | competition in the toy industry will continue to exert price pressure, causing an unfavorable impact upon the Groups net sales per unit;                                               
| |   |                                                                                                                                                                                         
| |  | failure to achieve the Groups current strategic initiatives to increase market awareness of the company, its products and its brands.                                                  

Many of the Groups expenses are relatively fixed, and cannot be quickly reduced if the actual
revenues are lower than expected. As a result of such fixed expenses, revenue shortfalls could result
in lower income or result in greater losses than anticipated for any given period.

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

The Group faces significant competition. In branded toys and collectibles, Corgi competes with numerous
companies located all over the world including, but not limited to, Mattel, Hasbro, Funrise, Dragon,
Armour/Franklin Mint, IXO, Model Power, Forces of Valor, and Die Cast Promotions. The Group owns
certain trademarks and other intellectual property rights associated with Corgi and its wholly owned
subsidiary Lledo Collectibles Ltd. (Lledo). Key trademarks are registered in the substantive
territories in which the Group operates or distributes its products. The Groups key employees
have entered into confidentiality and non-competition agreements with the Group.

5

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| | Dependence on Major Vendors
| | ---------------------------

Corgi utilizes several OEM manufacturers, all based in the PRC, to produce its products; however, approximately
two-thirds of its product is produced at Zindart Manufacturing. If, subsequent to the disposal of
Zindart Manufacturing, the successor to Zindart Manufacturing determines not to continue producing
Corgis products, Corgi would be forced to identify alternate manufacturers to produce these
products. Several quality manufacturing alternatives may be available in the PRC for this purpose;
but there can be no assurance that Corgi will be able to find alternate producers on a timely basis,
if at all. In addition, prices charged by the alternate vendors may be higher than charged by Zindart
Manufacturing. The related price increases could unfavorably impact the financial results of the Group.

| | Negotiating Power with Customers
| | --------------------------------

Corgi has little price negotiating power with regard to its mass market toys, as several companies are competing to sell similar products to the same major retailers. Many substitutes to Corgis toy products are available in the market. Moreover, the large mass retailers have low margins and are price sensitive. The toy industry is mature and retailers have access to and are able to evaluate market information.

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

Concentration of credit risk is primarily limited to trade accounts receivable and is subject to the
financial conditions of certain major customers. The Group performs an ongoing credit evaluation
of each customers financial condition. At March 31, 2005, the Groups five largest trade
accounts receivable accounted for approximately 34% of the total gross trade accounts receivable.
The Group maintains reserves for potential credit losses and such losses in the aggregate have not
exceeded managements projections. However, no assurances can be given as to the ability of
the Group to recover the trade accounts receivable on a timely basis, and the inability to do so
on a timely basis or at all could have a material adverse effect on the Groups financial condition.

| | Market Acceptance; Economic Factors
| | -----------------------------------

There can be no assurance that existing or future products of the Group or the Groups customers
will continue to receive substantial market acceptance. In addition, because a significant portion
of the products manufactured and sold by the Group are sold in the U.S. and the United Kingdom (the
U.K.), the Groups profitability also depends on the strength of the U.S. and U.K.
economies, which can affect U.S. and U.K. consumers spending habits on such items as die-cast
collectibles. Any downturn in the U.S. or U.K. economies could have a material adverse effect on
the Groups business, financial condition and results of operations.

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

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

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

The Groups operating results in the past have fluctuated in part based on seasonal factors and
this seasonality is likely to continue in the future. The sale of Corgis licensed mass-market
products may increase substantially in coordination with the launch of a related movie or other event.
Sales of other products may increase substantially during the winter holiday season.

6

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

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

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

U.S. customers of the Group are subject to the provisions of the Federal Hazardous Substances Act and
the Federal Consumer Product Safety Act. These laws empower the Consumer Product Safety Commission
(the CPSC) to protect consumers from hazardous toys and other articles. The CPSC has
the authority to exclude products from the market that are found to be unsafe or hazardous, and can
require a recall of such products under certain circumstances. Similar laws exist in some states
and cities in the U.S., as well as in foreign jurisdictions. The Group relies on its customers to
design products that comply with such safety standards and to test the products to ensure compliance
with applicable regulatory safety standards.

While the Group believes that its customers design and test the products the Group manufactures for
compliance with regulatory standards, and the Group itself maintains quality assurance procedures,
there can be no assurance that the Groups products will not be found to violate applicable
laws, rules and regulations, which could have a material adverse effect on the business, financial
condition and results of operations of the Group. In addition, there can be no assurance that more
restrictive laws, rules and regulations will not be adopted in the future, or that the Groups
products will not be marketed in the future in countries with more restrictive laws, rules and regulations,
either of which could make compliance more difficult or expensive, and which could have a material
adverse effect on the Groups business, financial condition and results of operations.

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

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

| | Country Risks                              
| | -------------------------------------------
| |                                            
| | Political, Social and Economic Environment.

The political, social and economic environment in the PRC may have an adverse impact on the Companys
investment in the PRC. The PRC is controlled by the Communist Party of the PRC. Under its current
leadership, the PRC has been pursuing economic reform policies, including the encouragement of private
economic activity and greater economic decentralization; however, there can be no assurance that
the PRC government will continue to pursue such policies, that such policies will be successful if
pursued, or that such policies will not be significantly altered from time to time.

7

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Economic development may be limited as well by the imposition of austerity measures intended to reduce
inflation or reform money-losing state-owned enterprises, the inadequate development or maintenance
of infrastructure or the unavailability of adequate power and water supplies, transportation, raw
materials and parts, or a deterioration of the general political, economic or social environment
in the PRC, any of which could have a material adverse effect on the Groups business, financial
condition and results of operations. In addition, a deterioration of political relations between
the U.S. and the PRC or the U.K. and the PRC may adversely affect the Companys business.

In addition, as the Groups administrative, finance and accounting activities are located in Hong
Kong, the Groups business, financial condition and results of operations may be influenced
by the political situation in Hong Kong and by the general state of the Hong Kong economy.

|As a result, the Groups business, financial condition and results of operations may be influenced
by the general political, social and economic situation in the PRC, Hong Kong, U.K. and the U.S..
Accordingly, the Group may be subject to political and economic risks, including political instability,
currency controls, exchange rate fluctuations and changes in import/export regulations, tariffs,
duties and quotas.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                

| | Government Control Over Economy.
| | --------------------------------

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

| | PRC Law; Evolving Regulations and Policies.
| | -------------------------------------------

The PRCs legal system is a civil law system based on written statutes in which decided legal
cases have little value as precedents, unlike the common law system in the U.S.. The PRC does not
have a well-developed, consolidated body of law governing foreign investment enterprises. As a result,
the administration of laws and regulations by government agencies may be subject to considerable
discretion and variation. In addition, the legal system of the PRC relating to foreign investments
is both new and continually evolving, and currently there can be no certainty as to the application
of its laws and regulations in particular instances. Definitive regulations and policies with respect
to such matters as the permissible percentage of foreign investment and permissible rates of equity
returns have not yet been published, statements regarding these evolving policies have been conflicting,
and any such policies, as administered, are likely to be subject to broad interpretation, discretion
and modification, perhaps on a case-by-case basis.

As the legal system in the PRC develops with respect to these new types of enterprises, foreign investors may be adversely affected by new laws, changes to existing laws (or interpretations thereof) and the preemption of provincial or local laws by national laws. In circumstances where adequate laws exist, it may not be possible to obtain timely and equitable enforcement thereof. The Groups activities in the PRC are by law subject, in some circumstances, to administrative review and approval by various national and local agencies of the PRC government.
 Although the Group believes that the present level of support from local, provincial and national governmental entities enjoyed by the Group benefits the Groups operations in connection with administrative review and the receipt of approvals, there is no assurance that such approvals, when necessary or advisable in the future, will be forthcoming. The inability to obtain such approvals could have a material adverse effect on the Groups business, financial condition and results of operations.

8

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On July 1, 1997, sovereignty over Hong Kong was transferred from the U.K. to the PRC, and Hong Kong
became a Special Administrative Region (SAR) of the PRC. As provided in the Sino-British
Joint Declaration on the Question of Hong Kong and the Basic Law of the Hong Kong SAR of the PRC
(the Basic Law), the Hong Kong SAR is to have a high degree of autonomy from PRC except
in foreign affairs and defense.

Under the Basic Law, the Hong Kong SAR has its own legislature, legal and judicial system and economic
autonomy for 50 years. Based on current political conditions and the Groups understanding of
the Basic Law, the Group does not believe that the transfer of sovereignty of Hong Kong has had or
will have a material adverse effect on the Groups business, financial condition or results
of operations. There can be no assurance, however, that changes in political, legal or other conditions
will not result in such an adverse effect.

On July 21, 2005, the Peoples Bank of China announced the end of the Renminbi (RMB)
peg to the U.S. dollar. The bank increased the value of the RMB to 8.11 to one U.S. dollar  a 2.1%
increase in its value  and decreed that henceforth the RMB would trade within a narrow band of 0.3%
each day against a basket of currencies. Eliminating the dollar peg is seen by some economists as
a first step toward a free-floating, and stronger, RMB. Uncertainty exists as to whether the PRCs
new currency policy will support further appreciation of the RMB. The Group sources most of its finished
products in the PRC. The appreciation of RMB will increase the Groups product costs and may
reduce the Groups sales, especially to U.S. and European distributors and retailers.

| | Dependence on Trade Credit
| | --------------------------

As of March 31, 2005, Zindart Manufacturing and Corgi had $7.5 million and $3.6 million of short-term,
trade-related debt outstanding, respectively. Cash balances at March 31, 2005 were $7.0 million.
Since March 31, 2005, The Royal Bank of Scotland plc. (RBS) has reduced its available
line by GBP500,000 to GBP2.5 million and The Hongkong and Shanghai Banking Corporation Limited (HSBC)
has set the final extension of a $2.6 million temporary line to July 31, 2005. Total reduction of
available bank lines by August 1, 2005 was $3.5 million. RBS may reduce its line further without
notice. Assuming a total reduction of $3.5 million, the Group will have $14.4 million in the aggregate
in available credit under its bank lines. In the event that the Group requires additional capital,
it may be required to issue additional equity securities, which could result in dilution to existing
stockholders, or to borrow funds, which could adversely affect operating results.

| | Goodwill Impairment
| | -------------------

The Groups largest asset is goodwill, with a carrying value of $35.3 million as of March 31, 2005 and relates to the acquisition of Corgi in July, 1999. The fair value of the Corgi business segment is estimated on an annual basis and compared to the net book value of this business segment, including goodwill, in order to identify potential goodwill impairment in the value of the assets. To date, impairment of the Corgi goodwill has not been observed as the estimated fair value of the Corgi business segment exceeded the carrying value of the business segment, including the existing goodwill. Any deterioration of the expected future performance of the Corgi business segment may reduce the estimated fair value of the business segment such that an impairment of goodwill may be recognized.

| | Sale of Zindart Manufacturing
| | -----------------------------

We expect to complete the sale of Zindart Manufacturing in the second quarter of fiscal year 2006. However, there can be no assurance that the sale will be completed in this timeframe, or at all. If we are unable to complete the sale of Zindart Manufacturing, or if there is a material delay in completing the sale, the operation may be reclassified as a continuing operation. Such a reclassification would materially alter the Groups financial statement presentation, but would not change the historical net loss, total assets, or shareholders equity.

9

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|Risks Associated with the Companys American Depositary Shares
|--------------------------------------------------------------
|                                                              
|                                                              

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

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

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

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

History and Development of the Company

| | Description ofBusiness
| | ----------------------

Zindart Limited was incorporated in Hong Kong as a limited company under the Hong Kong Companies Ordinance
  in July 1977. The Companys ADSs have been listed on the Nasdaq National Market since February
  1997.

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

The Companys registered office is located at 1203 East Wing, New World Office Building, Tsimshatsui, Hong Kong, S.A.R., China and its telephone number is 2256-6000, country code 852.

Business Overview

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

We completed the sale of our subsidiary Hua Yang in May 2004. In March 2005, our board of directors
resolved to sell Zindart Manufacturing and we initiated an active program to locate a buyer. We have
reported the results of these business segments as discontinued operations under Statement of Financial
Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal
of Long-Lived Assets (SFAS 144), which are described in note 2 to Consolidated
Financial Statements in Item 18 of this Annual Report.

10

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Subsequent to the sale of Hua Yang in May 2004 and the intended sale of Zindart Manufacturing, our
remaining operating segment is Corgi U.K., which is primarily engaged in the design, marketing and
distribution of die-cast products under proprietary brand names. Net sales of this business segment
is reflected in the table below. See Note 22 to Consolidated Financial Statements for additional
information about this business segment.

| |                                                       | Year Ended March 31, |       
| | ----------------------------------------------------- | -------------------- | ------
|
|
|
|
| | Segment net sales                                     | $                    | 43,214
| |                                                       |                      |       
| | Segment (loss) profit                                 | $                    | (5,561
| | Less: Unallocated corporate expenses and other losses |                      | (2,279
| |                                                       |                      |       
| | Consolidated operating (loss) income                  | $                    | (7,840
| |                                                       |                      |       

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

Corgi, founded in 1956, is one of the oldest marketers of collectible die-cast models of trucks, buses,
cars and airplanes in the world. It has the largest die-cast market share in the U.K.. Corgi offers
a broad portfolio of products ranging from special interest items to more popular, often license-based,
items. The majority of Corgis product lines are highly detailed, authentic scale replicas of
transport vehicles, produced in strictly limited numbers and appealing to a wide range of die-cast
collectors. Increasingly, Corgi is broadening its product lines to include more mixed scale, lower-priced,
die-cast lines which are sold in wider distribution channels. Corgis product portfolio is broadly
divided into the following categories: (1) collectible trucks, fire vehicles, and other road transport;
(2) collectible public transport; (3) collectible aircraft; (4) collectible metal figurines; (5)
collectible military vehicles; and (6) traditional die-cast and plastic toy vehicles.

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

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

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

11

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

The Groups business is managed on a worldwide basis, and markets and distributes directly in
two principal geographic markets. The U.K. and U.S. accounted for approximately 74.9% and 14.9%,
respectively, of the Groups net sales from continuing operations for the year ended March 31,
2005. Net sales from continuing operations by geographical location of customers are reflected in
the table below.

| |                          | Year Ended March 31, |       
| | ------------------------ | -------------------- | ------
|
|
|
| |                          | (In thousands)       |       
| | United Kingdom           | $                    | 32,370
| | Other European countries |                      | 3,080 
| | United States of America |                      | 6,441 
| | Others                   |                      | 1,323 
| |                          |                      |       
| |                          | $                    | 43,214
| |                          |                      |       

Corgi serves its customers locally through a number of distribution channels, including wholesale,
retail, direct marketing and the Internet. Outside of the U.K. and U.S. markets, distribution is
accomplished primarily through local distributors specializing in either die-cast collectibles or
mass-market toy distribution.

Sales to the Groups five largest customers accounted for approximately 17.3%, 17.8% and 15.7%,
respectively, of the total net sales from continuing operations for the years ended March 31, 2005,
2004, and 2003. The Groups largest customers are G Cleveland-Wholesalers and Model Zone Ltd.
Sales to G Cleveland-Wholesalers and Model Zone Ltd. represented 4% and 3.6%, respectively, of the
Groups net sales for the year ended March 31, 2005 as compared to 4.2% and 3.0%, respectively,
of the total net sales from continuing operations for the year ended March 31, 2004.

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

The Groups growth strategy is to be the leading developer and marketer of high-quality die-cast collectibles, as well as a significant participant in mass-market toy products that benefit from the use of the Corgi brand name. The Groups strategy calls for continuous strengthening of its relationships with its multi-national customers and increasing and diversification of its customer base. To achieve these goals, the Group has been focusing on the following:

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

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

The Group seeks to further develop its Corgi brand in the U.S.. The Group has established a direct
sales force for its collectible Corgi line of die-cast replica items in the U.S. along with strong
associations with die-cast distributors and direct-to-consumer mail order and Internet customers.
Corgi expects to continue strengthening its marketing infrastructure and to advance its goal of worldwide
growth and expansion in collectible and mass markets. Corgi has expanded the number of its retail
storefronts in the U.S. and has opened a permanent showroom at the Toy Center in New York, which
is convenient for major mass-market and specialty store buyers at key selling dates during the year.

12

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

In order to increase sales volume and the channels of distribution, the Group has been broadening the
product line of collectibles and developing a range of toy products for entry into the mass-market.
These strategies will also assist the business in acquiring a wider target audience of adult collectors
and garner future collectors of Corgi products as they progress into their adult years.

The Groups strategy to diversify and expand its product offerings has been focused along three fronts:

| | Collectibles
| | ------------

Collectible product offerings have been expanded to include new vehicles for Batman, James Bond and
Star Trek licenses to capitalize on stable perennial favorites and upcoming movie releases. In addition,
new collectible categories have been launched, specifically a continuity line of fire equipment,
a new collectible figure line consisting of military figures through the ages under the brand name
Forward March. Additional figures and vehicle lines are scheduled to be distributed depicting famous
licensed characters and vehicles through the years.

| | Traditional Toys
| | ----------------

In order to capitalize on the Corgi brand name, increase sales volume and develop younger Corgi collectors, the Group has launched several products into the mass and specialty toy channels of distribution. Two major lines are:

| | Streakerz
| | ---------

Streakerz is a line of 48 mini vehicles that have been designed to operate at high speed around six
distinct track sets. Each vehicle comes with a unique tuning knob so that the vehicle
can function on different terrains. This line will be expanded with additional vehicles that contain
lights, others that transform into different vehicles, and a line extension to Streakerz called Twisterz
where two halves of a vehicle are wound up to provide a spring loaded propulsion system. Streakerz
is designed to appeal to boys ages 3 to 6.

| | Go Go Rollers
| | -------------

Go Go Rollers is Corgis first entry into the preschool/infant market. This line is positioned
as the only line of infant toys that bring action into the world of developmental toys targeted at
little boys. This extensive line consists of 12 unique vehicles encapsulated in clear balls for little
hands along with five play environments with lights and sound effects. Go Go Rollers is designed
to appeal to boys ages 1 to 4.

| | Product Repositioning
| | ---------------------

The Group has an extensive tooling bank and active product lines that have been strictly positioned for sale to collectors. All of these lines have been repackaged and repriced for acceptance into higher volume mass retail markets without distracting from the core collector base. In addition, a new line of low priced die-cast vehicles has been sourced from Asia and distributed at very competitive prices relative to the competition.

All of the Groups mass-market products, whether lower priced collectibles or traditional toys,
  have been rebranded as Corgi Wheelz, which is prominently displayed on all new packaging.

13

---



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

The Groups operating results in the past have fluctuated in part based on seasonal factors and
this seasonality is likely to continue in the future. The introduction of Corgis mass-market
licensed products will increase substantially in coordination with the launch of a related movie
and sales of other toy products may increase substantially just prior to and during the holiday season.

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

The Group owns certain trademarks and other intellectual property rights associated with Corgi and its wholly owned subsidiary Lledo. Key trademarks are registered in the substantive territories in which the Group operates or distributes its products. The Groups key employees have entered into confidentiality agreements with the Group.

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

The Group faces significant competition. In branded toys and collectibles, Corgi competes with numerous
companies located all over the world including, but not limited to, Mattel, Hasbro, Funrise, Dragon,
Armour/Franklin Mint, IXO, Model Power, Forces of Valor, and Die Cast Promotions.

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

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

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

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

| | Property, plant and equipment
| | -----------------------------

The Group is headquartered in part of one building in the New World Office Building located in Hong Kong and occupies approximately 5,851 square feet of such building. The facilities are subject to a lease that expires in November 2007.

Corgi U.K. operates out of an office accommodation in Leicester, England totaling approximately 8,415 square feet under a lease scheduled to expire in February 2015. The offices of Corgi U.S. are located in Chicago, Illinois and occupy approximately 8,800 square feet under a lease that expires in August 2008. The office of Corgi Hong Kong is located in Tsimshatsui, Hong Kong and occupies approximately 6,426 square feet under a lease that expires in October 2006.

14

---



|Item5.   Operating and Financial Review and Prospects
|-----------------------------------------------------

Overview

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

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

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

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

|Operating Results
|-----------------

In March 2005, the Groups board of directors resolved to sell Zindart Manufacturing and initiated
an active program to locate a buyer. The Group expects the sale of Zindart Manufacturing to be completed
within the fiscal year ended March 31, 2006. The Group has reported the operating results of this
business segment as discontinued operations under SFAS 144.

In May 2004, the Group completed the sale of Hua Yang and has reported the operating results of this
business segment as discontinued operations under SFAS 144. Terms for the sale included cash consideration
of $14,250,000, less 10% to be held by an escrow agent until the closing balance sheet had been audited
and accepted by the buyer. In March 2005, the Group received the remaining consideration from the
escrow agent and a gain on disposal of $984,000 was recorded for the year ended March 31, 2005.

The transactions are also described in note 2 of the Notes to Consolidated Financial Statements in
Item 18 of this Annual Report. The accompanying consolidated financial statements for the years ended
March 31, 2004 and 2003 have been reclassified to reflect Zindart Manufacturing and Hua Yang as discontinued
operations.

15

---



The table below sets forth the consolidated statements of operation data as a percentage of net sales from continuing operations for the years ended March 31, 2005, 2004 and 2003.

| |                                               | Year Ended March 31, |      
| | --------------------------------------------- | -------------------- | -----
|
|
|
| | Net sales                                     |                      | 100.0
| | Cost of goods sold                            |                      | (62.2
|
| |                                               |                      |      
| | Gross profit                                  |                      | 37.8 
| | Selling, general, and administrative expenses |                      | (55.9
|
| |                                               |                      |      
| | Operating (loss) income                       |                      | (18.1
| | Interest income                               |                      | 0.3  
| | Interest expense                              |                      | (1.6 
| | Other income (loss)                           |                      | 0.1  
|
| |                                               |                      |      
| | (Loss) income before income taxes             |                      | (19.3
| | Income tax benefit (expense)                  |                      | 2.2  
|
| |                                               |                      |      
| | (Loss) income from continuing operations      |                      | (17.1
|

| |                                    
| | -----------------------------------
| | Years Ended March 31, 2005 and 2004

Net Sales.The Groups net sales were $43.2 million for the year ended March 31, 2005, a decrease of $6.5
million, or 13.1%, from $49.7 million for the year ended March 31, 2004. The decrease was largely
due to a lack of new products introduced to the market during the year ended March 31, 2005. Senior
management of the Corgi division was replaced in late fiscal year 2004 and early fiscal year 2005,
resulting in decreased sales in most of Corgis markets. During fiscal year 2005, the new management
team focused on development of new products for fiscal year 2006 and beyond. The Group believes that
sales of these new products will halt further decreases in net sales.

Gross Profit and Gross Margin.The Groups gross profit was $16.3 million for the year ended March 31, 2005, a decrease of $5
million, or 23.5%, from $21.3 million for the year ended March 31, 2004. Gross margin was 37.8% for
the year ended March 31, 2005 and 42.8% for the year ended March 31, 2004. The decrease in gross
profit was due in part to lower net sales on those sales for the fiscal year ended March 31, 2005.
This decrease in gross margin was due to clearance of certain products at discount prices and to
a shift toward certain lower margin, mass market products. The Group believes that increasing net
sales will yield associated increases in gross profit, but does not anticipate improvements in the
gross margin on these sales, as Corgi will continue to focus on developing new mass market products,
all of which will yield lower gross margins than the historical average.

Selling, General and Administrative Expenses.The Groups selling, general and administrative expenses were $24.2 million for the years ended
March 31, 2005 and 2004. Selling, general and administrative expenses were 55.9% of net sales for
the year ended March 31, 2005 and 48.5% for the year ended March 31, 2004. The increase in percentage
of selling, general and administrative expenses to net sales was related to the decrease in net sales
for the fiscal year ended March 31, 2005. The Groups selling, general and administrative expenses
are mostly considered fixed in relation to anticipated changes in sales volume.

16

---



Interest Expense, Net.The Groups interest expense, net, was $544,000 for the year ended March 31, 2005, as compared to $386,000 for the year ended March 31, 2004. The increase in the Groups interest expense, net, was due to increased usage of the RBS revolving credit facility (See Liquidity and Capital Resources below).

Other Income (Loss).The Groups other income was $37,000 for the year ended March 31, 2005, as compared to other loss
  of $301,000 for the year ended March 31, 2004. Other loss for the year ended March 31, 2004 included
  impairment loss on investments in securities of $127,000 and loss on derivative instruments of $91,000.

Income Tax Benefit (Expense).The Groups income tax benefit was $941,000 for the year ended March 31, 2005, as compared to
income tax expense of $254,000 for the year ended March 31, 2004. The income tax benefit and expense
in 2005 and 2004 primarily resulted from Corgis U.K. operations. In the fiscal year ended March
31, 2004, Corgis U.K. operations had net taxable income and a tax expense was recorded accordingly.
During the fiscal year ended March 31, 2005, Corgis U.K. operations experienced a tax loss.
Under the U.K. tax law, a business is allowed to utilize current year tax losses against tax paid
in prior years; as a result, the Group recorded a tax benefit for the fiscal year ended March 31, 2005.

(Loss) Income from continuing operations.The Groups loss from continuing operations was $7.4 million for the year ended March 31, 2005,
an increase in loss of $3.6 million, or 94.7%, from loss from continuing operations of $3.8 million
for year ended March 31, 2004. The increase in loss was primarily due to the decrease in net sales
for the fiscal year ended March 31, 2005.

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

Net Sales.The Groups net sales were $49.7 million for the year ended March 31, 2004 with no significant changes compared to net sales of $49.7 million for the year ended March 31, 2003.

Gross Profit and Gross Margin.The Groups gross profit was $21.3 million for the year ended March 31, 2004, a decrease of $1.7
  million, or 7.4%, from $23.0 million for the year ended March 31, 2003. Gross margin was 42.8% for
  the year ended March 31, 2004 and 46.3% for the year ended March 31, 2003. The decreases in gross
  profit and gross margin were due to an increase in the sales of Corgis mass-market products,
  which yield a lower margin than Corgis specialty products.

Selling, General and Administrative Expenses.The Groups selling, general and administrative expenses were $24.2 million for the year ended
March 31, 2004, an increase of $3.6 million, or 17.5%, from $20.6 million for the year ended March
31, 2003. Selling, general and administrative expenses were 48.5% of net sales for the year ended
March 31, 2004 and 41.5% for the year ended March 31, 2003. The increase in selling, general and
administrative expenses was due to a 32.6% increase in advertising costs for Corgi related to new
product launches and an increase in the Groups general and administrative expenses including
growth of Corgis U.S.-based operations, bonuses accrued for certain executive officers, and
higher professional fees.

Interest Expense, Net.The Groups interest expense, net, was $386,000 for the year ended March 31, 2004, as compared to $964,000 for the year ended March 31, 2003. The decrease in the interest expense, net, was due to a repayment of the principal of the term loan that had been procured for the acquisition of Corgi U.K..

Other Loss.The Groups other loss was $301,000 for the year ended March 31, 2004, as compared to $147,000 for the year ended March 31, 2003. The increase in other loss was mainly due to the inclusion of loss from derivative instruments of $91,000 for the year ended March 31, 2004 as compared to a gain from derivative instruments of $83,000 for the year ended March 31, 2003.

17

---



Income Tax Expense. The Groups income tax expense was $254,000 for the year ended March 31, 2004, as compared to $54,000 for the year ended March 31, 2003. The increase
in income tax expense in the fiscal year ended March 31, 2004 was mainly due to the increase in the net taxable income contributed by the unrealized exchange gain arising from the re-translation of the intercompany balance recorded
in Corgis U.K. operations.

(Loss) Income from continuing operations.The Groups loss from continuing operations was $3.8 million for the year ended March 31, 2004,
a decrease of $5.0 million from income from continuing operations of $1.2 million for year ended
March 31, 2003. The decrease was primarily due to lower gross margins as a result of an unfavorable
product mix shift, and higher selling, general and administrative expenses as a result of higher
advertising costs, growth of Corgis U.S.-based operations, and bonuses accrued for certain
executive officers, and higher professional fees.

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

The Groups functional currency is U.S. dollars as a substantial portion of the Groups business
activities is based in U.S. dollars. The Groups sales are primarily denominated in U.S. dollars,
followed by Great Britain Pounds (GBP), Hong Kong (HK) dollars or Euros.
The majority of the Groups expenses are denominated in either U.S. dollars, HK dollars, RMB,
GBP and Euros. Aggregate gains or losses from foreign currency transactions included in cost of goods
sold for the years ended March 31,2005, 2004 and 2003 were approximately losses of $26,000, losses of $316,000 and gains of $597,000, respectively.

The Group primarily uses foreign currency forward contracts to hedge anticipated transactions that
are subject to foreign currency exchange exposure. These instruments are designated as cash flow
hedges in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
as amended and are recorded in the consolidated financial statements at fair value. The effective
portion of the contract gains or losses due to changes in fair value are initially recorded as a
component of accumulated other comprehensive income (loss) and are subsequently reclassified into
earnings when the hedged transactions occur and affect earnings. These contracts are highly effective
in hedging the variability in future cash flows attributable to changes in foreign currency exchange
rates. At March 31, 2005, the Group had outstanding foreign currency forward contracts to sell approximately
GBP2,045,000 for HK$30,000,000. At March 31, 2004, the Group had outstanding foreign currency forward
contracts to sell approximately GBP3,898,000 for US$6,450,000, HK$2,331,000 for US$300,000, US$2,860,000
for Euros 2,200,000 and US$1,076,605 for CHF1,300,000. For the years ended March 31, 2005 and 2004,
total net amounts recognized in earnings due to ineffectiveness and amounts excluded from the assessment
of hedge effectiveness were not material. The amount reported as unrealized gain on derivatives of
$10,000, net of taxes in the accumulated other comprehensive income (loss) account within stockholder
equity represents the total unrealized gain on derivatives designated and qualified as cash flow
hedges. Substantially all of the balance at March 31, 2005 will be recognized within the subsequent
12 months as the anticipated transactions occur. For the year ended March 31, 2003, the Groups
derivatives did not qualify as hedging instruments and therefore changes in the fair values of these
instruments of $83,000 were recognized in other loss in the consolidated statement of operations.

|Liquidity and Capital Resources
|-------------------------------

Cash and cash equivalents were $7.0 million at March 31, 2005. Net cash used in operating activities was $4.7 million for the year ended March 31, 2005, a $5.5 million decrease from net cash provided by operating activities of $0.8 million for the year ended March 31, 2004. The decrease was primarily due to an increase in net loss from continuing operations of approximately $3.6 million and an increase in working capital of $2.3 million, offset by an increase in depreciation of $0.4 million.

18

---



Cash provided by investing activities for the year ended March 31, 2005 was $11.1 million, an increase
of $14.3 million over net cash used in investing activities of $3.2 million for the year ended March
31, 2004. The cash provided by investing activities during the year ended March 31, 2005 included
$14.25 million in net proceeds from sale of Hua Yang, partially offset by $3.2 million of investment
in fixed assets, primarily consisting of tooling for new Corgi products.

Cash provided by financing activities was $2.4 million for the year ended March 31, 2005, an increase
of $7.5 million from net cash used in financing activities of $5.1 million for the year ended March
31, 2004. The major sources of cash from financing activities for year ended March 31, 2005 included
a $1.3 million net increase in borrowing and $1.1 million of proceeds from the exercise of stock
options. Cash used in financing activities for the fiscal year ended March 31, 2004 was primarily
due to repayment of loans of $5.4 million offset by $0.4 million of proceeds from the exercise of
stock options.

Consistent with practice in industry, the Group offers payment terms to its customers. This practice creates working capital requirements that the Group generally finances through short-term borrowings and factoring arrangements.

The Group has lines of credit with certain banks including: KBC Bank N.V., HSBC, and RBS. At March
31, 2005, the Group had banking facilities of approximately $17,881,000, of which $5,666,000 were
made available to the continuing operations and $12,215,000 were associated solely with the discontinued
operations, for overdrafts, trade financing, term loan and capital leases. Unused banking facilities
at the same date amounted to approximately $5,958,000, of which $2,068,000 were associated with the
continuing operations and $3,890,000 associated with the discontinued operations.

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

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

Research and Development

Research and development costs are expensed as incurred. Corgi is continually involved in the development of new products, markets and manufacturing processes. Research and development costs incurred by the Group amounted to $2.6 million, $1.2 million and $1.3 million for the years ended March 31, 2005, 2004 and 2003, respectively.

19

---



|Contractual Obligations
|-----------------------
|                       

|The table below summarizes the Groups contractual obligations as of March 31, 2005:
|------------------------------------------------------------------------------------
|                                                                                    

| |                      | Payment Due by Periods |      
| | -------------------- | ---------------------- | -----
|
|
|
|
| | On-Balance Sheet:    |                        |      
| | Short-term debt      | $                      | 3,876
| | Off-Balance Sheet:   |                        |      
| | Capital commitment   |                        | 710  
| | Licensing commitment |                        | 213  
| | Operating lease      |                        | 776  
|
| |                      | $                      | 5,575
| |                      |                        |      

|                                                                                                                                                                                                                                                                                                 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|For additional information related to the Groups short-term debt, capital, licensing and operating
lease commitments, see notes 10 and 19 to the Consolidated Financial Statements in Item 18 of this
Annual Report.                                                                            
|                                                                                                                                                                                                                                                                                                 
|Off-Balance Sheet Arrangements                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                 
|At March 31, 2005, Zindart Manufacturing, which is classified as discontinued operations had outstanding
irrevocable letters of credit in the aggregate amounts of $695,000. Except for these letters of credit,
the Group has no other outstanding off-balance sheet arrangements or guarantees.
|                                                                                                                                                                                                                                                                                                 
|Critical Accounting Policies                                                                                                                                                                                                                                                                     

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

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

|These critical accounting policies include:
|-------------------------------------------

| |                                 
| | --------------------------------
| | Allowances for Doubtful Accounts

The allowance for doubtful accounts is an adjustment to customer trade receivables for amounts that
are determined to be uncollectible or partially uncollectible. The allowance for doubtful accounts
reduces gross trade accounts receivable and is the managements best estimate of the amount
of probable credit losses in the existing accounts receivable in respect of the business environment,
customers financial condition, historical trends and customer disputes. The Group reviews its
allowance for doubtful accounts monthly. Past due balances over 90 days and a specified amount are
reviewed individually for collectibility. Account balances are charged off against the allowance
after all means of collection have been exhausted and the potential for recovery is considered remote.

20

---



|Movements of allowance for doubtful accounts are as follows:
|------------------------------------------------------------
|                                                            

| |                                                 | 2005 |       | 2004 |   | 2003  |  
| | ----------------------------------------------- | ---- | ----- | ---- | - | ----- | -
|
|
| | Balance at beginning of year                    | $    | 1,080 |      | $ | 1,786 |  
| | Less balance related to discontinued operations |      | (202  | )    |   |      |  
| | (Released) charged to expense                   |      | (102  | )    |   | (385  | )
| | Bad debts write-offs                            |      |      |      |   | (321  | )
|
|
| | Balance at end of year                          | $    | 776   |      | $ | 1,080 |  
|

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

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

The Group writes down inventory for estimated obsolescence or unmarketable inventory as measured by
the difference between the cost of inventory and the estimated selling prices, which require assumptions
about future demand for the Groups products and related market conditions. This loss is recognized
in cost of goods sold in the consolidated statements of operations and establishes a new cost basis
for such inventories. The loss recognized were $113,000 for the year of March 31, 2005 and none for
the year of March 31, 2004 and 2003, respectively. If actual future demand or market conditions are
less favorable than those projected by management, additional write-downs may be required.

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

|The Group assesses the carrying value of long-lived assets including its intangible assets (other than
goodwill) to be held and used with estimated useful lives, whenever events or changes in circumstances
indicate that the carrying value of an asset or asset group may not be recoverable. Factors considered
important that could trigger an impairment review include the following:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                             

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

Upon the existence of one or more of the above indicators of impairment, the Group tests such assets
for a potential impairment. The carrying value of a long-lived asset is considered impaired when
the anticipated future undiscounted cash flows are less than the assets carrying value. In
that event, a loss is recognized based on the amount by which the carrying value exceeds the estimated
fair value of the long-lived asset. Fair value is determined primarily using the anticipated future
cash flows discounted at a rate commensurate with the risk involved.

21

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|The Group reports its long-lived assets that are held for sale based on the lower of its carrying amount
or fair value, less costs to sell. The fair value is measured using the estimated selling prices
that is expected to be realized from the sale to third party buyers or through other valuation techniques
that emphasize relevant market inputs, including those derived from active markets. For the periods
presented, no loss has been recognized as the estimated selling price of the assets and liabilities
of Zindart Manufacturing is expected to exceed the carrying value. In 2005, the Group recorded a
gain on disposal of Hua Yang.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Goodwill represents the excess of costs over the estimated fair value of identifiable net assets of
businesses acquired. Pursuant to SFAS No. 142, Goodwill and Other Intangible Assets (SFAS
142), goodwill is no longer amortized beginning with our fiscal year ended March 31, 2003,
but instead tested for impairment at least annually.

The Group has undertaken goodwill impairment testing to determine whether the goodwill was impaired
and the extent of such impairment, if any. To accomplish this, the Group is required to determine
the fair value of each reporting unit and compare it to the carrying amount of the net assets of
the reporting unit, including goodwill. In estimating the fair value of the reporting unit, the Group
used the valuation performed by a third-party valuer which involved the use of the discounted cash
flow methodology. When available and as appropriate, market multiples were used to corroborate discounted
cash flow results. In applying this methodology, the Group considered a number of factors, including
actual operating results, future business plans, economic projections and market data. The carrying
value of our goodwill was $35.3 million and $35.7 million at March 31, 2005 and 2004, respectively.
There was no indication that goodwill was impaired at March 31, 2005 and 2004 as the estimated fair
value of the reporting unit (as determined using the valuation performed by a third-party valuer
for the Corgi business segment) exceeded the carrying amount of the reporting unit (including goodwill).

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

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

In assessing the realizability of deferred tax assets, management considers whether it is more likely
than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets is dependent upon the generation of future taxable income during the periods
in which those temporary differences become deductible. Management considers the scheduled reversal
of deferred tax liabilities, projected future taxable income, and tax planning strategies in making
this assessment. During fiscal year 2003, 2004 and 2005, the Group recorded valuation allowance on
the deferred tax assets relating to tax loss carry forwards of the Groups business operations.
For the year of March 31, 2003 and 2004, the valuation allowance was related only to Corgi U.S. deferred
tax assets arising from the tax loss carry forwards. For the year of March 31, 2005, a valuation
allowance on the deferred tax assets arising from the tax loss carry forwards was recorded for both
Corgi U.S. and the Groups Hong Kong operations. Since inception of Corgis U.S. operations
in fiscal year 2000, Corgi has incurred consistent loss. Management assessed that until the Corgi
U.S. operations can demonstrate an ability to produce consistent profitable operations to utilize
the tax loss carry forwards, the Group will continue to record a valuation allowance against the
deferred tax asset. The valuation allowance relating to the Groups Hong Kong operations was
mainly based on the managements assessment of the likelihood to utilize the tax loss carry
forwards in the future after the disposal of Zindart Manufacturing.

22

---



|The valuation allowance was $2,879,000 as of April 1, 2002. The valuation allowance decreased by $1,346,000
and increased by $995,000 and $2,341,000 for the years ended March 31, 2003, 2004 and 2005, respectively.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                     

| | Fair Value of Stock-based Employee Compensation Expense
| | -------------------------------------------------------

The Group applies the intrinsic-value-based method of accounting prescribed by Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations
including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation,
an interpretation of APB Opinion No. 25, issued in March 2000, to account for its fixed-plan
stock options. Under this method, compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeds the exercise price. SFAS No. 123, Accounting
for Stock-Based Compensation (SFAS 123), established accounting and disclosure
requirements using a fair-value-based method of accounting for stock-based employee compensation
plans. As allowed by SFAS 123, the Group has elected to continue to apply the intrinsic-value-based
method of accounting described above, and has adopted only the disclosure requirements of SFAS 123.
Under the fair value based method, compensation cost related to employee stock options or similar
equity instruments is measured at the grant date based on the value of the award and is recognized
over the service period, which is usually the vesting period. We determine fair value using the Black-Scholes
model. Under this model, certain assumptions, including the risk-free interest rate, the expected
life of the options and the estimated fair value of our ordinary shares and the expected volatility,
are required to determine the fair value of the options. Expected future stock price volatility is
estimated based upon historical stock price movements over the most recent period equal to the expected
option life. Expected option life is based on the vesting period, the expected volatility of the
underlying stock and on actual exercise activity related to previous option grants. Additionally,
our share price on the date of grant influences the option value. Notwithstanding that the exercise
price of options equals or is connected to the quoted market price of our stock on the grant date,
the higher the share price the higher the option value. For purposes of determining the estimated
fair value of our stock options, we believe expected volatility is the most sensitive assumption.
Expected future stock price volatility is estimated based upon historical stock price movements over
the most recent period equal to the expected option life. For our equity fixed-plan stock options
issued in 2005, we used an expected volatility of 67.31%, resulting in an estimated weighted average
fair value per option of $3.19. Changes in the volatility assumption could significantly impact the
estimated fair values calculated by the Black-Scholes valuation model. The following pro forma information
presents compensation cost as if it has been determined consistent with the requirements of SFAS 123.

| |                                                                                                                     | 2005 |        | 2004 |   | 2003   |  
| | ------------------------------------------------------------------------------------------------------------------- | ---- | ------ | ---- | - | ------ | -
|
|
| | Reported net (loss) income                                                                                          | $    | (7,103 | )    | $ | (5,309 | )
| | Add back total stock-based employee compensation                                                                    |      |        |      |   |        |  
| | expenses under APB No.25                                                                                            |      | 211    |      |   |       |  
| | Deduct stock-based employee compensation expensedetermined under fair-value-based method for allrewards, net of tax |      | (735   | )    |   | (159   | )
|
| | Pro forma net (loss) income                                                                                         | $    | (7,627 | )    | $ | (5,468 | )
|

| | 
| | 

23

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|Item 6. Directors, Senior Management and Employees
  Directors and Senior Management                                          
|------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                              
|The following table sets forth the current directors and executive officers of the Group, and their
ages as of March 31, 2005.
|                                                                                                                              

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

| |                       |  |    |  |                                
| | --------------------- |  | -- |  | -------------------------------
|
|
| | Peter A.J. Gardiner   |  | 69 |  | Executive Chairman of the Board
| | Leo Paul Koulos (1)   |  | 71 |  | Director                       
| | Daniel Widdicombe (1) |  | 38 |  | Director                       
| | John Clough (1)       |  | 58 |  | Director                       

|          |                     |  |    |  |                                             
|--------- | ------------------- |  | -- |  | --------------------------------------------
|
|
|
|
|Corporate
|          | Peter A.J. Gardiner |  | 69 |  | Executive Chairman of the Board             
|          | Ken Fowler          |  | 45 |  | Chief Financial Officer                     
|          | Daisy Lee           |  | 37 |  | Vice President of Finance and Administration
|          | Lisa Cheung         |  | 33 |  | Group Financial Controller                  
|          | Cynthia Chan        |  | 31 |  | Internal Audit Director                     
|          |                     |  |    |  |                                             
|          | Corgi               |  |    |  |                                             
|          | George Volanakis    |  | 57 |  | President and Chief Executive Officer       
|          | Trevor Hayes        |  | 58 |  | Vice President of Global Product Development
|          | David Turner        |  | 54 |  | Managing Director U.K.                      
|          | Chris Franklin      |  | 48 |  | Operations Director Hong Kong               
|          | David Wootliff      |  | 37 |  | Marketing Director U.K.                     
|          | David Davenport     |  | 57 |  | General Manager U.S.                        
|          | Mark Summerfield    |  | 45 |  | Sales Director U.K.                         
|          | Adrian Jones        |  | 39 |  | Finance Director U.K.                       

|         |                                                                                                         
|-------- | --------------------------------------------------------------------------------------------------------
|
|(1)      | Member of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee.

Peter A.J. Gardiner, Executive Chairman from October 2000 to September 2004, interim Chief Executive
Officer from October 2004 to December 2004, and Chief Executive Officer and Chairman from January
2005 to March 2005, was appointed Executive Chairman in March 2005. From March 1992 to August 1998,
Mr. Gardiner was Chairman, Chief Executive Officer and a major shareholder of Veriflo Corporation,
a leading manufacturer of semiconductor components. Mr. Gardiner received a Bachelors degree
in Brewing and Industrial Fermentation from Heriot-Watt University.

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

24

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Daniel Widdicombe joined the Board in December 2004. Mr. Widdicombe served as Chief Financial Officer
for Chinadotcom Corporation (Nasdaq: CHINA) from late 2000 until mid 2004. From March 2000 to November
2000, Mr. Widdicombe served as Chief Financial Officer, Executive Director & Compliance Officer
for I-Quest Corporation Ltd., an Asia-based hotel networking firm. Mr. Widdicombe spent over six
years with Bear Stearns Asia Limited as Managing Director of its Asian Equity Research Department,
and four years as an analyst with James Capel & Company Limited. Mr. Widdicombe received a First
Class Honors Master of Arts in Mandarin Chinese from Edinburgh University.

John Clough joined the Board in December 2004. Mr. Clough was Co-Founder and Managing Director of the
CSSL Group, one of the largest mid-range software distributors and hardware resellers in Asia, for
16 years. Mr. Clough is on the board of directors of Chinadotcom Corporation and serves on that companys
audit committee. In addition, Mr. Clough is a special advisor to General Atlantic Partners, LLC,
one of the worlds leading direct investment firms. In the past, Mr. Clough has served on the
boards of Synon Asia Ltd. and Kapiti Asia Ltd., and has served as director and chairman of the board
of Cargonet/Arena Ltd.. Prior to the formation of the CSSL Group, Mr. Clough held the position of
General Manager in Asia for JBA, an Australian-based worldwide mid-range software distributor. Mr.
Cloughs experience includes working as a consultant in the areas of ERP and Finance in the
U.K. and Europe. Mr. Clough attended Waikato Technical Institute and Auckland Technical Institute.

Ken Fowler joined the Group as Chief Financial Officer in September 2002. From January 2001 to September
2002, Mr. Fowler was Chief Financial Officer of DeliriumCyberTouch Corporation, a leading pan-Asian
web solutions company with operations in five Asian countries. From February 2000 to January 2001,
Mr. Fowler served as Senior Vice President Finance of Chinadotcom Corporation (Nasdaq symbol CHINA).
Prior to Chinadotcom, Mr. Fowler spent seven years with Sky Tel Corporation (SkyTel),
a Nasdaq listed, international wireless messaging service provider (acquired by MCI Worldcom in October
1999). As head of Finance for SkyTels international operations, Mr. Fowler managed the financial
operations for 17 international operations based in Latin America, Asia, and Europe. His corporate
finance responsibilities included spearheading acquisitions, joint venture development, capital financing
efforts, and divestitures. Prior to Sky Tel, Mr. Fowler spent almost 10 years in the audit and consulting
arms of PriceWaterhouse (now PriceWaterhouseCoopers) and Ernst & Young. At Ernst & Young,
Mr. Fowler provided strategic management consulting services as well as operations and information
systems consulting services. Mr. Fowler received a Masters of Business Administration degree from
Vanderbilt University and a Bachelors of Accountancy degree from the University of Mississippi.

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

Lisa Cheung joined the Group in March 2004 as Internal Audit Director. In August 2004, Ms. Cheung was
appointed as the Group Financial Controller, responsible for the Groups financial reporting
and controls. From June 2000 to March 2004, Ms. Cheung served as the Regional Corporate Audit Manager,
for the Asia Pacific region of Honeywell Inc., a Fortune 500 global conglomerate listed on the NYSE.
At Honeywell, Ms. Cheung was responsible for overseeing all Corporate Audit functions and driving
Sarbanes-Oxley implementation in the region. Prior to working at Honeywell, Ms. Cheung served as
Senior Finance Auditor at Motorola Corporate Audit Department. Ms. Cheung also spent almost six years
in the auditing group of Deloitte Touche Tohmatsu specializing in the manufacturing industry and
in listed companies in both Hong Kong and PRC. Ms. Cheung is a member of the American Institute of
Certified Public Accountants and a qualified accountant in Hong Kong. She earned her Bachelor of
Business Economics and Accounting degree from the University of Southampton in the U.K..

25

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Cynthia Chan joined the Group as Internal Audit Director in February 2005. From June 2002 to February
2005, Ms. Chan had been Internal Audit Manager of Defond Electrical Industries Limited, where she
established the internal audit department and oversaw all audit activities. From November 2000 to
May 2002, Ms. Chan served as Regional Financial Analyst at Exxon Chemical International Asia Limited.
Ms. Chan began her career as an external auditor with KPMG in 1995. Ms. Chan is a member of the American
Institute of Certified Public Accountants. Ms. Chan received a Masters degree of Business Administration
from City University in the U.K. and a Bachelors degree of Business Administration from the
Chinese University of Hong Kong.

|George Volanakis joined Corgi in February 2004 as its President and Chief Executive Officer. From 1998 to 2002, Mr. Volanakis served as Executive Vice-President of Hasbro, Inc. and President of Hasbro International. >From 1988 to 1998, Mr. Volanakis served as President and Chief Executive Officer of The Ertl Company, Inc. (Ertl). During that period, he also served on the Board of Zindart. Prior to Ertl, Mr. Volanakis served as Senior Vice-President of Marketing at Mattel, Inc., President and COO of Matchbox Toys USA, Inc. and President and COO of Playskool, Inc., then a division of the Milton Bradley Co. Inc.. Mr. Volanakis was Chairman of the Toy Industry of America from 1995 to 1997. Mr. Volanakis began his career in the toy industry in 1969 with the Milton Bradley Co.,
where over a period of 15 years he held positions of increasing responsibility including Vice-President of Sales and Marketing and Vice-President of Research and Development.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Trevor Hayes joined Corgi in May 2003 as Vice President of Global Product Development. From 1999    to 2003, Mr. Hayes worked for Mattel in the U.S. as Director and later Vice President of Matchbox design and from 1990 to 1999 for Mattel Europe as Director of Design and Development. From 1984 to1990, Mr. Hayes was Director of Design & Development  U.K. at Corgi. Prior to 1984, Mr. Hayes held a variety of positions in design and development at Matchbox Toys U.K. from 1964 to 1984. Trevor Hayes has over 40 years of experience in the design and development of toy and model products. Mr. Hayes received a Bachelors degree in Industrial Management from Danbury College in Essex.

David Turner joined Corgi in June 2004 as Managing Director Europe. Prior to this appointment, Mr.
Turner had been a Senior Partner in a U.K.-based European Management Consulting business. Mr. Turner
began his consulting career in 1997. Prior to Mattels acquisitions of Tyco Toys in 1997, Mr.
Turner had been Managing Director of Tycos U.K. business, having built this business to record
profitability levels over his two-year tenure. Since 1982, Mr. Turner has held other senior positions
within the toy industry, when joining the General Mills Toy Division (later Kenner Parker). Prior
to this, Mr. Turner had enjoyed a successful management career with Procter & Gamble.

Chris Franklin joined Corgi in March 2000 and has served as Operations Director since October 2001.
>From 1986 to 2000, Mr. Franklin served as Production Manager of Lledo, now a subsidiary of Corgi.
Mr. Franklin has 31 years of production and operational management experience and has a broad range
of skill sets, including implementation of MRPII systems and introduction and production of the new
Armed Forces Infantry Weapon System. Mr. Franklin received a Diploma in Management Studies.

David Wootliff joined Corgi in June 2004 as Corgis European Marketing Director. Prior to this
appointment, Mr. Wootliff spent over 10 years with Hasbro in a variety of roles focused on Hasbros
European business and the U.K. market. After Hasbro, Mr. Wootliff joined Warner Bros. Consumer Products
where he held the position of Group Category manager for the Toy, Stationery, Gift and Interactive
categories, working on properties such as Harry Potter, Scooby Doo and Batman. Mr. Wootliff also
worked for the Walt Disney Company in a Licensing role for the Toy category, working with global,
regional and local companies on merchandising programs across the Disney portfolio. Mr. Wootliff
studied Engineering Product Design in London, this has been invaluable in understanding and contributing
to the development of product across all of his roles to date.

26

---



David Davenport joined Corgi in December 2004 as General Manager, the Americas, for Corgi-U.S.. Prior
to joining Corgi, from 2000 to 2004, Mr. Davenport was President, Hasbro Canada Corporation, responsible
for all aspects of the business. Previously, Mr. Davenport was Senior Vice President, Marketing,
The Ertl Company, Dyersville, Iowa, a $250 million in revenue, 2,000 employee, consumer products
firm that retails promotional toys, collectibles, model kits and hobby products. Mr. Davenport had
been President of Tonka Canada as well as President of Golden Books Canada and Hardie Interactive,
Dubuque, Iowa.

Mark Summerfield joined Corgi in October 2004 as Sales Director for Europe, Australia, Asia and Africa.
Prior to joining Corgi, Mr. Summerfield spent thirteen years with the Newell Rubbermaid Group, serving
the last seven years as Commercial and Sales Director for the Little Tikes division, responsible
for all aspects of business in the U.K. and Ireland. Prior to Newell Rubbermaid, Mr. Summerfield
worked at Hasbro from 1987 to 1992, where he developed the field sales business for the U.K.. Prior
to Hasbro, Mr. Summerfield worked at Mattel from 1983 to 1987, where he was responsible for developing
sales distribution throughout the U.K.. Before working in toy industry, Mr. Summerfield had a distinguished
career in fashion retail and with Ben Sherman Shirt Company. He also played professional soccer for
Leicester City Football Club. Mr. Summerfield was educated at Desford Collage, Leicester.

Adrian Jones joined Corgi in October 1999 as Financial Controller and in May 2004 was appointed Finance
Director  Europe. Prior to joining Corgi, from 1993 to 1999, Mr. Jones worked for Speedo International
Limited as Corporate Finance Manager, and 2 years at the Next Group PLC as Finance Manager. Mr. Jones
earned a Bachelor of Science degree from the University of Nottingham in the U.K. and qualified as
a Chartered Accountant with Grant Thornton in 1991.

|Compensation
|------------
|            

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

For the year ended March 31, 2005, we paid an aggregate amount of compensation, including salary, bonus
and other compensation, to our executive officers as a group equal to $2.5 million. This figure includes
aggregate bonus payments of $143,000.

Each non-employee director of the Company received a $30,000 fee for services as a board member for
the year ended March 31, 2005. Directors could elect to receive some or all of this fee in options
to purchase shares of the Companys common stock with an exercise price at the then current
market price. Each non-employee director of the Company also received a fee of $1,000 for attendance
at each committee meeting. In addition, each committee chairman received a $5,000 fee for service
as chairman for the year ended March 31, 2005. An aggregate of $206,000 was paid (in the form of
cash) to the non-employee directors as a group for board and committee service during the year ended
March 31, 2005.

|Directors who are employees of the Company do not receive any remuneration for service as members of
the Board or its committees.   
|------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                    
|See the table in the section below entitled Share Ownership for details regarding options
granted to the named executive officers.
|                                                                                                                                    

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

|On March 14, 2005, Zindart entered into an amended and restated employment agreement with Peter A.
J. Gardiner. The employment agreement provides that Mr. Gardiner will serve as Executive Chairman
of the Group and perform such duties as determined by the Board for a base salary of $400,000 per
year plus bonus that is at the sole discretion of the board of directors. Mr. Gardiners employment
may be terminated by the Group or by Mr. Gardiner on six months written notice or the Group
may terminate Mr. Gardiners employment immediately for cause as defined in the
employment agreement. Effective October 31, 2000, Mr. Gardiner was granted options to purchase
500,000 ADSs representing 500,000 Shares of the Company, with 120,000 of the ADSs vesting immediately
upon the grant. Of the remaining 380,000 options, one-third vested on October 31, 2001 and the remaining
two-thirds vested monthly over the following two-year period.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

27

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|The Company entered into an employment agreement with Ken Fowler on September 25, 2002. The employment
agreement provides that Mr. Fowler will serve as the Chief Financial Officer of the Group. The employment
agreement has no fixed term and is terminable by three months notice from Mr. Fowler or the
Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|Corgi U.K. entered into an employment agreement with George Volanakis on February 15, 2004. The employment
agreement provides that Mr. Volanakis will serve as the President and Chief Executive Officer of
Corgi. The employment agreement will terminate on the second anniversary of the date thereof and
is terminable by three months notice from Mr. Volanakis. Corgi U.K. may terminate Mr. Volanakiss
employment with or without cause as defined in the employment agreement. If Corgi Classics
Limited terminates Mr. Volanakis without cause, Mr. Volanakis shall be entitled to immediate
vesting of any and all unvested portion of the options granted to him to purchase 100,000 ADSs representing
100,000 Shares of the Company, effective February 13, 2004.

Board Practices

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

The business and affairs of the Group are managed under the direction of the Board. The Board monitors
the overall performance of the Group and oversees strategic planning. The Board also monitors the
Groups financial controls and reviews and ratifies the selection and compensation of senior
executives. During the year ended March 31, 2005, the Board held nine meetings. During the year ended
March 31, 2005, each Board member attended 75% or more of the aggregate number of meetings of the
Board, except for Mr. Gordon Seow who attended two of the four meetings and John Clough who attended
two of the three meetings that were held during the period for which he was a director. The Board
has three standing committees: the Audit Committee, the Compensation Committee, and the Nominating
and Corporate Governance Committee.

The Audit Committee meets with the Groups independent registered public accounting firm at least
annually to review the results of the annual audit and discuss the financial statements; recommends
to the Board the independent registered public accounting firm to be retained; oversees the independence
of the independent registered public accounting firm; evaluates the independent registered public
accounting firms performance; reviews the Groups internal accounting procedures and reports
to the Board with respect to other auditing and accounting matters, including the selection of the
Groups independent registered public accounting firm, the scope of annual audits, fees to be
paid to our independent registered public accounting firm and the performance of the Groups
independent registered public accounting firm. The Audit Committee is currently composed of three
members: Mr. Koulos, Mr. Widdicombe and Mr. Clough. All members of the Audit Committee meet the independence
and financial literacy requirements of the Nasdaq Stock Market (Nasdaq) and Mr. Widdicombe
satisfies the applicable Nasdaq financial experience requirements. In addition, the Board has determined
that Mr. Widdicombe qualifies as an audit committee financial expert (as defined in the
instructions to Item 16 A of Form 20-F). The Audit Committee met nine times during the year ended
March 31, 2005 and each member attended 75% or more of the aggregate number of meetings of the Committee,
except for Mr. Takaaki Ohya who attended five of the seven meetings that were held during the period
for which he was a member of the Committee.

28

---



The Compensation Committee makes recommendations concerning salaries and incentive compensation, administers
and awards stock options to employees and consultants under the Companys stock option plans
and otherwise determines compensation levels and performs such other functions regarding compensation
as the Board may delegate. The Compensation Committee is composed of three members: Mr. Koulos, Mr.
Widdicombe and Mr. Clough. The Compensation Committee met two times and acted by written consent
five times during the year ended March 31, 2005 and each member attended each meeting that was held
during the period for which he was a member of the Committee.

The Nominating and Corporate Governance Committee oversees all aspects of the Companys corporate
governance functions on behalf of the Board; makes recommendations to the Board regarding corporate
governance issues; identifies, reviews and evaluates candidates to serve as directors of the Company;
reviews and evaluates incumbent directors and serves as a focal point for communication between director
candidates, non-committee directors and the Groups management. The Nominating and Corporate
Governance Committee also selects or recommends to the Board for selection candidates to the Board
and makes other recommendations to the Board regarding affairs relating to the directors of the Company,
including director compensation. The Nominating and Corporate Governance Committee is composed of
three members: Mr. Koulos, Mr. Widdicombe and Mr. Clough. The Nominating and Corporate Governance
Committee met four times during the year ended March 31, 2005 and all were present.

Employees

At March 31, 2005 and excluding 8,932 employed by Zindart Manufacturing, the Group employed 97 persons,
of whom approximately 44 were administrative staff, 34 were sales and marketing staff, and 19 were
engineering and technical personnel. Employee information with respect to the Groups business
and geographical segments is presented below:

| |                          | Corgi |    | Corporate |  | The Group | 
| | ------------------------ | ----- | -- | --------- |  | --------- | 
|
| | Hong Kong                |       | 17 |           |  | 7         | 
| | United Kingdom           |       | 52 |           |  |          | 
| | United States of America |       | 21 |           |  |          | 
|
| |                          |       | 90 |           |  | 7         | 
|



29

---



|Share Ownership
|---------------

The Company has a stock-based compensation plan, under which non-qualified stock options may be granted
to certain directors and employees. The following table sets forth information concerning individual
grants of stock options made during the year ended March 31, 2005 to the named executive officers.
Both Leo Paul Koulos and Gary Shemano received stock options to purchase 25,000 ADSs for serving
on the Board during the year ended March 31, 2005.

| | Name             | Number of
Options Granted |   | Exercise Price (1) |      | Expiration Date  (1) |             
| | ---------------- | ------------------------- | - | ------------------ | ---- | -------------------- | ------------
| |                  |                           |   |                    |      |                      |             
| | Leo Paul Koulos  | 25,000(2                  | ) |                    | 5.02 |                      | Oct 14, 2014
| | Gary Shemano (9) | 25,000(2                  | ) |                    | 5.02 |                      | Oct 14, 2014
| | Lisa Cheung      | 40,000(3                  | ) |                    | 4.52 |                      | Sep 9, 2014 
| | David Turner     | 150,000(4                 | ) |                    | 5.77 |                      | Jun 8, 2014 
| | Chris Franklin   | 10,000(5                  | ) |                    | 5.98 |                      | May 12, 2014
| | David Wootliff   | 40,000(6                  | ) |                    | 4.76 |                      | Jun 21, 2014
| | David Davenport  | 50,000(7                  | ) |                    | 5.10 |                      | Dec 6, 2014 
| | Mark Summerfield | 40,000(8                  | ) |                    | 4.76 |                      | Jan 21, 2015
| | Adrian Jones     | 5,000(5                   | ) |                    | 5.98 |                      | May 12, 2014
| |                  |                           |   |                    |      |                      |             

| | 
|-------- | 
|(1)      | 
|         | 
|(2)      | 
|         | 
|(3)      | 
|         | 
|(4)      | 
|         | 
|(5)      | 
|         | 
|(6)      | 
|         | 
|(7)      | 
|         | 
|(8)      | 
|         | 
|(9)      | 

30

---



|The following table sets forth, as of March 31, 2005, information concerning ADSs held by, and stock
options granted to, the Companys directors and named executive officers.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |                     | ADS/Share Ownership |   | Options Held | 
| | ------------------- | ------------------- | - | ------------ | 
|
|
|
| | Peter A.J. Gardiner |                     |  |              | 
| |                     |                     |   |              | 
| |                     |                     |   |              | 
| |                     |                     |   |              | 
| | Leo Paul Koulos     |                     |  |              | 
| |                     |                     |   |              | 
| |                     |                     |   |              | 
| |                     |                     |   |              | 
| |                     |                     |   |              | 
| |                     |                     |   |              | 
| | Daniel Widdicombe   |                     |  |              | 
| | John Clough         |                     |  |              | 
| | Ken Fowler          |                     |  |              | 
| | Daisy Lee           |                     |  |              | 
| | Lisa Cheung         |                     |  |              | 
| | George Volanakis    |                     |  |              | 
| | David Turner        |                     |  |              | 
| | Chris Franklin      |                     |  |              | 
| |                     |                     |   |              | 
| | David Wootliff      |                     |  |              | 
| | David Davenport     |                     |  |              | 
| | Mark Summerfield    |                     |  |              | 
| | Adrian Jones        |                     |  |              | 
| |                     |                     |   |              | 
| |                     |                     |   |              | 

Item 7.   Major Shareholders and Related Party Transactions

Major Shareholders

|The following table sets forth beneficial ownership of the Companys outstanding shares at July
8, 2005 by each person known by the Company to own beneficially more than 5% of the outstanding shares.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                   |  |           |  | 
| | ------------------------------------------------- |  | --------- |  | 
|
|
| | ChinaVest Partners IV and associated entities (2) |  | 1,839,384 |  | 
| | Gruber & McBaine Capital Management LLC and       |  |           |  | 
| | associated entities (3)                           |  | 1,899,020 |  | 
| | Heartland Advisors, Inc. (4)                      |  | 1,110,000 |  | 
| | Heartland Group, Inc. (5)                         |  | 563,000   |  | 
| | Peter A.J. Gardiner (6)                           |  | 520,534   |  | 

|(1) |  | Based on 9,636,943 shares outstanding on July 8, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|(2) |  | Based on a Schedule 13G filed on January 12, 2005, ChinaVest Partners IV, a Delaware general partnership (Partners) and ChinaVest IV, L.P., a Delaware limited partnership (IV)
have sole and shared voting power over 1,839,384 Shares, of which 1,755,104 Shares are registered in the name of IV and 84,280 Shares are registered to ChinaVest IV-B, L.P., a Bermuda limited partnership (IV-B). Partners is the general partner of IV, and ChinaVest Management Limited, a Bermuda corporation and affiliate of Partners is the general partner of IV-B. The address for Partners is c/o 19/F Dina
House, 11 Duddell Street, Central, Hong Kong. The address for IV is c/o The Prentice Hall Corporation
Systems, Inc., 32 Lookerman Square, Suite L-100, Dover, Delaware 19901.

31

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| | (3) | As of July 8, 2005, Gruber & McBaine Capital Management LLC (GMCM), Jon D. Gruber
  (Gruber), J. Patterson McBaine (McBaine), and Eric B. Swergold (Swergold)
beneficially own
and have shared voting power with respect to 1,510,170 Shares and Lagunitis Partners (Lagunitis)
beneficially own and have shared voting power with respect to 613,899 Shares. Gruber also has sole
voting authority for an additional 217,000 Shares, and McBaine also has sole voting authority for an
additional 171,850 Shares. GMCM is a registered investment advisor. Gruber and McBaine are
managers, controlling persons and portfolio managers of GMCM. Lagunitis is an investment limited
partnership of which GMCM is the general partner. The address for GMCM, Gruber, McBaine,
Swergold and Lagunitis is 50 Osgood Place, Penthouse, San Francisco, California 94133.
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (4) | Based on the Quarterly Report on Form 13F for the quarter ended March 31, 2005, filed on May 13,
  2005 by Heartland Advisors, Inc. The address of Heartland Advisors, Inc. is 789 North Water Street,
  Milwaukee, Wisconsin 53202.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (5) | Based on the Quarterly Schedule of Portfolio Holdings of Registered Management Investment Company
  on Form N-Q for the quarter ended March 31, 2005, filed on May 17, 2005 by Heartland Group, Inc.
  The address of Heartland Group, Inc. is 789 North Water Street, Milwaukee, Wisconsin 53202.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | (6) | Includes 520,534 ADSs issuable upon exercise of options within 60 days after the date of this table
  with respect to Mr. Gardiner. The percentage of shares outstanding is based on 9,636,943 shares
  outstanding on May 9, 2005, plus the 520,534 ADSs issuable upon exercise of Mr. Gardiners options.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

The Companys major shareholders do not have voting rights that are different from other shareholders.
Of the 9,636,943 shares outstanding at March 31, 2005, 9,636,942 were held in the form of ADSs, which
are traded on the Nasdaq National Market under the symbol ZNDT. At March 31, 2005, entities
affiliated with ChinaVest beneficially owned 19.1% of the Companys outstanding stock, and accordingly,
may be viewed as having a significant interest in the Company. Otherwise, the Company is not directly
or indirectly controlled by another corporation, any foreign government or any other natural or legal
person.

|Related Party Transactions
|--------------------------

As of March 31, 2004, the Company had notes payable to directors in the aggregate principal amount

of $370,000. These notes were interest bearing at 6%, which was automatically increased to 10%
per
annum, compounded monthly, when the notes were not repaid on their maturity date. The notes
were
classified as short-term debt of the Group at March 31, 2004. In June 2004, the Company made
aggregate
payments to the noteholders of $376,000, representing payment in full of $370,000 in
principal and
$6,000 in accrued interest under the notes.

|Item 8.Financial Information                           
|-------------------------------------------------------
|                                                       
|Consolidated Statements and Other Financial Information
|                                                       
|See Item 18 of this Annual Report.
  Legal Proceedings 

We are involved in various legal proceedings arising out of our operations in the ordinary course of
business. We do not believe that such proceedings, even if determined adversely, will have a material
adverse effect on our business, financial condition, or results of operations.

32

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|Dividend Policy
|---------------

While the Group may pay dividends in the future, the Group currently intends to retain substantially
all of its earnings for expansion of its operations in accordance with its business strategy. The
Group did not declare a cash dividend or other dividend during the year ended March 31, 2005.

|Significant Changes                                                                                                                                                                                                                                                                                                                                                                                                                                
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|In May 2004, the Group completed the sale of Hua Yang for gross consideration of $24.25 million, less
indebtedness of $10.0 million, resulting in net cash consideration of approximately $14.25 million.
Proceeds from the sale were used partially to pay debt obligations and other liabilities of the Group.
The Group will retain the remaining proceeds for working capital and future projects.                                             
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|In March 2005, the Groups board of directors resolved to sell Zindart Manufacturing and initiated
an active program to locate a buyer. The Group expects the sale of Zindart Manufacturing to be completed
within the fiscal year ended March 31, 2006.                                                                                                                                                                                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Item 9.   TheOffer and Listing
  Historical Share Price Information                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|The annual high and low market prices for the Companys American Depositary Shares for the fiscal
year ended March 31, 2005 were $6.82 and $3.92, for the year ended March 31, 2004 were $10.30 and
$3.50; for the year ended March 31, 2003 were $4.09 and $1.00; for the year ended March 31, 2002
were $3.42 and $1.06; and for the year ended March 31, 2001 were $4.62 and $0.94. There is no public
market for the Companys Ordinary Shares.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|The tables below set forth the high and low market prices for the Companys American Depositary
Shares for each quarter for the year ended March 31, 2005 and 2004.                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| |                           | High |       | Low |  
| | ------------------------- | ---- | ----- | --- | -
|
| | Year ended March 31, 2005 |      |       |     |  
| | First Quarter             | $    | 6.82  |     | $
| | Second Quarter            | $    | 5.75  |     | $
| | Third Quarter             | $    | 6.09  |     | $
| | Fourth Quarter            | $    | 5.24  |     | $
| | Year ended March 31, 2004 |      |       |     |  
| | First Quarter             | $    | 6.25  |     | $
| | Second Quarter            | $    | 7.39  |     | $
| | Third Quarter             | $    | 10.30 |     | $
| | Fourth Quarter            | $    | 8.14  |     | $

The monthly high and low market prices for the most recent six months for the year ended March 31, 2005 were $4.96 and $3.92 in March 2005, $5.23 and $4.55 in February 2005, $5.24 and $4.57 in January 2005, $5.39 and $4.60 in December 2004; $5.39 and $4.50 in November 2004 and $6.09 and $4.65 in October 2004.

Markets

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

33

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Item 10. Additional Information

Memorandum  and Articles of Association

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

Nasdaq
rules require any foreign issuer that follows home country practice in lieu of
any qualitative listing requirement to disclose in its annual reports filed with
the Securities and Exchange Commission that it does not follow such qualitative
listing requirement and to describe the home country practice followed by the
issuer in lieu of such requirement. In February 1997, the Company was granted an
exemption from the minimum quorum requirement for meetings of the holders of the
Company's Ordinary Shares. Under the Company's Articles of Association, the
requirement for a quorum at shareholder meetings is the presence of at least two
shareholders in person or by proxy. The Hong Kong Companies Ordinance, Section
114AA (Cap. 32), provides that if a company has only one member, one member
present in person or by proxy shall be a quorum of a meeting of the company.

Material Contracts

In May 2004, the Group entered into a Sale and Purchase Agreement to sell Hua Yang. No other material
contracts, other than contracts entered into in the ordinary course of business, were entered into
or existed during the years ended March 31, 2005 and 2004.

Exchange Controls

|The Company was incorporated in Hong Kong as a limited company under the Hong Kong Companies Ordinance
in July 1977. The Company is therefore governed by and subject to the provisions of Hong Kong law.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Under Hong Kong law, there are currently no restrictions on the degree of foreign ownership of a company
incorporated in Hong Kong. Likewise, there are currently no restrictions on the rights of non-Hong
Kong owners to exercise voting rights in respect of shares held by them in Hong Kong-incorporated
companies.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|There are currently no foreign exchange control restrictions imposed by Hong Kong law that affect the
Company. There are currently no foreign exchange control restrictions on the ability of the Company
to transfer funds into and out of Hong Kong or to pay dividends to U.S. residents who are holders
of the Shares or ADSs.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|In accordance with Hong Kong law, share certificates are only issued in the name of corporations or
individuals. In the case of an applicant acting in a special capacity (for example, as an executor
or trustee), certificates may, at the request of the applicant, record the capacity in which the
applicant is acting. Notwithstanding the recording of any special capacity, the Company is not bound
to investigate or incur any responsibility in respect of the proper administration of any such estate
or trust. The Company will take no notice of any trust applicable to any of its securities, whether
or not it had notice of such trust.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|The rights and liabilities of the shareholders of the Company are governed by the Companies Ordinance,
the Memorandum of Association of the Company and the Articles of Association of the Company. Under
Hong Kong law, shareholders are liable to pay the full purchase price of shares or ADSs registered
in their name, but are not otherwise subject to liabilities vis-a-vis the Company in their capacity
as shareholders.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|Taxation                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|The following discussion under Hong Kong Taxation generally summarizes the material Hong
Kong tax consequences of an investment in the Shares or ADSs and the material Hong Kong taxes applicable
to the Groups operations in Hong Kong. The discussion under United States - Federal Income
Tax Considerations generally summarizes certain United States federal income tax consequences
of an investment in the Shares or ADSs. The discussion under United Kingdom Taxation
generally summarizes the material United Kingdom taxes applicable to the Groups investment
in the United Kingdom. The summaries do not address all the possible tax consequences relating to
an investment in the Shares or ADSs and do not purport to address the tax consequences applicable
to all categories of investors, some of which may be subject to special rules. In particular, the discussion does not address the tax consequences
under state or local law or the laws of countries other than Hong Kong, the U.S. and the U.K.. Accordingly,
an investor is urged to consult its own tax advisor regarding the particular tax consequences to
such investor of an investment in the Shares or ADSs. The following summaries are based upon laws
and relevant interpretations thereof in effect at the date of this Annual Report, all of which are
subject to change, possibly with retroactive effect.
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                

34

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

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

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

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

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

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

|Hong Kong has neither capital gains tax nor withholding tax on distribution of dividends. Hence, distributable
profits accumulated in a Hong Kong company can be distributed as dividends without tax withheld in
Hong Kong.                                                                                                                                                                                                                  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                              
|However, Hong Kong profits tax will be charged on trading gains from the sale of property that are
derived from or arose in Hong Kong, by persons carrying on a trade in Hong Kong where such gains
are from such trade. Liability to Hong Kong profits tax would therefore arise in respect of trading
gains from the sale of the ADSs or Shares realized by persons carrying on a business of trading or
dealing in securities in Hong Kong.
|                                                                                                                                                                                                                                                                                                                                                                                                                                              

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

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

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

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

35

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

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

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

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

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

|The Group will be treated as a passive foreign investment company (a PFIC)
for United States federal income tax purposes if 75% or more of its gross income consists of certain
types of passive income or 50% or more of its assets are passive. Based on its current
and projected income, assets, and activities, the Group presently does not believe that it is a PFIC.
This is, however, a factual determination that is made on an annual basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|In addition, the Group will be treated as a controlled foreign corporation (a CFC)
if in the aggregate 10% U.S. Holders own more than 50% of the voting power or the value of the Groups
equity. A 10% U.S. Holder is a U.S. Holder who owns 10% or more of the voting power of
the Groups equity. Complex attribution rules apply in determining whether a person is treated
as a 10% U.S. Holder and whether 10% U.S. Holders in the aggregate own more than 50% of the voting
power or the value of the Group. Although the Group presently does not believe that it is a CFC,
the principles for applying these tests are not entirely clear and this determination is based on
factors beyond the Groups control such as the identity of the Groups shareholders,
and in the case of the Groups shareholders treated as pass-through entities for United States
federal income tax purposes, the identity of the owners of such entities. Accordingly, the Group
cannot assure U.S. Holders that it is not or will not become a CFC.

36

---



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

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

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

|Any cash distributions paid by the Group out of its earnings and profits, as determined under United
States federal income tax principles, will be subject to tax as ordinary dividend income and will
be includible in the gross income of a U.S. Holder upon receipt. Cash distributions paid by the Group
in excess of its earnings and profits will be treated as a tax-free return of capital to the extent
of the U.S. Holders adjusted tax basis in its Shares or ADSs, and thereafter as gain from the
sale or exchange of a capital asset. Dividends paid in HK dollars will be includible in income in
a U.S. dollar amount based on the U.S. dollar - HK dollar exchange rate prevailing at the time of
receipt of such dividends by the depositary, in the case of ADSs, or by the U.S. Holder, in the case
of shares held directly by such U.S. Holder. Each U.S. Holder is urged to consult its tax advisor
regarding the United States federal income tax treatment of any foreign currency gain or loss recognized
on the subsequent conversion of HK dollars into U.S. dollars. Dividends received on shares or ADSs
will not be eligible for the dividends received deduction allowable to United States corporations.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|Dividends received on Shares or ADSs will be treated, for United States federal income tax purposes,
as foreign source income. A U.S. Holder may be eligible, subject to a number of complex limitations,
to claim a foreign tax credit in respect of any foreign withholding taxes imposed on dividends received
on Shares or ADSs. A U.S. Holder who does not elect to claim a foreign tax credit for foreign withholding
taxes may instead claim a deduction, for United States federal income tax purposes, in respect of
such withholdings, but only for a year in which the U.S. Holder elects to do so for all creditable
foreign income taxes.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

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

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

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

37

---



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

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

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

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

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

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

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

The accounts and computations of the U.K. entities contain relatively significant amounts in respect
of intra-group flows, including funding. Were the U.K. Inland Revenue to successfully secure adjustments
to the returns under the U.K.s transfer pricing legislation, the U.K. groups tax position
would be adversely affected, with a consequential increase in the effective tax rate applicable to
the U.K. group. Were the U.K. tax authority not to accept the recent change of the U.K. groups
functional currency to U.S. dollars, a tax liability of approximately $2.8 million would be levied
on foreign exchange gain in the U.K..

Documents on display

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

38

---



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

The Group had $3.9 million in variable rate debt outstanding at March 31, 2005. The Group does not
currently hedge its interest rate exposure. Based on its current level of variable rate debt, the
Group believes that its financial position, results from operations and cash flows would not be adversely
affected if the applicable interest rate were increased one percent.

|Raw Materials Price Risk
|------------------------

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

Foreign Currency Exchange Rate Risk

The Group is exposed to risk from changing foreign currency exchange rates. The Groups sales
are denominated primarily in U.S. dollars, followed by GBP, HK dollars and Euros. The Groups
expenses are denominated in U.S. dollars followed by HK dollars, RMB, GBP and Euros. The Group is
subject to a variety of risks associated with changes in foreign currencies. For the years ended
March 31, 2005, 2004 and 2003, the Group has entered into certain foreign currency forward contracts
in order to settle trade payable denominated in foreign currencies. Any material increase in the
value of the HK dollar, RMB, GBP or Euro relative to the U.S. dollar would increase the Groups
expenses and therefore would have a material adverse effect on the Groups business, financial
condition and results of operations.

Since 1983, the Hong Kong government has maintained a policy of linking the U.S. dollar and the HK
dollar at an exchange rate of approximately HK$7.80 to US$1.00. There can be no assurance that this
link will be continued, although the Group is not aware of any intention of the Hong Kong government
to abandon the link. On July 21, 2005, the Peoples Bank of China announced the end of the RMB
peg to the U.S. dollar. The bank increased the value of the RMB to 8.11 to one U.S. dollar - a 2.1%
increase in its value - and decreed that henceforth the RMB would trade within a narrow band of 0.3%
each day against a basket of currencies. Eliminating the dollar peg is seen by some economists as
a first step toward a free-floating, and stronger, RMB. Uncertainty exists as to whether the PRCs
new currency policy will support further appreciation of the RMB. The Group sources most of its finished
products in the PRC. The appreciation of RMB will increase the Groups product costs and may
reduce the Groups sales, especially to U.S. and European distributors and retailers.

The fair value of the Groups derivative financial instruments as of March 31, 2005 was a loss
of $5,000. The Group primarily uses foreign currency forward contracts to minimize the risk of loss
resulted from fluctuations in foreign currency exchange rates. The fair value of the derivative financial
instruments as of March 31, 2005 mainly represents the appreciation of the market exchange rate of
GBP against U.S. dollars over the forward rates to purchase U.S. dollars under the forward exchange
contract. For additional information on our derivatives, please refer to note 18 to Consolidated
Financial Statements.

39

---



The table below summarized the Groups derivative financial instruments and other instruments
that are sensitive to foreign currency exchange rates, including bank and cash balances, debt obligations
that are denominated in currencies other than U.S. dollars, and foreign forward currency exchange
contracts.

| |                             | Expected Maturity Date |       
| | --------------------------- | ---------------------- | ------
|
|
|
|
| | March 31, 2005              |                        |       
| | Bank and cash balances      | $                      | 316   
| | Debt obligations            |                        | 4,035 
| | Foreign exchange contracts: |                        |       
| | Sell GBP                    |                        | 3,846 
| | Average contractual         |                        |       
| | exchange rate               | US$/GBP                | 1.88  
| |                             |                        |       
| | March 31, 2004              |                        |       
| | Bank and cash balances      | $                      | 2,202 
| | Debt obligations            |                        | 17,177
| | Foreign exchange contracts: |                        |       
| | Sell GBP                    |                        | 6,450 
| | Average contractual         |                        |       
| | exchange rate               | US$/GBP                | 1.65  
| | Sell HK$                    |                        | 300   
| | Average contractual         |                        |       
| | exchange rate               | HK$/US$                | 7.77  
| | Buy EUR                     |                        | 2,860 
| | Average contractual         |                        |       
| | exchange rate               | US$/EUR                | 1.30  
| | Buy CHF                     |                        | 1,077 
| | Average contractual         |                        |       
| | exchange rate               | CHF/US$                | 1.21  
| |                             |                        |       

40

---



PART II

Item 15. Controls and Procedures

Disclosure Controls and Procedures

Based on their evaluation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the U.S. Securities Exchange Act of 1934) as of March 31, 2005, our Executive Chairman and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of that date.

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

In January 2005, the Group began implementation of a detailed plan to achieve compliance with the Sarbanes-Oxley
(SOX) Act - Section 404 requirements. The Group engaged Ernst and Young as a consultant
for the SOX Section 404 implementation project, and a Zindart SOX Steering Committee and related
Project Management Office were formed. During the first quarter of calendar year 2005, the Group
completed SOX training and performed a gap analysis of the existing internal controls versus the
requirements stipulated in SOX Section 404 for all business segments. In the second quarter of calendar
year 2005, the Group commenced review of internal control documentation within Corgis Hong
Kong and U.S. operations. Management assessed that according to the current project progress, the
Group should be able to meet the SOX Section 404 compliance deadline of March 31, 2007.

|Changes in Internal Controls                                                                                                                                                                                                                                                                                                                                                                                                                           
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|There were no significant changes in our internal control over financial reporting during the period
covered by this report that have materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting. The Group has refined, and intends to continue to
refine, its internal controls on an ongoing basis with a view towards continuous improvements.                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Item 16A.Audit Committee Financial Expert                                                                                                                                                                                                                                                                                                                                                                                                              
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|The Board has determined that Mr. Widdicombe qualifies as an audit committee financial expert
(as defined in Part (b) of Item 16A of Form 20-F) serving on the Audit Committee.                                                                                                                                                                                                                                                                      
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Item 16B.Code of Ethics                                                                                                                                                                                                                                                                                                                                                                                                                                
|                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|The Group has developed a Code of Conduct and Ethics Policy that applies to its principal executive
officer, principal financial officer, principal accounting officer or controller, or persons performing
similar functions, as well as all other employees, officers and directors of the Group. A copy of
the Groups Code of Conduct and Ethics Policy is available in the corporate governance section
of the Groups website at www.zindart.com.

41

---



|Item 16C. Principal AccountantFees and Services
|-----------------------------------------------
|                                               

|                          | Year endedMarch 31, |    
|------------------------- | ------------------- | ---
|                          |                     |    
|                          | 2004                |    
|                          |                     |    
|                          | (in thousands)      |    
|Audit fees billed (1)     |                     | 154
|Tax fees billed (2)       |                     | 4  
|All other fees billed (3) |                     | 12 
|                          |                     |    
|Total                     |                     | 170
|                          |                     |    

|
|------
|(1)   
|      
|(2)   
|      
|(3)   

The Audit Committee pre-approves all audit, audit-related and non-audit services not prohibited by
law to be performed by our independent registered public accounting firm and associated fees prior
to the engagement of the independent registered public accounting firm with respect to such services.
The Audit Committee approved all of the non-audit services relating to the fees listed above for
the fiscal year ended March 31, 2005.

42

---



PART III

Item 18.Financial Statements

INDEX TO FINANCIAL STATEMENTS

|                                                                      |  | Page | 
|--------------------------------------------------------------------- |  | ---- | 
|                                                                      |  |      | 
|Report of Independent Registered Public Accounting Firm               |  | 44   | 
|Consolidated Balance Sheets                                           |  | 45   | 
|Consolidated Statements of Operations and Comprehensive (Loss) Income |  | 46   | 
|Consolidated Statements of Stockholders Equity                       |  | 47   | 
|Consolidated Statements of Cash Flows                                 |  | 48   | 
|Notes to Consolidated Financial Statements                            |  | 49   | 

43

---



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


The Board of Directors and Stockholders
Zindart Limited:

We have audited the accompanying consolidated balance sheets of Zindart Limited and subsidiaries as
of March 31, 2005 and 2004, and the related consolidated statements of operations and comprehensive
(loss) income, stockholders equity, and cash flows for each of the years in the three-year
period ended March 31, 2005. These consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Zindart Limited and subsidiaries as of March 31, 2005 and 2004,
and the results of their operations and their cash flows for each of the years in the three-year
period ended March 31, 2005, in conformity with U.S. generally accepted accounting principles.

/s/ KPMGJuly 11, 2005 Hong Kong

44

---



ZINDART LIMITED AND SUBSIDIARIES

Consolidated Balance SheetsMarch 31, 2005 and 2004(in thousands, except share data)

|                                                                                                                                                                                | Note |    | 2005 |   | 2004   | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | -- | ---- | - | ------ | 
|                                                                                                                                                                                |      |    |      |   |        | 
|ASSETS                                                                                                                                                                          |     
|Current assets:                                                                                                                                                                 |      |    |      |   |        | 
|Cash and cash equivalents                                                                                                                                                       |      |    |      | $ | 7,012  | 
|Available-for-sale investments                                                                                                                                                  |      | 3  |      |   | 25     | 
|Trade accounts receivable, net                                                                                                                                                  |      | 4  |      |   | 6,579  | 
|Inventories                                                                                                                                                                     |      | 5  |      |   | 6,864  | 
|Prepaid expenses and other current assets                                                                                                                                       |      |    |      |   | 3,341  | 
|Loan receivable                                                                                                                                                                 |      | 6  |      |   |       | 
|Income taxes recoverable                                                                                                                                                        |      | 14 |      |   | 201    | 
|Deferred tax assets                                                                                                                                                             |      | 14 |      |   | 260    | 
|Assets of discontinued operations                                                                                                                                               |      | 2  |      |   | 29,243 | 
|                                                                                                                                                                                |      |    |      |   |        | 
|Total current assets                                                                                                                                                            |      |    |      |   | 53,525 | 
|Property, plant, and equipment, net                                                                                                                                             |      | 7  |      |   | 7,933  | 
|Land use rights, net                                                                                                                                                            |      | 8  |      |   |       | 
|Deferred tax assets                                                                                                                                                             |      | 14 |      |   | 1,874  | 
|Goodwill                                                                                                                                                                        |      | 9  |      |   | 35,312 | 
|                                                                                                                                                                                |      |    |      |   |        | 
|Total assets                                                                                                                                                                    |      |    |      | $ | 98,644 | 
|                                                                                                                                                                                |      |    |      |   |        | 
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                            |     
|                                                                                                                                                                                |      |    |      |   |        | 
|Current liabilities:                                                                                                                                                            |      |    |      |   |        | 
|                                                                                                                                                                                |      |    |     
|Short-term debt                                                                                                                                                                 |      | 10 |      | $ | 3,876  | 
|Current installments of long-term debt                                                                                                                                          |      | 11 |      |   |       | 
|Current installments of obligations under capital leases                                                                                                                        |      | 12 |      |   |       | 
|Trade accounts payable                                                                                                                                                          |      |    |      |   | 4,450  | 
|Receipts in advance                                                                                                                                                             |      |    |      |   | 464    | 
|Accrued expenses                                                                                                                                                                |      | 13 |      |   | 2,800  | 
|Income taxes payable                                                                                                                                                            |      | 14 |      |   |       | 
|Liabilities of discontinued operations                                                                                                                                          |      | 2  |      |   | 23,073 | 
|                                                                                                                                                                                |      |    |      |   |        | 
|Total current liabilities                                                                                                                                                       |      |    |      |   | 34,663 | 
|                                                                                                                                                                                |      |    |     
|Obligations under capital leases, excluding current installments                                                                                                                |      | 12 |      |   |       | 
|Deferred tax liabilities                                                                                                                                                        |      | 14 |      |   | 235    | 
|                                                                                                                                                                                |      |    |      |   |        | 
|Total liabilities                                                                                                                                                               |      |    |      |   | 34,898 | 
|                                                                                                                                                                                |      |    |      |   |        | 
|Minority interests                                                                                                                                                              |      |    |      |   | 693    | 
|                                                                                                                                                                                |      |    |      |   |        | 
|                                                                                                                                                                                |      |    |      |   |        | 
|Stockholders equity                                                                                                                                                            |      |    |      |   |        | 
|Common stock, $0.0646 (equivalent of HK$0.50) par value;
      authorized 15,000,000 shares; issued and outstanding
      9,636,943 shares in 2005 and 9,022,568 shares in 2004 |      |    |      |   | 623    | 
|Additional paid-in capital                                                                                                                                                      |      |    |      |   | 40,229 | 
|Retained earnings                                                                                                                                                               |      |    |      |   | 19,590 | 
|Accumulated other comprehensive income                                                                                                                                          |      |    |      |   | 2,611  | 
|                                                                                                                                                                                |      |    |      |   |        | 
|Total stockholders equity                                                                                                                                                      |      |    |      |   | 63,053 | 
|                                                                                                                                                                                |      |    |      |   |        | 
|Total liabilities and stockholders equity                                                                                                                                      |      |    |      | $ | 98,644 | 
|                                                                                                                                                                                |      |    |      |   |        | 
|                                                                                                                                                                                |      |    |     
|                                                                                                                                                                                |      |    |     
|                                                                                                                                                                                |      |    |     
|                                                                                                                                                                                |      |    |     

See accompanying notes to consolidated financial statements

45

---



ZINDART LIMITED AND SUBSIDIARIES

Consolidated Statements of Operations and Comprehensive (Loss) IncomeYears ended March 31, 2005, 2004 and 2003(in thousands, except share data)

|                                                                                                      | Note |    | 2005 |   | 2005      |   | 2003 |          
|----------------------------------------------------------------------------------------------------- | ---- | -- | ---- | - | --------- | - | ---- | ---------
|
|Net sales                                                                                             |      |    |      | $ | 43,214    |   | $    | 49,744   
|Cost of goods sold                                                                                    |      |    |      |   | (26,883   | ) |      | (28,451  
|                                                                                                      |      |    |      |   |           |   |      |          
|Gross profit                                                                                          |      |    |      |   | 16,331    |   |      | 21,293   
|Selling, general, and administrative expenses                                                         |      |    |      |   | (24,171   | ) |      | (24,151  
|                                                                                                      |      |    |      |   |           |   |      |          
|Operating (loss) income                                                                               |      |    |      |   | (7,840    | ) |      | (2,858   
|Other (expense) income:                                                                               |      |    |      |   |           |   |      |          
|Interest income                                                                                       |      |    |      |   | 138       |   |      | 39       
|Interest expense                                                                                      |      |    |      |   | (682      | ) |      | (425     
|Other income (loss)                                                                                   |      |    |      |   | 37        |   |      | (301     
|                                                                                                      |      |    |      |   |           |   |      |          
|(Loss) income before income taxes                                                                     |      |    |      |   | (8,347    | ) |      | (3,545   
|Income tax benefit (expense)                                                                          |      | 14 |      |   | 941       |   |      | (254     
|                                                                                                      |      |    |      |   |           |   |      |          
|(Loss) income from continuing operations                                                              |      |    |      |   | (7,406    | ) |      | (3,799   
|(Loss) income from discontinued operations, net of tax
   (including gain on disposal of $984 in 2005 |      | 2  |      |   | (115      | ) |      | (1,510   
|                                                                                                      |      |    |      |   |           |   |      |          
|(Loss) income before extraordinary items                                                              |      |    |      |   | (7,521    | ) |      | (5,309   
|Extraordinary gain, net of nil tax                                                                    |      | 15 |      |   | 418       |   |      |         
|                                                                                                      |      |    |      |   |           |   |      |          
|Net (loss) income                                                                                     |      |    |      | $ | (7,103    | ) | $    | (5,309   
|                                                                                                      |      |    |      |   |           |   |      |          
|Other comprehensive (loss) income, net of tax:                                                        |      |    |      |   |           |   |      |          
|Foreign currency translation adjustments                                                              |      |    |      |   | 324       |   |      | 2,948    
|Unrealized loss on available-for-sale investments                                                     |      |    |      |   | (38       | ) |      |         
|Reclassification adjustment for realized loss on investments                                          |      |    |      |   |           |   |      |          
|included in net income                                                                                |      |    |      |   |          |   |      |         
|Reclassification adjustment for derivatives included in
      net loss                                |      |    |      |   | 398       |   |      |         
|Net unrealized gain (loss) on derivative instruments                                                  |      | .  |      |   | 10        |   |      | (398     
|                                                                                                      |      |    |      |   |           |   |      |          
|Comprehensive (loss) income                                                                           |      |    |      | $ | (6,409    | ) | $    | (2,759   
|                                                                                                      |      |    |      |   |           |   |      |          
|(Loss) earnings per common share:                                                                     |      |    |      |   |           |   |      |          
|Basic:                                                                                                |      |    |      |   |           |   |      |          
|(Loss) income from continuing operations                                                              |      |    |      | $ | (0.78     | ) | $    | (0.43    
|(Loss) income from discontinued operations                                                            |      |    |      |   | (0.01     | ) |      | (0.17    
|Extraordinary gain                                                                                    |      |    |      |   | 0.04      |   |      |         
|                                                                                                      |      |    |      |   |           |   |      |          
|Net (loss) income                                                                                     |      | 23 |      | $ | (0.75     | ) | $    | (0.60    
|                                                                                                      |      |    |      |   |           |   |      |          
|Diluted:                                                                                              |      |    |      |   |           |   |      |          
|(Loss) income from continuing operations                                                              |      |    |      | $ | (0.78     | ) | $    | (0.43    
|(Loss) income from discontinued operations                                                            |      |    |      |   | (0.01     | ) |      | (0.17    
|Extraordinary gain                                                                                    |      |    |      |   | 0.04      |   |      |         
|                                                                                                      |      |    |      |   |           |   |      |          
|Net (loss) income                                                                                     |      | 23 |      | $ | (0.75     | ) | $    | (0.60    
|                                                                                                      |      |    |      |   |           |   |      |          
|Weighted average number of common shares outstanding:                                                 |      |    |      |   |           |   |      |          
|Basic                                                                                                 |      | 23 |      |   | 9,487,129 |   |      | 8,907,015
|                                                                                                      |      |    |      |   |           |   |      |          
|Diluted                                                                                               |      | 23 |      |   | 9,487,129 |   |      | 8,907,015
|                                                                                                      |      |    |      |   |           |   |      |          
|                                                                                                      |      |    |      |  
|                                                                                                      |      |    |      |  

See accompanying notes to consolidated financial statements

46

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ZINDART LIMITED AND SUBSIDIARIES

Consolidated Statements of Stockholders EquityYears ended March 31, 2005, 2004 and 2003(in thousands, except share data)

|                                                                                 | Common Stock           |           | Additional
      Paid-In 
      Capital |   | Retained
      Earnings |  | Accumulated 
      Other 
      Comprehensive
      Income (Loss) |        | Total 
      Stockholders
      Equity |  
|-------------------------------------------------------------------------------- | ---------------------- | --------- | --------------------------------------- | - | ----------------------- |  | ----------------------------------------------------------------- | ------ | --------------------------------------- | -
|                                                                                 |                        |           |                                         |   |                         | 
|                                                                                 | Number of
      Shares |           | Amount                                  |   |                         |  |                                                                   |       
|                                                                                 |                        |           |                                         |   |                         |  |                                                                   |        |                                         |  
|Balances at March 31, 2002                                                       |                        | 8,834,125 |                                         | $ | 571                     |  | $                                                                 | 38,634 |                                         | $
|Net income                                                                       |                        |          |                                         |   |                        |  |                                                                   |       |                                         |  
|                                                                                 |                        |           |                                         |   |                         | 
|Foreign currency translation
      adjustments                                   |                        |          |                                         |   |                        |  |                                                                   |       |                                         |  
|Reclassification adjustment for
      realized loss included in net
      income |                        |          |                                         |   |                        |  |                                                                   |       |                                         |  
|                                                                                 |                        |           |                                         |   |                         | 
|                                                                                 |                        |           |                                         |   |                         |  |                                                                   |        |                                         |  
|Balances at March 31, 2003                                                       |                        | 8,834,125 |                                         |   | 571                     |  |                                                                   | 38,634 |                                         |  
|Net loss                                                                         |                        |          |                                         |   |                        |  |                                                                   |       |                                         |  
|                                                                                 |                        |           |                                         |   |                         | 
|Foreign currency translationadjustments                                          |                        |          |                                         |   |                        |  |                                                                   |       |                                         |  
|Common stock issued uponexercise of stock options                                |                        | 188,443   |                                         |   | 12                      |  |                                                                   | 363    |                                         |  
|Net unrealized loss onderivative instruments                                     |                        |          |                                         |   |                        |  |                                                                   |       |                                         |  
|                                                                                 |                        |           |                                         |   |                         | 
|                                                                                 |                        |           |                                         |   |                         |  |                                                                   |        |                                         |  
|Balances at March 31, 2004                                                       |                        | 9,022,568 |                                         |   | 583                     |  |                                                                   | 38,997 |                                         |  
|                                                                                 |                        |           |                                         |   |                         | 
|Net loss                                                                         |                        |          |                                         |   |                        |  |                                                                   |       |                                         |  
|Foreign currency translationadjustments                                          |                        |          |                                         |   |                        |  |                                                                   |       |                                         |  
|Common stock issued uponexercise of stock options                                |                        | 614,375   |                                         |   | 40                      |  |                                                                   | 1,021  |                                         |  
|Stock option compensationcosts                                                   |                        |          |                                         |   |                        |  |                                                                   | 211    |                                         |  
|Net unrealized gain andreclassification adjustmenton derivative instruments      |                        |          |                                         |   |                        |  |                                                                   |       |                                         |  
|Unrealized loss on available-for-sale investments                                |                        |          |                                         |   |                        |  |                                                                   |       |                                         |  
|                                                                                 |                        |           |                                         |   |                         | 
|                                                                                 |                        |           |                                         |   |                         |  |                                                                   |        |                                         |  
|Balances at March 31, 2005                                                       |                        | 9,636,943 |                                         | $ | 623                     |  | $                                                                 | 40,229 |                                         | $
|                                                                                 |                        |           |                                         |   |                         |  |                                                                   |        |                                         |  
|                                                                                 |                        |           |                                         |   |                         | 
|                                                                                 |                        |           |                                         |   |                         | 

See accompanying notes to consolidated financial statements

47

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ZINDART LIMITED AND SUBSIDIARIES

Consolidated Statements of Cash FlowsYears ended March 31, 2005, 2004 and 2003(in thousands)

|                                                              | 2005 |        | 2004 |   | 2003   |  
|------------------------------------------------------------- | ---- | ------ | ---- | - | ------ | -
|
|Net cash (used in) provided by operating activities (note 17) | $    | (4,700 | )    | $ | 841    |  
|
|                                                              |      |        |      |   |        |  
|Cash flows from investing activities:                         |      |        |      |   |        |  
|Proceeds from sale of property, plant and equipment           |      | 43     |      |   | 3      |  
|Purchases of property, plant and equipment                    |      | (3,170 | )    |   | (3,180 | )
|Proceeds from sale of discontinued operations                 |      | 14,250 |      |   |       |  
|
|Net cash provided by (used in) investing activities           |      | 11,123 |      |   | (3,177 | )
|
|                                                              |      |        |      |   |        |  
|Cash flows from financing activities:                         |      |        |      |   |        |  
|Proceeds from issuance of common stock                        |      | 1,061  |      |   | 375    |  
|Increase (decrease) in short-term debt                        |      | 3,506  |      |   | (1,363 | )
|Repayment of long-term debt                                   |      | (2,208 | )    |   | (4,082 | )
|Repayment of convertible note                                 |      |       |      |   |       |  
|
|Net cash provided by (used in) financing activities           |      | 2,359  |      |   | (5,070 | )
|
|Effect of translation adjustments on cash                     |      | 420    |      |   | 1,752  |  
|
|Net increase (decrease) in cash and cash equivalents          |      |        |      |   |        |  
|from continuing operations                                    |      | 9,202  |      |   | (5,654 | )
|Net cash (used in) provided by discontinued operations        |      | (3,370 | )    |   | 6,274  |  
|
|Total increase (decrease) in cash and cash equivalents        |      | 5,832  |      |   | 620    |  
|Cash and cash equivalents at beginning of year                |      | 1,539  |      |   | 1,973  |  
|Less cash and cash equivalents at end of year of discontinued |      |        |      |   |        |  
|operations                                                    |      | (359   | )    |   | (1,054 | )
|
|Cash and cash equivalents at end of year                      | $    | 7,012  |      | $ | 1,539  |  
|

See accompanying notes to consolidated financial statements

48

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ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial StatementsMarch 31, 2005, 2004 and 2003

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

| | (a) Description ofBusiness
| | --------------------------

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

The Company and its subsidiaries (the Group) are principally engaged in the design, marketing and distribution of die-cast products under its proprietary brand names.

In March 2005, the Groups board of directors resolved to sell the Companys manufacturing
division (Zindart Manufacturing) and initiated an active program to locate a buyer. In
May 2004, the Group completed the sale of Hua Yang Holdings Co., Ltd. and its subsidiaries (Hua
Yang) for gross consideration of $24.25 million, less indebtedness of $10.0 million, resulting
in net cash consideration of approximately $14.25 million and a gain on disposal of $984,000. The
cash generated by the sale of Zindart Manufacturing will be used to reduce the Groups reliance
on short-term debt and support the growth of design, marketing and distribution of die-cast products
in the United States of America. The Groups directors and management believe that the Groups
future operations will generate sufficient cash to meet its obligations as they fall due.

Hua Yang was reported as a discontinued operation as of March 31, 2004, while Zindart Manufacturing
was reported as a discontinued operation as of March 31, 2005. Prior period amounts included in the
accompanying consolidated statements of operations and comprehensive (loss) income, and cash flows
and notes thereto have been reclassified to reflect the discontinued operations of Hua Yang and Zindart
Manufacturing. As of and for the year ended March 31, 2005, the operations of Corgi Classics Holdings
Limited and its subsidiaries (Corgi) substantially represent the Groups continuing
operations.

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

The consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated on consolidation.

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

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

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

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

49

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ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

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

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

Hua Yang entered into receivables purchase agreements with a financial institution whereby it transferred
and sold eligible trade accounts receivable to the financial institution. Under the terms of certain
agreements, to the extent the trade accounts receivable transferred are still unpaid by specified
overdue dates, the relevant customers become insolvent or disputes occur between Hua Yang and the
relevant customer in respect of the relevant sales, the financial institution has the right to immediate
recourse to the receivable sold, depending on the arrangements agreed and stipulated in the receivable
purchase agreements. SFAS No. 140 Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities requires the following three conditions to be met for a
sale of receivables to be accounted for as a sale.

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

|For sale of receivables that satisfied the above three conditions, the sale of receivables was accounted
for as a sale. For sale of receivables for which Hua Yang did not surrender control over the transferred
assets, the trade accounts receivable were not derecognized and the proceeds of the transfer were
recorded as short-term debt.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                

| | (f) Inventories
| | ---------------

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

50

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ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

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

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

On the date a derivative contract is entered into, the Company designates the derivative as either
a hedge of the fair value of a recognized asset, liability or an unrecognized firm commitment (fair
value hedge), a hedge of a forecasted transaction or the variability of cash flows to be received
or paid related to a recognized asset or liability (cash flow hedge), a foreign-currency fair-value
or cash-flow hedge (foreign currency hedge), or a hedge of a net investment in a foreign operation.
For all hedging relationships the Company formally documents the hedging relationship and its risk-management
objective and strategy for undertaking the hedge, the hedging instrument, the hedging item, the nature
of the risk being hedged, how the hedging instruments effectiveness in offsetting the hedged
risk will be assessed, and a description of the method of measuring ineffectiveness. This process
includes linking all derivatives that are designated as fair-value, cash-flow, or foreign-currency
hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or
forecasted transactions. The Company also formally assesses, both at the hedges inception and
on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective
in offsetting changes in fair values or cash flows of hedged items. Changes in the fair value of
a derivative that is highly effective and that is designated and qualifies as a fair-value hedge,
along with the loss or gain on the hedged asset or liability or unrecognized firm commitment of the
hedged item that is attributable to the hedged risk, are recorded in earnings. Changes in the fair
value of a derivative that is highly effective and that is designated and qualifies as a cash-flow
hedge are recorded in other comprehensive income to the extent that the derivative is effective as
a hedge, until earnings are affected by the variability in cash flows of the designated hedged item.
Changes in the fair value of derivatives that are highly effective as hedges and that are designated
and qualify as foreign-currency hedges are recorded in either earnings or other comprehensive income,
depending on whether the hedge transaction is a fair-value hedge or a cash-flow hedge. However, if
a derivative is used as a hedge of a net investment in a foreign operation, its changes in fair value,
to the extent effective as a hedge, are recorded in the cumulative translation adjustments account
within other comprehensive income. The ineffective portion of the change in fair value of a derivative
instrument that qualifies as either a fair-value hedge or a cash-flow hedge is reported in earnings.
Changes in the fair value of those derivative instruments that are not designated as hedges are reported in current period earnings.

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

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

51

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ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

|the Company continues to carry the derivative on the balance sheet at its fair value with subsequent
changes in fair value included in earnings, and gains and losses that were accumulated in other comprehensive
income are recognized immediately in earnings. In all other situations in which hedge accounting
is discontinued, the Company continues to carry the derivative at its fair value on the balance sheet
and recognizes any subsequent changes in its fair value in earnings.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

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

Property, plant, and equipment are stated at cost. Plant and equipment under capital leases are stated
at the present value of minimum lease payments. Depreciation on plant and equipment is calculated
on the straight-line method over the estimated useful lives of the assets. The estimated useful life
of buildings is 25 to 50 years; machinery and tooling is 3 to 12 years; furniture and office equipment
is 5 to 8 years; and motor vehicles is 3 to 4 years. Plant and equipment held under capital leases
and leasehold improvements are amortized using the straight line method over the shorter of the lease
term or estimated useful life of the asset. Total depreciation for the years ended March 31, 2005,
2004 and 2003 were $5,121,000, $4,733,000 and $4,158,000, respectively, all of which were recorded
in cost of goods sold.

| | (i)  LandUse Rights
| | -------------------
| |                    

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

| | (j)  Goodwill
| | -------------

Goodwill represents the excess of costs over the estimated fair value of identifiable net assets of
businesses acquired. The Group adopted the provisions of SFAS No. 142, Goodwill and Other Intangible
Assets (SFAS 142), on April 1, 2002. Goodwill and intangible assets acquired in
a purchase business combination and determined to have an indefinite useful life are not amortized,
but instead tested for impairment at least annually in accordance with the provisions of SFAS 142.
In performing the impairment test, the Group determines the fair value of each reporting unit and
compares it to the carrying amount of the reporting unit. In estimating the fair value of the reporting
unit, the Group used the valuation performed by a third-party valuer, which involved the use of the
discounted cash flow methodology. SFAS 142 also requires that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with SFAS No. 144, Accounting for Impairment or Disposal
of Long-Lived Assets (SFAS 144).

| | (k)  Receipts in Advance
| | ------------------------

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

| | (l)  Research and DevelopmentCosts
| | ----------------------------------
| |                                   

|Research and development costs are expensed as incurred. Research and development costs for the years
ended March 31, 2005, 2004 and 2003 were $2,611,000, $1,215,000 and $1,293,000, respectively and
are included as part of selling, general and administrative expenses.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

52

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ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

| | (m)  Advertising Costs
| | ----------------------
| |                       

|Advertising costs represent amounts paid to third parties for direct advertising events and are expensed
as incurred. Advertising costs for the years ended March 31, 2005, 2004 and 2003 were $5,408,000,
$6,997,000, and $5,277,000, respectively.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                    

| | (n)  Income Taxes
| | -----------------

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

| | (o)  Stock Option Plan
| | ----------------------

The Group applies the intrinsic-value-based method of accounting prescribed by Accounting Principles
Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations
including FASB Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation,
an interpretation of APB Opinion No. 25, issued in March 2000, to account for its fixed-plan
stock options. Under this method, compensation expense is recorded on the date of grant only if the
current market price of the underlying stock exceeds the exercise price. SFAS No. 123, Accounting
for Stock-Based Compensation, established accounting and disclosure requirements using a fair-value-based
method of accounting for stock-based employee compensation plans. As allowed by SFAS No. 123, the
Group has elected to continue to apply the intrinsic-value-based method of accounting described above,
and has adopted only the disclosure requirements of SFAS No. 123 (note 16). The following table sets
forth pro forma information as if compensation cost has been determined consistent with the requirements
of SFAS No. 123.

| |                                                                                                                             | 2005 |        | 2004 |   | 2003   |  
| | --------------------------------------------------------------------------------------------------------------------------- | ---- | ------ | ---- | - | ------ | -
|
| | Reported net (loss) income                                                                                                  | $    | (7,103 | )    | $ | (5,309 | )
| | Add back total stock-based employee compensation
       expenses under APB No.25                                            |      | 211    |      |   |       |  
| | Deduct stock-based employee compensation expense
   determined under fair-value-based method for all
   rewards, net of tax |      | (735   | )    |   | (159   | )
|
| | Pro forma net (loss) income                                                                                                 | $    | (7,627 | )    | $ | (5,468 | )
|
| | (Loss) earnings per common share:                                                                                           |      |        |      |   |        |  
| | Basic - as reported                                                                                                         | $    | (0.75  | )    | $ | (0.60  | )
|
| | Basic - pro forma                                                                                                           | $    | (0.80  | )    | $ | (0.61  | )
|
| | (Loss) earnings per common share:                                                                                           |      |        |      |   |        |  
| | Diluted - as reported                                                                                                       | $    | (0.75  | )    | $ | (0.60  | )
|
| | Diluted - pro forma                                                                                                         | $    | (0.80  | )    | $ | (0.61  | )
|

53

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ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

| | (p)Use of Estimates
| | -------------------

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

| | (q) Impairment of Long-LivedAssets
| | ----------------------------------
| |                                   

|Long-lived assets, such as property, plant, and equipment, and purchased intangibles subject to amortization,
are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recoverability of assets to be held and used is measured by a comparison of the carrying amount of
an asset to estimate undiscounted future cash flows expected to be generated by the asset. If the
carrying amount of an asset exceeds its estimated undiscounted future cash flows, an impairment charge
is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the
asset. Assets to be disposed of are separately presented in the balance sheet and reported at the
lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The
assets and liabilities of a disposal group classified as held-for-sale are reported separately in
the appropriate asset and liability sections of the balance sheet.

| | (r)  Revenue Recognition
| | ------------------------

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

|The provisions for trade discounts, products returns, incentive programs for distributor and end customers
are recorded as a reduction of revenue in the same period the related revenue is recognized. The
provision is estimated based on factors that include, but are not limited to, historical sales returns,
discounts given and current known trends. Should the actual product returns and allowances exceed
the estimates, additional reductions to the Groups revenue would result.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

| | (s) Shipping and HandlingCosts
| | ------------------------------
| |                               

|The Group records costs incurred for shipping and handling of the products as selling expenses in the
consolidated statements of operations. The shipping and handling costs for the years ended March
31, 2005, 2004 and 2003 were $1,352,000, $1,723,000 and $1,876,000, respectively.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

54

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ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

| | (t)  Foreign Currency Translation
| | ---------------------------------
| |                                  

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

Monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars
using the applicable exchange rates at the balance sheet dates. All such exchange gains and losses
are included in cost of goods sold in the statements of operations as the gains and losses arose
from the purchase of inventories. Aggregate gains or losses from foreign currency transactions for
the years ended March 31, 2005, 2004 and 2003 were losses of $26,000, losses of $316,000 and gains
of $597,000, respectively.

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

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

|The numerator in calculating both basic and diluted (loss) earnings per common share for each year
is the reported net (loss) income. Stock options outstanding for the years ended March 31, 2005 and
2004 were not included in computing diluted (loss) earnings per common shares since their effects
were anti-dilutive due to the net loss from continuing operations for the year. The difference between
basic and diluted weighted average number of common shares for the year ended March 31, 2003 results
from the assumption that stock options outstanding were exercised by the application of the treasury
stock method.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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

|The carrying amounts of cash and cash equivalents, trade accounts receivable, short-term debt, and
trade accounts payable approximate their fair values because of the short maturity of these instruments.
The carrying amounts of available-for-sale investments, loan receivable and long-term debt approximate
their fair values at March 31, 2005 and 2004.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                

| | (w)  Recent Accounting Pronouncements
| | -------------------------------------

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised), Share-based
Payment (Revised 2004) SFAS 123R requiring that the compensation cost relating to share-based
payment transactions be recognized in financial statements. The cost to be measured is based on the
fair value of the equity or liability instruments issued. The FASB required the companies to comply
with SFAS 123R starting from the first interim or annual reporting period beginning after June 15,
2005. On April 14, 2005, the SEC announced the adoption of a new rule that amends the compliance
dates for SFAS 123R. Under the new rule, companies are allowed to implement SFAS 123R at the beginning
of their first annual year beginning after June 15, 2005. Accordingly, the Company has elected to
defer the adoption of SFAS 123R until April 1, 2006. The pro-forma results disclosed in note 1(o)
are not necessarily indicative of what the impact of SFAS 123R will be upon adoption.

55

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

In November 2004, the FASB issued Statement of Financial Accounting Standards No.151, Inventory Costs,
an amendment of Accounting Research Bulletin (ARB) No. 43, Chapter 4 (SFAS 151),
which amends ARB No. 43, Chapter 4, to clarify that abnormal amounts of idle facility expense, freight,
handling costs and wasted materials (spoilage) should be recognized as current period charges. In
addition, SFAS 151 requires that allocation of fixed production overhead to inventory be based on
the normal capacity of the production facilities. SFAS 151 is effective for inventory costs incurred
during fiscal years beginning after June 15, 2005.

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

In March 2005, the Groups board of directors resolved to sell the Companys manufacturing
division and initiated an active program to locate a buyer. Zindart Manufacturing was available for
immediate sale in its present condition subject only to terms that are usual and customary for the
sale. In addition, the Group considered the sale of Zindart Manufacturing to be probable, and believes
that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.
As of the year ended March 31, 2005, the Group reported Zindart Manufacturing as a discontinued operation
because the operations and cash flows related to Zindart Manufacturing will be eliminated upon the
disposal and the Company will not have any continuing involvement with Zindart Manufacturing following
the disposal. The consolidated balance sheet as of March 31, 2004 has not been reclassified to reflect
Zindart Manufacturing as discontinued operations.

In March 2004, the Groups board of directors resolved to sell Hua Yang and the Group first reported
Hua Yang as a discontinued operation as of the fiscal year ended March 31, 2004. In May 2004, the
Group completed the sale of Hua Yang. Terms for the sale included net cash consideration of $14,250,000,
less 10% to be held by an escrow agent until the closing balance sheet has been audited and accepted
by the buyer, which will be less than one year subsequent to the sale date. The closing balance sheet
audit was completed during the year ended March 31, 2005 and did not result in any adjustment to
the selling price. The Group recorded a gain on disposal of $984,000 for the fiscal year ended March
31, 2005.

56

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

The operating results of the Zindart Manufacturing and Hua Yang components of the Group that were previously
reported as reportable segments under SFAS No. 131, are as follows (in thousands):

|                                                            | 2005 |   | 2004   |   | 2003 |      
|----------------------------------------------------------- | ---- | - | ------ | - | ---- | -----
|
|
|                                                            |      |   |        |   |      |      
|Net sales                                                   |      | $ | 49,526 |   | $    | 3,816
|                                                            |      |   |        |   |      |      
|                                                           
|(Loss) income before income taxes and
   minority interests |      | $ |       |   | $    | 324  
|                                                            |      |   |        |   |      |      
|Income tax benefit (expense)                                |      |   | (329   | ) |      | 28   
|Minority interests                                          |      |   | (138   | ) |      |     
|                                                            |      |   |        |   |      |      
|                                                           
|(Loss) income from discontinued
   operations               |      | $ | (467   | ) | $    | 352  
|                                                            |      |   |        |   |      |      

|                                                                                                                                                  
|--------------------------------------------------------------------------------------------------------------------------------------------------
|At March 31, 2005 and 2004, the major classes of assets and liabilities associated with the discontinued
operations are as follows (in thousands):

| |                                       |   |         |  
| | ------------------------------------- | - | ------- | -
|
|
|
| |                                       |   |         |  
| | Cash and cash equivalents             | $ | 359     |  
| | Trade accounts receivable, net        |   | 6,379   |  
| |                                       |  
| | Inventories                           |   | 7,773   |  
| |                                       |  
| | Property, plant, and equipment, net   |   | 12,846  |  
| |                                       |  
| | Land use rights, net                  |   | 1,083   |  
| |                                       |  
| | Goodwill                              |   | 414     |  
| |                                       |  
| | Other assets                          |   | 389     |  
| |                                       |  
| |                                       |  
| |                                       |   |         |  
|
| | Total assets                          |   | 29,243  |  
| |                                       |  
| |                                       |  
| |                                       |   |         |  
| | Short-term debt                       |   | (7,221  | )
| |                                       |  
| | Trade accounts payable                |   | (8,798  | )
| |                                       |  
| | Obligation under capital leases       |   | (1,460  | )
| |                                       |  
| | Accrued expenses                      |   | (4,924  | )
| |                                       |  
| | Deferred tax liabilities              |   | (26     | )
| |                                       |  
| | Other liabilities                     |   | (644    | )
| |                                       |  
| |                                       |  
| |                                       |   |         |  
|
| | Total liabilities                     |   | (23,073 | )
| |                                       |  
| |                                       |  
| |                                       |   |         |  
|
| | Net assets of discontinued operations | $ | 6,170   |  
| |                                       |   |         |  
| |                                       |  
| |                                       |  

As at March 31, 2005, the minority interests of $693,000 reflected in the accompanying consolidated
balance sheets were associated with Zindart Manufacturing.

57

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

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

At March 31, 2005 and 2004, the total available-for-sale investments held by the continuing operations
represents 634,921 shares in the common stock of a company incorporated in the United States of America.
The investment represents an equity interest of 5.93% of the company in 2005 and 2004. The investment
was initially classified in 2002 as available-for-sale, and was recorded at its fair value at the
date of acquisition of $800,000, of which, $400,000 relates to Hua Yang. The amount represented satisfaction
of $400,000 of trade accounts receivable held by Hua Yang and loan receivable of $400,000 held by
Zindart Manufacturing (note 6). At March 31, 2005, the fair value of this investment as determined
based on quoted market price was approximately $25,000. For the years ended March 31, 2004 and 2003,
the Group realized a loss of $127,000 and $210,000 in earnings to reflect the other than temporary
decline in the market value of this security. Based on the Groups evaluation of the near-term
prospects of the investee company in relation to the severity and duration of the impairment and
the Groups ability and intent to hold the investment for a reasonable period of time sufficient
for a forecasted recovery of fair value, the Group does not consider the investment to be other-than-temporarily
impaired at March 31, 2005. Therefore, the Group recorded the unrealized loss on investments, net
of tax, of $38,000 in other comprehensive income as at March 31, 2005.

|The following table presents the gross unrealized losses and fair value of the Companys available
for sale investments with unrealized losses that are not deemed to be other-than-temporarily impaired,
aggregated by investment category and length of time that individual securities have been in a continuous
unrealized loss position, at March 31, 2005 (in thousands):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             |   |    |  |   |     |  
|---------------------------- | - | -- |  | - | --- | -
|
|
|
|
|Marketable equity securities | $ | 25 |  | $ | (38 | )
|

|        | 
|------- | 
|**(4)** | 
|        | 

| |                                      | 2005 |       | 2004 |  
| | ------------------------------------ | ---- | ----- | ---- | -
| |                                      |      |       |      |  
| | Trade accounts receivable            | $    | 7,355 |      | $
| | Less allowance for doubtful accounts |      | (776  | )    |  
| |                                      |      |       |      |  
| | Trade accounts receivable, net       | $    | 6,579 |      | $
| |                                      |      |       |      |  
| |                                      |      |      

58

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

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

| |                                                 | 2005 |       | 2004 |   | 2003  |  
| | ----------------------------------------------- | ---- | ----- | ---- | - | ----- | -
| |                                                 |      |       |      |   |       |  
| | Balance at beginning of year                    | $    | 1,080 |      | $ | 1,786 |  
| | Less balance related to discontinued operations |      | (202  | )    |   |      |  
| | (Released) charged to expense                   |      | (102  | )    |   | (385  | )
| | Bad debts write-offs                            |      |      |      |   | (321  | )
| |                                                 |      |       |      |   |       |  
|
| | Balance at end of year                          | $    | 776   |      | $ | 1,080 |  
| |                                                 |      |       |      |   |       |  
| |                                                 |      |       |     

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

|Inventories consist of the following (in thousands):
|----------------------------------------------------
|                                                    

| |                 | 2005 |       | 2004 |  
| | --------------- | ---- | ----- | ---- | -
| |                 |      |       |      |  
| | Raw materials   | $    |      |      | $
| | Work in process |      |      |      |  
| | Finished goods  |      | 6,864 |      |  
| |                 |      |       |      |  
|
| |                 | $    | 6,864 |      | $
| |                 |      |       |      |  
| |                 |      |      

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

During the year ended March 31, 2000, Zindart Manufacturing granted to a customer (the Borrower)
a credit facility up to an amount of $2,300,000. The credit facility was collateralized by certain
assets of the Borrower, bore interest at LIBOR plus 5% and matured on May 12, 2000. On May 13, 2000,
the Borrower exercised an option under the credit facility to extend the maturity date of the facility
for an additional one year to May 12, 2001 and as consideration for the extension, issued to Zindart
Manufacturing non-transferable warrants to purchase a maximum of 150,000 shares of common stock of
the Borrower at a price of $1.7325 per share, representing the average of the closing bid prices
of the shares over 20 trading days prior to May 13, 2000, during a two-year period ended May 12,
2002. The estimated fair value of the warrants of $170,000 was recognized upon receipt as a non-marketable
equity security accounted for under the cost method. In accordance with SFAS No. 114, Accounting
by Creditors for Impairment of A Loan - an Amendment of FASB Statement No. 5 and 15 (SFAS
114), an impairment of loan is recognized when it is probable that a creditor will be unable
to collect all amounts due (including both principal and interest) according to the contractual terms
of the original loan agreement. The determination of whether a loan is impaired takes into account
not only the amount that the creditor expects to collect but also the timing of the collection. Management
considered that, in light of uncertainty surrounding the timing of repayment of the loan, the fair
value of the warrants of $170,000 should be applied to reduce the carrying value of the loan. The
warrants was fully impaired through charges to income of $40,000 in the year ended March 31, 2002
and $130,000 in the year ended March 31, 2003.

59

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

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

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

This loan restructuring arrangement was accounted for in accordance with SFAS No. 15, Accounting
by Debtors and Creditors for Troubled Debt Restructurings and SFAS 114. The loan restructuring
involved receipt of common stock from the Borrower in partial satisfaction of the aforementioned
loan and a modification of terms of the remaining loan. The common stock of the Borrower was accounted
for as described in note 3. The loan receivable from the Borrower of $2,050,000 was first reduced
by $570,000, representing the total fair value of common stock and warrants received from the Borrower.
The loan receivable was also reduced by a valuation allowance of $230,000. The remaining balance
of $1,250,000 represented the present value at December 31, 2001 of the expected future cash flows
which would be received under the modified loan arrangement. As at March 31, 2004, $260,000 loan
receivable remaining outstanding and repayable within one year. During 2004 and 2003, the Borrower
repaid principal and interest in accordance with the modified loan arrangement. The loan was fully
settled by the borrower in July 2004.

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

|Property, plant and equipment consists of the following (in thousands):
|-----------------------------------------------------------------------

| |                                    | 2005 |         | 2004 |  
| | ---------------------------------- | ---- | ------- | ---- | -
|
| | Buildings                          | $    | 40      |      | $
| | Machinery and tooling              |      | 33,936  |      |  
| | Furniture and office equipment     |      | 5,628   |      |  
| | Motor vehicles                     |      | 64      |      |  
| |                                    |     
| |                                    |      |         |      |  
| | Cost                               |      | 39,668  |      |  
| | Less accumulated depreciation      |      | (31,735 | )    |  
| |                                    |     
| |                                    |      |         |      |  
| | Property, plant and equipment, net | $    | 7,933   |      | $
| |                                    |      |         |      |  
| |                                    |     
| |                                    |     
| |                                    |     
| |                                    |     
| |                                    |     
| |                                    |     
| |                                    |     
| |                                    |     

At March 31, 2004, buildings with net book value of approximately $9,987,000 associated with Zindart
Manufacturing were situated in Mainland China.

At March 31, 2004, certain machinery and tooling associated with Zindart Manufacturing with net book
value of approximately $1,544,000 were held under capital leases (note 12).

60

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

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

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

| |                               | 2005 |   | 2004 |  
| | ----------------------------- | ---- | - | ---- | -
|
| | Land use rights               | $    |  |      | $
| | Less accumulated amortization |      |  |      |  
| |                               |      |   |      |  
| | Land use rights, net          | $    |  |      | $
| |                               |      |   |      |  

At March 31, 2004, the land use rights of $1,315,000 were associated with Zindart Manufacturing which has the right to use the land for a period of 50 years until 2044 and 2047.

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

At March 31, 2005 and 2004, the Groups goodwill related primarily to the acquisition of Corgi Classics Holdings Limited.

The Group adopted SFAS 142 on April 1, 2002. Under SFAS 142, goodwill is required to be tested for
  impairment on an annual basis at the reporting unit level. Furthermore, goodwill is required to be
  tested on an interim basis if an event or change in circumstances indicates that the asset might
  be impaired. The goodwill arising from the acquisition of Corgi Classics Holdings Limited was allocated
  to the Corgi reporting unit. The Group has undertaken goodwill impairment testing to determine whether
  the goodwill was impaired and the extent of such impairment, if any. There was no indication that
  goodwill was impaired at March 31, 2005 and 2004 as the estimated fair value of the reporting unit
  (as determined using the valuation performed by a third-party valuer using the discounted cash flow
  methodology) exceeded the carrying amount of the reporting unit (including goodwill).

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

At March 31, 2005, the short-term debt represents the utilization of the overdraft facilities granted by a bank. Such facilities were not utilized as at March 31, 2004. The weighted average interest rate of the outstanding borrowings of the continuing operations was approximately 8.75% and 14.0% for the years ended March 31, 2005 and 2003, respectively.

At March 31, 2005, the Group has banking facilities of approximately $17,881,000, of which $5,666,000
  was made available to the Groups continuing operations and $12,215,000 made available to the
  Groups discontinued operations, for overdrafts, trade financing, term loan and capital leases.
  Unused banking facilities as of March 31, 2005 amounted to approximately $5,958,000, of which $2,068,000
  was associated with the Groups continuing operations and $3,890,000 was associated solely with
  the Groups discontinued operations.

|At March 31, 2005, the Groups banking facilities were collateralized by fixed and floating charges
over substantially all of the assets of Corgi Classics Limited, including the assets of its subsidiaries,
Corgi Classics Inc., Lledo Collectibles Limited and Icon Collectibles Limited, with an aggregate
net book value of $34,903,000.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

61

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

At March 31, 2004, Zindart Manufacturing had banking facilities consisting of uncommitted credit facilities,
receivables purchase and letters of credit arrangements with various banks that provided for borrowings
of up to approximately $38,560,000. Substantially all of the short-term debt outstanding at March
31, 2004 represented borrowings made under these banking facilities.

As of March 31, 2004, the Company had notes payable to directors in the aggregate principal amount

of $370,000. These notes were interest bearing at 6%, which was automatically increased to 10%
per
annum, compounded monthly, when the notes were not repaid on their maturity date. The notes
were
classified as short-term debt of the Group at March 31, 2004. In June 2004, the Company made
aggregate
payments to the noteholders of $376,000, representing payment in full of $370,000 in
principal and
$6,000 in accrued interest under the notes.

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

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

| |                                                                                                                                                                   | 2005 |   | 2004 |  
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | - | ---- | -
|
| | Long-term bank loan, LIBOR interest
     plus 1.5% payable quarterly with principal,
     due March 31, 2005 secured by the assets
     of Corgi Classics Limited | $    |  |      | $
| | Less current installments                                                                                                                                         |      |  |      |  
| |                                                                                                                                                                   |     
| |                                                                                                                                                                   |      |   |      |  
| | Long-term debt, excluding current installments                                                                                                                    | $    |  |      | $
| |                                                                                                                                                                   |      |   |      |  
| |                                                                                                                                                                   |     

The Group fully repaid the long-term debt during the year ended March 31, 2005.

(12)  Leases

As of March 31, 2005 and 2004, Zindart Manufacturing had acquired certain machinery and tooling under capital leases that expire at various dates during the next three years. As of March 31, 2005, the capital leased assets and obligations were included in the assets and liabilities of discontinued operations (note 2). At March 31, 2004, the gross amount of machinery and tooling and related accumulated depreciation recorded under capital leases are as follows (in thousands):

| |                               | 2005 |   | 2004 |  
| | ----------------------------- | ---- | - | ---- | -
|
| | Machinery and tooling         | $    |  |      | $
| | Less accumulated depreciation |      |  |      |  
| |                               |      |   |      |  
| | Machinery and tooling, net    | $    |  |      | $
| |                               |      |   |      |  
| |                               |     

62

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

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

|Accrued expenses consist of the following (in thousands):
|---------------------------------------------------------
|                                                         

| |                                                                 | 2005 |       | 2004 |  
| | --------------------------------------------------------------- | ---- | ----- | ---- | -
|
| |                                                                 |      |       |      |  
| | Accruals for operating expenses:
     Wages, salaries and bonus | $    | 339   |      | $
| | Freight charges and packaging fees                              |      | 53    |      |  
| | Utility charges                                                 |      | 19    |      |  
| | Others                                                          |      | 906   |      |  
| | Commission                                                      |      | 42    |      |  
| | Royalty                                                         |      | 1,124 |      |  
| | Raw materials purchases                                         |      |      |      |  
| | Factory consumables                                             |      |      |      |  
| | Subcontracting charges                                          |      |      |      |  
| | Others                                                          |      | 317   |      |  
| |                                                                 |      |       |      |  
|
| |                                                                 | $    | 2,800 |      | $
| |                                                                 |      |       |      |  

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

Total income tax benefit (expense) of the Group including discontinued operations for the years ended
March 31, 2005, 2004 and 2003 were as follows (in thousands):

| |                                                                                      | 2005 |      | 2004 |   | 2003 |  
| | ------------------------------------------------------------------------------------ | ---- | ---- | ---- | - | ---- | -
|
| | (Loss) income from continuing operations                                             | $    | 941  |      | $ | (254 | )
| | (Loss) income from discontinued operations                                           |      | (301 | )    |   | 362  |  
| | Stockholders equity, for items included in other
       comprehensive income (loss) |      | (176 | )    |   | 171  |  
|
| |                                                                                      |      | 464  |      | $ | 279  |  
|

(Loss) income from continuing operations before income taxes is attributable to the following geographical
locations for the years ended March 31, 2005, 2004 and 2003 (in thousands):

| |                          | 2005 |        | 2004 |   | 2003   |  
| | ------------------------ | ---- | ------ | ---- | - | ------ | -
|
| | Hong Kong                | $    | (970   | )    | $ | (945   | )
| | United States of America |      | (4,652 | )    |   | (3,319 | )
| | United Kingdom           |      | (2,725 | )    |   | 719    |  
|
| |                          | $    | (8,347 | )    | $ | (3,545 | )
|

63

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

If the tax holiday for the joint venture established in Mainland China did not exist, the Groups
income tax provisions would have been increased by approximately $Nil, $Nil and $98,000 for the years
ended March 31, 2005, 2004 and 2003, respectively. Basic (loss) earnings per common share would have
been approximately $(0.75), $(0.60) and $0.29 for the years ended March 31, 2005, 2004 and 2003,
respectively. Diluted (loss) earnings per common share would have been approximately $(0.75), $(0.60)
and $0.28 for the years ended March 31, 2005, 2004 and 2003, respectively.

Income tax benefit (expense) attributable to continuing operations (in thousands):

| |                 | 2005 |      | 2004 |   | 2003  | 
| | --------------- | ---- | ---- | ---- | - | ----- | 
|
| | Current taxes:  |      |      |      |   |       | 
| | United Kingdom  | $    | 849  |      | $ | (604) | 
|
| | Deferred taxes: |      |      |      |   |       | 
| | Hong Kong       |      | 164  |      |   | 164   | 
| | United Kingdom  |      | (72) |      |   | 186   | 
|
| |                 |      | 92   |      |   | 350   | 
|
| |                 | $    | 941  |      | $ | (254) | 
|

The reconciliation of the Hong Kong statutory profits tax rate to the effective income tax rate attributable to continuing operations is as follows:

| |                                                                                                                                                      | 2005 |         | 2004 |  | 2003    | 
| | ---------------------------------------------------------------------------------------------------------------------------------------------------- | ---- | ------- | ---- |  | ------- | 
|
| | Hong Kong statutory profits tax rate                                                                                                                 |      | (17.5%) |      |  | (17.5%) | 
| | Effect of difference in income tax rates
   outside Hong Kong                                                                                        |      | (15.9%) |      |  | (17.2%) | 
| | Exchange gain/(loss) arising from
   re-translation of certain balances
   to local currency in respect of an
   overseas subsidiary for tax purpose |      | 0.0%    |      |  | 64.3%   | 
| | Change in valuation allowance                                                                                                                        |      | 21.6%   |      |  | (28.1%) | 
| | (Over)/under-provision of profits tax in prior years                                                                                                 |      | (3.8%)  |      |  | 3.1%    | 
| | Other                                                                                                                                                |      | 4.3%    |      |  | 2.6%    | 
|
| | Effective income tax rate                                                                                                                            |      | (11.3%) |      |  | 7.2%    | 
|
| |                                                                                                                                                      |      |         |     
| |                                                                                                                                                      |      |         |     

64

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

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

| |                                           | 2005 |        | 2004 |  
| | ----------------------------------------- | ---- | ------ | ---- | -
|
| | Deferred tax assets:                      |      |        |      |  
| | Net operating loss carryforwards          | $    | 5,361  |      | $
| | Property, plant and equipment             |      | 1,326  |      |  
| | Accrued expenses                          |      | 552    |      |  
| | Unrealised loss on derivative instruments |      |       |      |  
| | Others                                    |      | 26     |      |  
| |                                           |      |        |      |  
| |                                           |      |        |      |  
| | Gross deferred tax assets                 |      | 7,265  |      |  
| | Less valuation allowance                  |      | (4,869 | )    |  
| |                                           |      |        |      |  
| |                                           |      |        |      |  
| | Net deferred tax assets                   |      | 2,396  |      |  
| |                                           |      |        |      |  
| |                                           |      |        |      |  
| | Deferred tax liabilities:                 |      |        |      |  
| | Unrealised loss on derivative instruments |      | (5     | )    |  
| | Property, plant and equipment             |      | (518   | )    |  
| |                                           |      |        |      |  
| |                                           |      |        |      |  
| |                                           |      | (523   | )    |  
| |                                           |      |        |      |  
|
| | Net deferred tax assets                   |      | 1,873  |      | $
| |                                           |      |        |      |  

As of March 31, 2005, non-current deferred liabilities of $26,000 are associated with Zindart Manufacturing
(note 2).

At March 31, 2005, the Group has tax loss carryforwards of $17,041,000 to offset future taxable income, if any. Of this amount, $11,167,000 relating to the United States subsidiary expires from 2021 through 2025 and $5,874,000 relating to the Hong Kong operations can be carried forward indefinitely.

In assessing the realizability of deferred tax assets, management considers whether it is more likely
than not that some portion or all of the deferred tax assets will not be realized. Management considers
the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. A valuation allowance is provided to reduce the deferred tax
assets to an amount that is more likely than not to be realized. At March 31, 2005 and 2004, a full
valuation allowance was provided for Corgi U.S. deferred tax assets consisting primarily of tax loss
carry forwards. For the year ended March 31, 2005, a valuation allowance was also provided for deferred
tax assets pertaining to tax loss carry forwards of the Groups Hong Kong operations. Since
inception of Corgis U.S. operations in fiscal year 2000, Corgi has incurred consistent loss.
Management assessed that until the Corgi U.S. operation can demonstrate an ability to produce consistent
profitable operations to utilize the tax loss carry forwards, the Group will continue to record a
valuation allowance against the deferred tax asset. The valuation allowance relating to the Groups
Hong Kong operation was mainly based on the managements assessment of the likelihood to utilize
the tax loss carry forwards in the future after the disposal of Zindart Manufacturing. The amount
of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates
of future taxable income during the carry forward period are reduced.

The valuation allowance was $2,879,000 as of April 1, 2002. The valuation allowance decreased by $1,346,000,
increased by $995,000 and $2,341,000 for the years ended March 31, 2003, 2004 and 2005, respectively.

65

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

|(15) Extraordinary items
|------------------------

In December 2004, the Group acquired the minority interest of 45% shareholdings in a subsidiary, Onchart
Industrial Limited, at a cash consideration of $667,000, which was below the fair market value of
the acquired net assets, resulting in a negative goodwill. The net assets consisted primarily of
current assets and liabilities. The negative goodwill was allocated as a pro-rata reduction of the
amounts that would have been assigned to all of the acquired assets except for current assets and
certain other assets required to be recorded at fair value. The excess was recognized as extraordinary
gain in the consolidated financial statements.

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

In 1997, the Group adopted an equity incentive plan (the Plan) pursuant to which the Groups
board of directors may grant stock options to directors, officers and key employees. The Plan authorizes
grants of options to purchase up to 2,200,000 shares of authorized but unissued common stock. Stock
options are granted with an exercise price at not less than the stocks fair market value at
the date of grant. All stock options have 10-year terms, and generally vest and become fully exercisable
over a 4-year period subsequent to the date of grant. The vesting period of certain stock options
issued to two executive officers were accelerated in full during the year ended March 31, 2005. Accordingly,
under the provisions of APB No. 25, as interpreted by FIN 44, the acceleration resulted in a new
measurement date as the options would have been forfeited unvested. Compensation expenses of $44,000
attributable to continuing operations and $167,000 attributable to discontinued operations were recorded
as a result of the modification to accelerate vesting.

|At March 31, 2005, 348,042 shares were available for grant under the Plan. The per share weighted average
fair value of stock options granted during 2005, 2004 and 2003 was $3.19, $2.96 and $0.53 on the
date of grant using the Black Scholes option-pricing model with the following weighted average assumptions:
2005 - expected dividend yield 0.0%, risk-free interest rate of 4.49%, and an expected life of 5
years, expected stock price volatility of 67.31%, 2004 - expected dividend yield 0.0%, risk-free
interest rate of 3.57%, and an expected life of 5 years; expected stock price volatility of 65.93%;
2003 -expected dividend yield 0.0%, risk-free interest rate of 3.78%, and an expected life of 5 years,
expected stock price volatility of 37.98%. Stock option activity during the periods indicated is as follows:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    |  |           |   |   |      | 
|------------------- |  | --------- | - | - | ---- | 
|
|
|
|
|Balance at April 1  |  | 1,930,221 |   | $ | 3.08 | 
|Granted             |  | 430,000   |   |   | 5.33 | 
|Exercised           |  | (614,375  | ) |   | 1.73 | 
|Forfeited           |  | (330,831  | ) |   | 5.04 | 
|
|Balance at March 31 |  | 1,415,015 |   | $ | 3.90 | 
|
|                    |  |           |   |   |      | 

66

---



|ZINDART LIMITED AND SUBSIDIARIES
|--------------------------------

Notes to Consolidated Financial Statements  (Continued)

| |        | At March 31, 2005 |          
| | ------ | ----------------- | ---------
|
|
|
|
|
| | 1.51   |                   | 100,000  
| | 1.54   |                   | 19,481   
| | 1.5625 |                   | 27,500   
| | 1.7    |                   |         
| | 1.8    |                   | 25,000   
| | 1.82   |                   |         
| | 2.5    |                   | 500,000  
| | 3.03   |                   | 30,000   
| | 3.2    |                   |         
| | 4.52   |                   | 40,000   
| | 4.76   |                   | 80,000   
| | 4.87   |                   | 90,534   
| | 5.02   |                   | 25,000   
| | 5.1    |                   | 50,000   
| | 5.5    |                   | 147,500  
| | 5.77   |                   | 150,000  
| | 5.98   |                   | 50,000   
| | 6.75   |                   | 30,000   
| | 6.82   |                   | 35,000   
| | 6.875  |                   | 15,000   
|
|
| |        |                   | 1,415,015
|
| |        |                   |          
| |        |                   |          

At March 31, 2005, 2004 and 2003, the number of options exercisable was 882,515, 1,405,638 and 1,291,557
respectively, and the weighted average exercise price of those options was $3.08, $2.62 and $2.67
respectively.

67

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

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

The reconciliation of net (loss) income to net cash provided by operating activities for the years
ended March 31, 2005, 2004 and 2003 is as follows (in thousands):

| |                                                                                                                        | 2005 |        | 2004 |   | 2003   |  
| | ---------------------------------------------------------------------------------------------------------------------- | ---- | ------ | ---- | - | ------ | -
|
| | Net (loss) income                                                                                                      | $    | (7,103 | )    | $ | (5,309 | )
| | Less extraordinary gain, net of tax                                                                                    |      | 418    |      |   |       |  
| | Less net (loss) income from discontinued operations                                                                    |      | (115   | )    |   | (1,510 | )
| |                                                                                                                        |      |        |      |   |        |  
| | Net (loss) income from continuing operations                                                                           |      | (7,406 | )    |   | (3,799 | )
| | Adjustments to reconcile net (loss) income from continuing
   operations to net cash provided by operating activities: |      |        |      |   |        |  
| | Depreciation                                                                                                           |      | 5,121  |      |   | 4,733  |  
| | Gain on disposal of property, plant and equipment                                                                      |      | (22    | )    |   |       |  
| | Amortization of loan arrangement fees                                                                                  |      | 78     |      |   | 133    |  
| | Loss on impairment of available-for-sale investments                                                                   |      |       |      |   | 127    |  
| | Loss on derivative instruments                                                                                         |      | 20     |      |   | 91     |  
| | Deferred taxes                                                                                                         |      | (92    | )    |   | (350   | )
| | Decrease (increase) in trade accounts receivable                                                                       |      | 1,680  |      |   | (212   | )
| | (Increase) decrease in inventories                                                                                     |      | (265   | )    |   | (1,220 | )
| | (Increase) decrease in prepaid expenses
          and other current assets                                             |      | (132   | )    |   | (1,451 | )
| | Increase (decrease) in trade accounts payable                                                                          |      | 45     |      |   | 2,046  |  
| | Increase in receipts in advance                                                                                        |      | 188    |      |   | 276    |  
| | (Decrease) increase in accrued expenses                                                                                |      | (1,319 | )    |   | (652   | )
| | (Decrease) increase in income taxes payable                                                                            |      | (2,640 | )    |   | 604    |  
| | Stock option compensation costs                                                                                        |      | 44     |      |   |       |  
| | Increase (decrease) in trade accounts
          payable with Hua Yang                                                  |      |       |      |   | 515    |  
| |                                                                                                                        |      |        |      |   |        |  
| | Net cash (used in) provided by operating activities                                                                    | $    | (4,700 | )    | $ | 841    |  
| |                                                                                                                        |      |        |      |   |        |  

The Group paid $682,000, $425,000 and $1,075,000 for interest for the years ended March 31, 2005, 2004
and 2003, respectively. The Group paid $1,791,000 for income taxes for year ended March 31, 2005,
and the Group did not pay for income taxes for the years ended March 31, 2004 and 2003.

68

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

|(18) Derivative Instruments
|---------------------------

The Group participates in the foreign exchange markets to minimize its risk of loss from fluctuations
in currency exchange rates. The Group has applied hedge accounting under SFAS 133. For those transactions
that qualify for cash flow hedge accounting under SFAS 133, the marked to fair value is reported
through other comprehensive (loss) income. For those transactions that do not qualify for hedge accounting
under SFAS 133, the mark to fair value is reported currently through earnings.

| | (a)  Cash flow Hedges
| | ---------------------

The Group primarily uses foreign currency forward contracts to hedge anticipated transactions that
are subject to foreign currency exchange exposure. These instruments are designated as cash flow
hedges in accordance with SFAS 133 and are recorded in the consolidated financial statements at fair
value. The effective portion of the contract gains or losses due to changes in fair value are initially
recorded as a component of accumulated other comprehensive income (loss) and are subsequently reclassified
into earnings when the hedged transactions occur and affect earnings. These contracts are highly
effective in hedging the variability in future cash flows attributable to changes in foreign currency
exchange rates. For the year ended March 31, 2005, total net amounts recognized in earnings due to
ineffectiveness and amounts excluded from the assessment of hedge effectiveness amounted to approximately
$20,000. As of March 31, 2005, the accumulated unrealized gain of $15,000, net of tax of $5,000 on
derivatives designated as cash flow hedges was reported in the accumulated other comprehensive income
(loss) account within stockholder equity. Substantially all of the balance at March 31, 2005
will be recognized within the subsequent twelve months as the anticipated transactions occur. At
March 31, 2005, the maximum length of the foreign exchange forward contracts entered by the Group
was no longer than twelve months. As of March 31, 2004, an accumulated unrealized loss of $569,000,
net of tax of $171,000, on derivatives designated as cash flow hedges was reported in the accumulated
other comprehensive income (loss) account within stockholders equity. The Group did not have
any derivative, which qualified as cash flow hedges for the year ended March 31, 2003.

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

|In 2004 and 2003, the Group did not apply hedge accounting for certain derivative contracts and the
change in fair value of the derivatives were recorded in earnings. The impact to earnings associated
with these derivatives was a loss of $209,000 associated with Hua Yang for the year ended March 31,
2004 and a gain of $83,000 for the year ended March 31, 2003.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                          

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

|(19)  Commitments and Contingencies                                                                                                                                                                                                                   
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                      
|The commitments and contingencies disclosed below include those of the continuing and discontinued operations. The commitments and contingencies in relation to the discontinued operations will be eliminated upon the sale of Zindart Manufacturing.

69

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

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

|The Group, including Zindart Manufacturing, has several non-cancelable operating leases, primarily
for office, factory premises, staff quarters and warehouse space, that expire over the next 10 years.
Rental expense for operating leases for the years ended March 31, 2005, 2004 and 2003 was approximately
$812,000, $626,000 and $536,000, respectively. At March 31, 2005, future minimum payments under agreements
classified as operating leases with non-cancelable terms are as follows (in thousands):
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

| |                       | Continuing
      Operations |       | Discontinued
      Operations |  
| | --------------------- | --------------------------- | ----- | ----------------------------- | -
| |                       |                             |       |                               |  
| | Year ending March 31: |                             |       |                               |  
| | 2006                  | $                           | 776   |                               | $
| | 2007                  |                             | 657   |                               |  
| | 2008                  |                             | 533   |                               |  
| | 2009                  |                             | 393   |                               |  
| | 2010                  |                             | 257   |                               |  
| | Thereafter            |                             | 873   |                               |  
| |                       |                             |       |                               |  
| |                       | $                           | 3,489 |                               | $
| |                       |                             |       |                               |  

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

Under the supplementary joint venture agreement, Dongguan Xinda Giftware Company Limited, a subsidiary
of Zindart Manufacturing, is committed to pay pre-determined annual fees to the third-party joint
venture partners for the period from November 1994 to October 2010. Pre-determined annual fees paid
to joint venture partners, which have been charged to expense, amounted to approximately $36,000,
$36,000 and $36,000 for the years ended March 31, 2005, 2004 and 2003, respectively. At March 31,
2005, future fees payable under these agreements are as follows (in thousands):

| |                       | Continuing
      Operations |   | Discontinued
      Operations |  
| | --------------------- | --------------------------- | - | ----------------------------- | -
| |                       |                             |   |                               |  
| | Year ending March 31: |                             |   |                               |  
| | 2006                  | $                           |  |                               | $
| | 2007                  |                             |  |                               |  
| | 2008                  |                             |  |                               |  
| | 2009                  |                             |  |                               |  
| | 2010                  |                             |  |                               |  
| | Thereafter            |                             |  |                               |  
| |                       |                             |   |                               |  
| |                       | $                           |  |                               | $
| |                       |                             |   |                               |  

70

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

| | (c)  Capital Commitments
| | ------------------------

At March 31, 2005, the Group has authorized and contracted for the purchase of certain machinery and
equipment. The future amount payables under these contracts are as follows (in thousands):

| |                       | Continuing
      Operations |     | Discontinued
      Operations |  
| | --------------------- | --------------------------- | --- | ----------------------------- | -
| |                       |                             |     |                               |  
| | Year ending March 31: |                             |     |                               |  
| | 2006                  | $                           | 710 |                               | $
| | 2007                  |                             |    |                               |  
| | 2008                  |                             |    |                               |  
| | 2009                  |                             |    |                               |  
| | 2010                  |                             |    |                               |  
| | Thereafter            |                             |    |                               |  
| |                       |                             |     |                               |  
| |                       | $                           | 710 |                               | $
| |                       |                             |     |                               |  

| | (d)  Licensing Commitments
| | --------------------------

The Group entered into several licensing agreements to acquire the rights to manufacture and distribute
licensed property. These agreements cover differing periods ranging from three to four years. Under
the licensing agreements, the Group is required to pay a minimum royalty fees which are payable by
installments over the life of the agreements. At March 31, 2005, the future minimum royalty fees
payable under these licensing agreements are as follows (in thousands):

| |                       | Continuing
      Operations |     | Discontinued
      Operations |  
| | --------------------- | --------------------------- | --- | ----------------------------- | -
| |                       |                             |     |                               |  
| | Year ending March 31: |                             |     |                               |  
| | 2006                  | $                           | 213 |                               | $
| | 2007                  |                             | 431 |                               |  
| | 2008                  |                             | 189 |                               |  
| | 2009                  |                             |    |                               |  
| | 2010                  |                             | 8   |                               |  
| | Thereafter            |                             |    |                               |  
| |                       |                             |     |                               |  
| |                       | $                           | 841 |                               | $
| |                       |                             |     |                               |  

71

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

|(20) Retirement Plans
|---------------------

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

|The aggregate amount of the Groups employer contributions to the retirement plans for the years
ended March 31, 2005, 2004 and 2003 was approximately $399,000, $346,000 and $210,000 respectively,
of which $271,000, $214,000 and 202,000 was allocated to continuing operations respectively.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                                                                                                                                                                                                                                                                                 
|(21) Concentrations of Risk                                                                                                                                                                                                                                                                      

The Groups accounts receivable are subject to a concentration of credit risk with customers in
North America and the United Kingdom. This risk is limited due to the large number and geographic
dispersion of customers in the Groups United Kingdom customer base. The Groups top five
customers accounted for 17%, 18% and 16% of the Groups net sales in the fiscal years ended
March 31, 2005, 2004 and 2003, respectively. The Group performs ongoing credit evaluations of its
customers financial condition and generally requires no collateral from its customers. No individual
customer accounted for more than 5% of the Groups sales in fiscal 2005 and only one customer
accounted for more than 5% of the Groups sales in fiscal 2004.

|Several of the Groups licenses apply to products that generate a large volume of sales. To the
extent the Group is unable to maintain these licenses, the lost sales would have a significant impact
on future sales.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

72

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

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

Subsequent to the sale of Hua Yang in May 2004 and the planned disposal of Zindart Manufacturing, the
Groups remaining operating segment is Corgi U.K., which primarily consist of the design, marketing
and distribution of die-cast products under its proprietary brand names. The accounting policies
of the segment are the same as those described in the summary of significant accounting policies.
Management evaluates performance of the segment based on profit or loss from operations before income
taxes but not including corporate general and administrative expenses, interest income, interest
expense and other non-operating income (loss).

The segment information relating to Corgi U.K. is as follows (in thousands):

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

| |                                                   | 2005 |        | 2004 |   | 2003   | 
| | ------------------------------------------------- | ---- | ------ | ---- | - | ------ | 
| |                                                   |      |        |      |   |        | 
| | Geographical analysis of net sales is as follows: |      |        |      |   |        | 
| | United Kingdom                                    | $    | 32,370 |      | $ | 35,443 | 
| | Other European countries                          |      | 3,080  |      |   | 3,083  | 
| | United States of America                          |      | 6,441  |      |   | 9,956  | 
| | Others                                            |      | 1,323  |      |   | 1,262  | 
| |                                                   |      |        |      |   |        | 
| |                                                   | $    | 43,214 |      | $ | 49,744 | 
| |                                                   |      |        |      |   |        | 

| |                                         |   |        |  |   |        | 
| | --------------------------------------- | - | ------ |  | - | ------ | 
|
| |                                         |   |        |  |   |        | 
| | Net sales by major product category are |   |        |  |   |        | 
| | Toys                                    | $ | 13,946 |  | $ | 12,998 | 
| | Premium                                 |   | 2,077  |  |   | 3,337  | 
| | Collectibles                            |   | 27,191 |  |   | 33,409 | 
| |                                         |   |        |  |   |        | 
| |                                         | $ | 43,214 |  | $ | 49,744 | 
| |                                         |   |        |  |   |        | 

| |                             
| | ----------------------------
| | (b)  Operating (loss) income

| |                                               | 2005 |        | 2004 |   | 2003   |  
| | --------------------------------------------- | ---- | ------ | ---- | - | ------ | -
| |                                               |      |        |      |   |        |  
| | Total segment (loss) profit                   | $    | (5,561 | )    | $ | (688   | )
| | Corporate general and administrative expenses |      | (2,279 | )    |   | (2,170 | )
| | Interest income                               |      | 138    |      |   | 39     |  
| | Interest expense                              |      | (682   | )    |   | (425   | )
| | Other income (loss)                           |      | 37     |      |   | (301   | )
| |                                               |      |        |      |   |        |  
| | (Loss) income before income taxes             | $    | (8,347 | )    | $ | (3,545 | )
| |                                               |      |        |      |   |        |  

73

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

| | (c)  ReportableSegment Assets, Capital Expenditures and Depreciation
| | --------------------------------------------------------------------

Assets that are included in the measure of the segments assets that is used by the chief operating
decision maker represent cash and cash equivalents, trade accounts receivable, net, inventories,
property, plant and equipment, and goodwill.

|The reconciliation of such segment assets to the corresponding amounts in the consolidated balance
sheet is as follows:
|-----------------------------------------------------------------------------------------------------------------------
|                                                                                                                       

| |                                            | 2005 |        | 2004 |  
| | ------------------------------------------ | ---- | ------ | ---- | -
| |                                            |      |       
| | Segment cash and cash equivalents          | $    | 764    |      | $
| | Corporate                                  |      | 6,248  |      |  
| | Zindart Manufacturing*                     |      |       |      |  
| |                                            |      |        |      |  
| | Total cash and cash equivalents            | $    | 7,012  |      | $
| |                                            |      |        |      |  
| | Segment trade accounts receivable, net     | $    | 6,579  |      | $
| | Zindart Manufacturing*                     |      |       |      |  
| |                                            |      |        |      |  
| | Total trade accounts receivable, net       | $    | 6,579  |      | $
| |                                            |      |        |      |  
| | Segment inventories, net                   | $    | 6,864  |      | $
| | Zindart Manufacturing *                    |      |       |      |  
| |                                            |      |        |      |  
| | Total inventories, net                     | $    | 6,864  |      | $
| |                                            |      |        |      |  
| | Segment property, plant and equipment, net | $    | 7,927  |      | $
| | Corporate                                  |      | 6      |      |  
| | Zindart Manufacturing*                     |      |       |      |  
| |                                            |      |        |      |  
| | Total property, plant and equipment, net   | $    | 7,933  |      | $
| |                                            |      |        |      |  
| | Segment goodwill                           | $    | 35,312 |      | $
| | Zindart Manufacturing*                     |      |       |      |  
| |                                            |      |        |      |  
| | Total goodwill                             | $    | 35,312 |      | $
| |                                            |      |        |      |  

* Assets of Zindart Manufacturing as at March 31, 2005 have been grouped and presented in Assets of discontinued operations.

| |                       | 2005 |       | 2004 |   | 2003  | 
| | --------------------- | ---- | ----- | ---- | - | ----- | 
| |                       |      |       |      |   |       | 
| | Capital expenditures: |      |       |      |   |       | 
| | Segment               | $    | 3,164 |      | $ | 3,180 | 
| | Corporate             |      | 6     |      |   |      | 
| |                       |      |       |      |   |       | 
| |                       | $    | 3,170 |      | $ | 3,180 | 
| |                       |      |       |      |   |       | 
| | Depreciation:         |      |       |      |   |       | 
| | Segment               | $    | 5,121 |      | $ | 4,733 | 
| |                       |      |       |      |   |       | 

74

---



ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

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

| |                                                         | 2005 |       | 2004 |  
| | ------------------------------------------------------- | ---- | ----- | ---- | -
| |                                                         |      |      
| | Geographic analysis of long-lived assets is as follows: |      |       |      |  
| | Hong Kong and Mainland China                            | $    | 6     |      | $
| | United Kingdom                                          |      | 7,927 |      |  
| |                                                         |      |      
| |                                                         | $    | 7,933 |      | $
| |                                                         |      |      

|                                                                                                                        
|------------------------------------------------------------------------------------------------------------------------
|** Long-lived assets represent property, plant and equipment.
  (23)  Earnings (Loss) per Share                         
|                                                                                                                        
|The following tables sets forth the computation of basic and diluted (loss) earnings per common share
at March 31, 2005:

| |                                                                    |   |           |   |   |           |  
| | ------------------------------------------------------------------ | - | --------- | - | - | --------- | -
|
|
| | Numerator for basic and diluted (loss) earnings percommon share:   |   |           |   |   |           |  
| | (Loss) income from continuing operations                           | $ | (7,406    | ) | $ | (3,799    | )
| | (Loss) income from discontinued operations                         |   | (115      | ) |   | (1,510    | )
| | Extraordinary gain                                                 |   | 418       |   |   |          |  
| |                                                                    |   |           |   |   |           |  
| | Net (loss) income                                                  | $ | (7,103    | ) | $ | (5,309    | )
| |                                                                    |   |           |   |   |           |  
| | Denominator:                                                       |   |           |   |   |           |  
| | Basic weighted average number of common sharesoutstanding          |   | 9,487,129 |   |   | 8,907,015 |  
| | Effect of dilutive options                                         |   |          |   |   |          |  
| |                                                                    |   |           |   |   |           |  
| | Diluted weighted average number of common shares
      outstanding |   | 9,487,129 |   |   | 8,907,015 |  
| |                                                                    |   |           |   |   |           |  
| | Basic (loss) income per common share:                              |   |           |   |   |           |  
| | (Loss) income from continuing operations                           | $ | (0.78     | ) | $ | (0.43     | )
| | (Loss) income from discontinued operations                         |   | (0.01     | ) |   | (0.17     | )
| | Extraordinary gain                                                 |   | 0.04      |   |   |          |  
| |                                                                    |   |           |   |   |           |  
| | Net (loss) income                                                  | $ | (0.75     | ) | $ | (0.60     | )
| |                                                                    |   |           |   |   |           |  
| | Diluted (loss) income per common share:                            |   |           |   |   |           |  
| | (Loss) income from continuing operations                           | $ | (0.78     | ) | $ | (0.43     | )
| | (Loss) income from discontinued operations                         |   | (0.01     | ) |   | (0.17     | )
| | Extraordinary gain                                                 |   | 0.04      |   |   |          |  
| |                                                                    |   |           |   |   |           |  
| | Net (loss) income                                                  | $ | (0.75     | ) | $ | (0.60     | )
| |                                                                    |   |           |   |   |           |  

Stock options for 516,422 and 1,102,638 shares of common stock for the years ended March 31, 2005 and
2004, respectively, were not included in computing diluted (loss) earnings per common share since
their effects were anti-dilutive due to the net loss from continuing operations for the year. The
difference between basic and diluted weighted average number of common shares for the year ended
March 31, 2003 results from the assumption that stock options outstanding were exercised by application
of the treasury stock method.

75

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ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

Item 19.   Exhibits

| | 1(a)     |  | Memorandum of Association of the Company.(1)                                                                                                                                                                                                         | 
| | -------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| |          |  |                                                                                                                                                                                                                                                      | 
| | 1(b)     |  | Articles of Association of the Company.(2)                                                                                                                                                                                                           | 
| |          |  |                                                                                                                                                                                                                                                      | 
| | 2(a)(1)  |  | Exchange Agreement by and among Zindart Limited, Hua Yang Holdings Co., Ltd., HuaYang Printing Holdings Co., Limited, the shareholders of Hua Yang Holdings Co., Ltd. andcertain beneficial owners of such shareholders, dated February 13, 1998.(2) | 
| |          |  |                                                                                                                                                                                                                                                      | 
| | 2(a)(2)  |  | Form of Deposit Agreement by and among Zindart Limited, The Bank of New York andOwners and Holders of American Depositary Receipts, dated at January 1997.(1)                                                                                        | 
| |          |  |                                                                                                                                                                                                                                                      | 
| | 2(a)(3)  |  | Amended and Restated 1997 Equity Incentive Plan.(7)                                                                                                                                                                                                  | 
| |          |  |                                                                                                                                                                                                                                                      | 
| | 4(a)(1)  |  | Sino-Foreign Co-Operation Contract, Zindart Toys (Dongguan) Company Limited, betweenDongguan Hengli Trading General Company and Zindart Industrial Company Limited, datedSeptember 8, 1994.(1)                                                       | 
| |          |  |                                                                                                                                                                                                                                                      | 
| | 4(a)(2)  |  | Sino-Foreign Co-Operation Contract, Zindart Toys (Dongguan) Company Limited,Supplemental Contract, between Dongguan Hengli Trading General Company and ZindartIndustrial Company Limited, dated December 5, 1995.(1)                                 | 
| |          |  |                                                                                                                                                                                                                                                      | 
| | 4(a)(3)  |  | Sino-Foreign Co-Operation Contract by and between Shenzhen City Boan District XixianTown Gushu Economic Development Company Limited and Hua Yang Printing HoldingsCo. Limited, dated May 28, 1995.(2)                                                | 
| |          |  |                                                                                                                                                                                                                                                      | 
| | 4(a)(4)  |  | Processing Agreement by and between Zindart Limited and Dongguan Hengli IndustryDevelopment Company, dated August 18, 1997.(2)                                                                                                                       | 
| |          |  |                                                                                                                                                                                                                                                      | 
| | 4(a)(5)  |  | Land Use Certificate for State-Owned Land, Dongguan Government State-Owned (1993) No. 49.(1)                                                                                                                                                         | 
| |          |  |                                                                                                                                                                                                                                                      | 
| | 4(a)(6)  |  | Land Use Certificate for State-Owned Land, Dongguan Government State-Owned (1994) No. 664.(1)                                                                                                                                                        | 
| |          |  |                                                                                                                                                                                                                                                      | 
| | 4(a)(7)  |  | Land Use Certificate for State-Owned Land, Dongguan Government State-Owned (1994) No. 665.(1)                                                                                                                                                        | 
| |          |  |                                                                                                                                                                                                                                                      | 
| | 4(a)(8)  |  | Land Use Certificate for State-Owned Land, Dongguan Government State-Owned (1994) No. 666.(1)                                                                                                                                                        | 
| |          |  |                                                                                                                                                                                                                                                      | 
| | 4(a)(9)  |  | Agreement of Utilization of Factory, Warehouse and Dormitory, by and between GushuEconomic Development Company and Huan Printing Group Company, dated January 24,1995.(2)                                                                            | 
| |          |  |                                                                                                                                                                                                                                                      | 
| | 4(a)(10) |  | Tenancy Agreement of Dormitory by and between Gushu Economic Development Co. and Huaxuan Printing Company Limited, dated August 1997.(2)                                                                                                             | 

76

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ZINDART LIMITED AND SUBSIDIARIES

|Notes to Consolidated Financial Statements  (Continued)
|--------------------------------------------------------

| |          |  |                                                                                                                                                                                                                                  | 
| | -------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
| | 4(a)(11) |  | Standard Chartered Bank, Banking Facility: Hua Yang, dated March 22, 2000.(3)                                                                                                                                                    | 
| |          |  |                                                                                                                                                                                                                                  | 
| | 4(a)(12) |  | Standard Chartered Bank, Banking Facility: Zindart Limited dated March 22, 2000.(3)                                                                                                                                              | 
| |          |  |                                                                                                                                                                                                                                  | 
| | 4(a)(13) |  | Hong Kong Bank, Banking Facilities, dated April 25, 2000.(3)                                                                                                                                                                     | 
| |          |  |                                                                                                                                                                                                                                  | 
| | 4(a)(14) |  | Agreement by and between The Royal Bank of Scotland plc and Corgi Classics Limited with respect to the Term Loan of GBP4,000,000, dated January 24, 2001.(4)                                                                     | 
| |          |  |                                                                                                                                                                                                                                  | 
| | 4(a)(15) |  | Agreement by and between The Royal Bank of Scotland plc and Corgi Classics Limited with respect to the Revolving Advance Facility of GBP3,000,000, dated January 24, 2001.(4)                                                    | 
| |          |  |                                                                                                                                                                                                                                  | 
| | 4(a)(16) |  | Agreement by and among ABN AMRO Bank, N.V. Hong Kong Branch, KBC Bank, N.V., Hong Kong Branch, Standard Chartered Bank, Rabo Bank, Hong Kong Branch with respect to the Term Loan of US$9,000,000, dated March 8, 2001.(6)       | 
| |          |  |                                                                                                                                                                                                                                  | 
| | 4(a)(17) |  | Zindart Loan and Security Agreement and Agreement, May 13, 1999, by and among Zindart Limited (Hong Kong), Intervisual Books, Inc. and Fast Forward Marketing, Inc.(5)                                                           | 
| |          |  |                                                                                                                                                                                                                                  | 
| | 4(a)(18) |  | Extension Notice, May 29, 2000, delivered pursuant to the Zindart Loan and Security Agreement and Agreement, May 13, 1999, by and among Zindart Limited (Hong Kong), Intervisual Books, Inc. and Fast Forward Marketing, Inc.(5) | 
| |          |  |                                                                                                                                                                                                                                  | 
| | 4(a)(19) |  | Amendment No. 1 to the Zindart Loan and Security Agreement and Agreement, April 16, 2001, by and among Zindart Limited (Hong Kong), Intervisual Books, Inc. and Fast Forward Marketing, Inc.(5)                                  | 
| |          |  |                                                                                                                                                                                                                                  | 
| | 4(a)(20) |  | Amendment No. 2 to the Zindart Loan and Security Agreement and Agreement, December 31 2001, by and among Zindart Limited (Hong Kong), Intervisual Books, Inc. and Fast Forward Marketing, Inc.(5)                                | 
| |          |  |                                                                                                                                                                                                                                  | 
| | 4(c)(1)  |  | Employment Agreement, by and between Zindart Limited and Peter A.J. Gardiner, dated March 14, 2005.                                                                                                                              | 
| |          |  |                                                                                                                                                                                                                                  | 
| | 4(c)(2)  |  | Employment Agreement, between Hua Yang Printing Holdings Co., Ltd., a wholly-owned subsidiary of Zindart Limited, and Kevin Murphy, dated November 1, 2001.(5)                                                                   | 
| |          |  |                                                                                                                                                                                                                                  | 
| | 4(c)(3)  |  | Employment Agreement, between Zindart Limited and Richard Tong, dated December 17, 2001.(5)                                                                                                                                      | 
| |          |  |                                                                                                                                                                                                                                  | 
| | 4(c)(4)  |  | Option Agreement, between Zindart Limited and Peter A.J. Gardiner, dated at October 31, 2000.(7)                                                                                                                                 | 
| |          |  |                                                                                                                                                                                                                                  | 
| | 4(c)(5)  |  | Option Agreement, between Zindart Limited and Christopher Guest, dated at January 11, 2001.(7)                                                                                                                                   | 

77

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ZINDART LIMITED AND SUBSIDIARIES

Notes to Consolidated Financial Statements  (Continued)

| | 8.1  |  | List of subsidiaries                                            | 
| | ---- |  | --------------------------------------------------------------- | 
| |      |  |                                                                 | 
| | 12.1 |  | Section 302 Certification of Peter A. J. Gardiner               | 
| |      |  |                                                                 | 
| | 12.2 |  | Section 302 Certification of Ken Fowler                         | 
| |      |  |                                                                 | 
| | 13.1 |  | Section 906 Certification of Peter A.J. Gardiner and Ken Fowler | 

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

78

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SIGNATURES

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

| | ZINDART LIMITED
| | ---------------
| |                

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

Date: July 11, 2005

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