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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 20-F
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF
THE SECURITIES EXCHANGE ACT OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended March 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition period fromto
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 Date of event requiring this shell company report
 Commission file number 000-22161
 Corgi International Limited
 (Exact name of Registrant as specified in its charter)
 Hong Kong, S.A.R., China  (Jurisdiction of incorporation or organization)  Unit 711 - 717 , 7/F., Tower A, New Mandarin Plaza,
14 Science Museum Road, TST East, Kowloon,
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 registeredAmerican Depositary Shares, each
representing one ordinary share
    
    NASDAQ Global Market
 Securities registered or to be registered pursuant to Section 12(g) of the Act.    Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
  o þ
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TABLE OF CONTENTS
 PRESENTATION OF INFORMATION
    
    
    3DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
    
    
    3PART I
    
    
    4Item 1.
Identity of Directors, Senior Management and Advisers
    
    
    4Item 2. Offer Statistics and Expected Timetable
    
    
    4Item 3. Key Information
    
    
    4A. SELECTED FINANCIAL DATA
    
    
    4B. CAPITALIZATION AND INDEBTEDNESS
    
    
    6C. REASONS FOR THE OFFER AND USE OF PROCEEDS
    
    
    6D. RISK FACTORS
    
    
    6Item 4 Information on the Company
    
    
    14A. HISTORY AND DEVELOPMENT OF THE COMPANY
    
    
    14B. BUSINESS OVERVIEW
    
    
    16C. ORGANIZATIONAL STRUCTURE
    
    
    22D. PROPERTY, PLANTS AND EQUIPMENT
    
    
    22Item 4A. Unresolved Staff Comments
    
    
    22Item 5. Operating and Financial Review and Prospects
    
    
    22Item 6. Directors, Senior Management and Employees
    
    
    36A. DIRECTORS AND SENIOR MANAGEMENT
    
    
    36B. COMPENSATION
    
    
    39C. BOARD PRACTICES
    
    
    40
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D. EMPLOYEES
    
    
    41Item 7. Major Shareholders and Related Party Transactions
    
    
    43A. MAJOR SHAREHOLDERS
    
    
    43B. RELATED PARTY TRANSACTIONS
    
    
    46Item 8. Financial Information
    
    
    47A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
    
    
    47B. SIGNIFICANT CHANGES
    
    
    47Item 9.The Offer and Listing
    
    
    49A4. HISTORICAL SHARE PRICE INFORMATION
    
    
    49C. MARKETS
    
    
    49Item 10.Additional Information
    
    
    50A. SHARE CAPITAL
    
    
    50B. MEMORANDUM AND ARTICLES OF ASSOCIATION
    
    
    50C. MATERIAL CONTRACTS
    
    
    50D. EXCHANGE CONTROLS
    
    
    52E. TAXATION
    
    
    53H. DOCUMENTS ON DISPLAY
    
    
    57Item 11.Quantitative and Qualitative Disclosures About Market Risk
    
    
    57Item 12. Not applicable
    
    
    58PART II
    
    
    58Item 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    58Item 14.Not applicable
    
    
    58Item 15.Controls and Procedures
    
    
    58Item 16A.Audit Committee Financial Expert
    
    
    59Item 16B. Code of Ethics
    
    
    59Item 16C.Principal Accountant Fees and Services
    
    
    60Item 16E.Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    60PART III
    
    
    60Item 18. Financial Statements
    
    
    60Item 19. Exhibits
    
    
    60SIGNATURES
    
    
    63INDEX TO FINANCIAL STATEMENTS
    
    
    F-1EXHIBIT 2.3EXHIBIT 4.17EXHIBIT 4.18EXHIBIT 4.19EXHIBIT 4.20EXHIBIT 4.21EXHIBIT 4.22EXHIBIT 4.26EXHIBIT 8.1EXHIBIT 12.1EXHIBIT 12.2EXHIBIT 13.1EXHIBIT 23.1EXHIBIT 23.2




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PRESENTATION OF INFORMATION
  As a result of the merger of historical Corgi with Master Replicas and the acquisition of
Cards, for accounting purposes, Master Replicas was deemed to be the accounting
acquirer and, accordingly, Master Replicas financial statements are presented herein as the
historical financial statements of Corgi subsequent to the acquisition
    
 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
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PART I
 
 Item 1. Identity of Directors, Senior Management and Advisers
  
 Item 2. Offer Statistics and Expected Timetable
  
 Item 3. Key Information
 
 A. SELECTED FINANCIAL DATA
 For financial accounting purposes, Master Replicas is the accounting acquirer with respect to
historical Corgis 2006 merger with Master Replicas, and from the date of the acquisition forward, we will report
Master Replicas, historical financial statements as the historical financial statements of the
Company.
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Company Selected Financial Data
 Three-monthperiodended
    
    Year EndedYear Ended December 31,
    
    March 31,
    
    March 31,2003
    
    2004
    
    2005
    
    2006(1)
    
    2007(2)Consolidated Statements of Operations
Data:Net sales
    
    
    $9,643,695
    
    
    
    $9,956,572
    

    
    $47,194,243
    
    
    $6,747,665
    


    $35,497,317Cost of goods sold
    
    
    6,309,013
    
    
    
    7,657,753
    

    
    31,109,570
    
    
    4,095,489
    


    28,140,004Gross profit
    
    
    3,334,682
    
    
    
    2,298,819
    

    
    16,084,673
    
    
    2,652,176
    


    7,357,313Operating expensesAdministration, sales and Marketing expenses
    
    
    4,212,997
    
    
    
    5,836,224
    

    
    9,841,742
    
    
    1,719,596
    


    20,667,062Income (loss) from operations
    
    
    (878,315
    )
    
    
    (3,537,405
    )

    
    6,242,931
    
    
    932,580
    


    (13,309,749
    )Other income (expense)Interest expense
    
    
    (213,092
    )
    
    
    (178,190
    )

    
    (252,078
    )
    
    (23,321
    )


    (538,273
    )Change in
Fair value of derivative liability
    
    
    
    
    
    
    
    

    
    
    
    
    
    


    380,000Income (loss) before provision (benefit) for
income taxes
    
    
    (1,091,407
    )
    
    
    (3,715,595
    )

    
    5,990,853
    
    
    909,259
    


    (14,228,022
    )Provision (benefit) for income tax
    
    
    12,800
    
    
    
    23,564
    

    
    1,664,000
    
    
    566,000
    


    (965,178
    )Net income (loss)
    
    
    (1,104,207
    )
    
    
    (3,739,159
    )
    
    
    4,326,853
    
    
    343,259
    
    
    
    $(13,262,844
    )Other comprehensive loss, net of Foreign
currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (149,945
    )Comprehensive Income (loss)
    
    
    (1,104,207
    )
    
    
    (3,739,159
    )
    
    
    4,326,853
    
    
    343,259
    
    
    
    $(13,412,789
    )Income (Loss) per common share:Basic
    
    
    N/A
    (3)
    
    
    (115.04
    )
    
    
    115.57
    
    
    9.17
    
    
    
    (5.28
    )Diluted
    
    
    N/A
    (3)
    
    
    (115.04
    )
    
    
    0.93
    
    
    0.07
    
    
    
    (5.28
    )Weighted
average ordinary shares:Basic
    
    
    
    
    
    
    32,503
    
    
    
    37,440
    
    
    37,440
    
    
    
    2,511,103Diluted
    
    
    N/A
    (3)
    
    
    32,503
    
    
    
    4,645,000
    
    
    4,631,584
    
    
    
    2,511,103
 Three-monthperiodended
    
    Year EndedYear Ended December 31,
    
    March 31,
    
    March 31,2003
    
    2004
    
    2005
    
    2006(2)
    
    2007Consolidated Balance Sheets Data:Cash
    
    
    
    $231,525
    
    
    
    $690,740
    
    
    
    $4,381,751
    
    
    
    $616,444
    
    
    $2,149,180Accounts receivable, net
    
    
    
    1,309,263
    
    
    
    840,718
    
    
    
    7,446,118
    
    
    
    4,030,254
    
    
    11,462,229Income tax receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    354,850Inventory
    
    
    
    1,010,451
    
    
    
    1,021,794
    
    
    
    6,487,656
    
    
    
    5,787,605
    
    
    14,791,241Prepaid expenses and other assets
    
    
    
    212,701
    
    
    
    382,161
    
    
    
    829,586
    
    
    
    381,568
    
    
    5,301,552Deferred tax asset
    
    
    
    
    
    
    
    
    
    
    
    870,000
    
    
    
    485,000
    
    
    728,000Total current assets
    
    
    
    2,763,940
    
    
    
    2,935,413
    
    
    
    20,015,111
    
    
    
    11,300,871
    
    
    34,787,052Property, plant and equipment, net
    
    
    
    300,434
    
    
    
    133,575
    
    
    
    242,654
    
    
    
    247,810
    
    
    620,151Notes
receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,415Tooling costs, net
    
    
    
    361,436
    
    
    
    473,556
    
    
    
    188,238
    
    
    
    
    
    
    4,466,970Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    202,503
    
    
    14,639,284Intangible assets, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,214,286Deferred tax, non-current
    
    
    
    
    
    
    
    
    
    
    
    56,975
    
    
    
    48,309
    
    
    Total assets
    
    
    
    $3,425,810
    
    
    
    $3,542,544
    
    
    
    $20,502,978
    
    
    
    $11,799,493
    
    
    $67,830,158Total Stockholders equity
    
    
    
    $92,462
    
    
    
    $(1,464,773
    )
    
    
    $5,755,010
    
    
    
    $3,478,533
    
    
    $29,888,432
 
 (1)
    
    In connection with the merger with historical Corgi, Master Replicas changed its fiscal year ended from
December 31 to March 31. We have therefore included consolidated statements of operations data
derived from the audited financial statements for the three-month period ended March 31, 2006, to
cover the period from January 1, 2006 to March 31, 2006.(2)
    
    The selected financial data for the year ended March 31, 2007 take into account the merger of
historical Corgi and Master Replicas in December 2006, the acquisition of Cards in December 2006, the closing
of historical Corgis private financing for $17.6 million in December 2006, the conversion of
historical Corgis April 2006 convertible notes into ADSs in December 2006, and historical Corgis
sale of its Zindart Manufacturing division in China in December 2006.(3)
    
    For the year ended December 31, 2003, Master Replicas operated as a limited liability company
and had no shares for which per share income information may be
reported. 5




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Unaudited Pro Forma Condensed Combined Financial Information for 12 months Ended March 31, 2006 and
2007
  Year-End March 312006
    

2007Combined
    
    Percent
    
    Combined
    
    Percent
    
    ChangeSales
    
    
    $105,588
    
    
    
    100.0
    %
    
    
    $81,549
    
    
    
    100.0
    %
    
    
    -22.8
    %Cost of goods sold
    
    
    (74,058
    )
    
    
    -70.1
    %
    
    
    (61,937
    )
    
    
    -76.0
    %
    
    
    -16.4
    %Gross profit
    
    
    31,530
    
    
    
    29.9
    %
    
    
    19,612
    
    
    
    24.0
    %
    
    
    -37.2
    %Selling, general,
and administrative
expenses
    
    
    (40,841
    )
    
    
    -38.7
    %
    
    
    (58,954
    )
    
    
    -72.3
    %
    
    
    -44.4
    %Operating income
(loss)
    
    
    (9,311
    )
    
    
    8.8
    %
    
    
    (39,342
    )
    
    
    -48.2
    %
    
    
    -322.5
    %Other income
(expense):Interest income
    
    
    70
    
    
    
    0.1
    
    
    
    236
    
    
    
    0.0
    %
    
    
    -237.1
    %Interest expense
    
    
    (565
    )
    
    
    -0.5
    %
    
    
    (951
    )
    
    
    -1.2
    %
    
    
    -68.3
    %Other income
(expense)
    
    
    (43
    )
    
    
    0.0
    %
    
    
    27
    
    
    
    0.0
    %
    
    
    162.8
    %Income (loss)
before income taxes
    
    
    (9,849
    )
    
    
    -9.3
    %
    
    
    (40,030
    )
    
    
    -49.1
    %
    
    
    -306.4
    %Income tax benefit
(expense)
    
    
    (3,563
    )
    
    
    -3.4
    %
    
    
    242
    
    
    
    0.0
    %
    
    
    -106.8
    %Income (loss) from
continuing operations
    
    
    $(13,412
    )
    
    
    -12.7
    %
    
    
    $(39,788
    )
    
    
    -49.1
    %
    
    
    -196.7
    %
 
 B. CAPITALIZATION AND INDEBTEDNESS
  
 C. REASONS FOR THE OFFER AND USE OF PROCEEDS
  
 D. RISK FACTORS
 
 Risks Related to our Business
 We may be unable to operate as a going concern due to a deterioration in our liquidity and the
unavailability of trade credit on favorable terms.
  6




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We have incurred losses in prior periods and may incur losses in the future.
  
    
    we need additional capital to effect our business plan and to make additional
investment in product development and growth activities, and the cost of capital, and
any inability to raise additional capital, may limit our growth and reduce our
profitability;
    
    as we seek to achieve organic growth or growth through acquisitions, additional
investment in product development activities will be necessary;
    
    we may fail to achieve our current strategic initiatives to increase market
awareness of the Company, our products and our brands;
    
    many of our expenses are relatively fixed, and cannot be reduced quickly if actual
revenues are lower than expected. As a result of such fixed expenses, revenue
shortfalls could result in lower profitability or greater losses than anticipated for
any given period, which could have a negative impact on our share price.
    
    competition in the collectibles, gift and toy industries is expected to continue to
exert price pressure and we also may face continued pressure from retailers to reduce
our margins, unfavorably affecting our net sales;
    
    we may face increased costs relating to licensing of entertainment franchises and we
may not be able to obtain licenses for popular entertainment franchises in the future,
either of which could negatively affect our sales and profitability;
    
    our expenses may increase due to increased manufacturing costs, including higher
labor and raw materials costs such as Zinc for our die-cast products. In addition,
recently imposed requirements for additional lead testing at manufacturing facilities
will further increase manufacturing costs;
    
    product costs and profit margins may be unfavorably affected due to foreign currency
fluctuations, particularly the appreciation of the Renminbi against the U.S. Dollar and
the British Pound;
    
    customer defaults, bankruptcies or poor financial condition could result in the loss
of revenue or the decision not to continue, or to reduce, business with customers;
    
    ongoing efforts to comply with the regulations promulgated under the Sarbanes-Oxley
Act of 2002 will continue to increase general and administrative expenses;
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
    
    changes in accounting standards, such as recognition of compensation costs relating
to employee stock option plans in accordance with Statement of Financial Accounting
Standards No. 123 (revised 2004), Share Based Payment, will increase our operating
expenses;
    
    changes in regulatory law, taxes or in the overall political conditions in China may
cause an increase in our operating expenses; and
 If
we do not successfully integrate the historical Corgi business with Master Replicas and Cards, we may not achieve
anticipated synergies or derive other strategic or cost benefits from the recent acquisition and
merger.
  Product liability, product quality controls, product recalls and other claims relating to the use
of our product, as well compliance with governmental regulations by our manufacturing customers,
could increase our costs.
   We may engage in additional acquisitions and mergers in the future as part of our growth strategy.
Our failure to successfully integrate new businesses may have a material adverse effect on our
revenues, profit margins, capital expenditures and other aspects of our business.
   Competition for licenses could increase our licensing costs or limit our ability to market
products.
  8




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If we fail to attract and retain qualified management and personnel, our performance may suffer.
  Our net sales and profitability depend on our ability to continue to conceive, design and market
products that appeal to consumers.
  Sales of a majority of our products are seasonal and dependent on the timing of movie, DVD and
video game releases, which causes our operating results to vary from quarter to quarter.
  If we fail to comply with internal controls evaluation requirements our stock price could be
adversely affected.
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Competition in our markets could reduce our net sales and profitability.
  We may not be able to collect our outstanding accounts receivable, and we depend on maintaining a
relationship with our largest customers for the successful operation of our business.
  We rely on a limited number of foreign suppliers in China to manufacture substantially all of our
products.
   Increases in the cost of the raw materials used to manufacture our products could increase our cost
of sales and reduce our gross margins.
  Currency exchange rate fluctuations could increase our expenses.
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Our present assessments of future economic trends may adversely affect the accuracy of our earnings
projections and guidance disclosed to the public.
  Failure to protect our proprietary intellectual property and information could have a material
adverse effect on our business, financial condition and results of operations.
  11




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Risks Related to our Industry
 Our exports to foreign countries may be limited by applicable tariffs and quotas
  We may be negatively affected by political, social and economic instability in the PRC or
elsewhere.
  12




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As a foreign private issuer, we have limited reporting requirements.
  There may not be a liquid market for our ADSs, which may cause our ADSs to trade at lower prices
and make it difficult to sell your ADSs.
  We may fail to meet the maintenance standards for the NASDAQ Global Market.
   If we are a passive foreign investment company, holders of our shares and ADSs may suffer adverse
tax consequences.
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Holders of our ADSs may have limited rights relative to holders of our ordinary shares in certain
circumstances.
  Certain of our shareholders own a significant percentage of our ordinary shares and therefore may
be able to influence our business in ways that are less beneficial to you.
  
 Item 4. Information on the Company
 
 A. HISTORY AND DEVELOPMENT OF THE COMPANY
    
    
    on December 15, 2006, historical Corgi sold its Zindart Manufacturing division
(including the shares of Zindart Manufacturing Limited and Dongguan Xinda) and leased
the underlying land to Poundwell Limited for a nominal rent until the title of the land
is transferred, and pursuant to which (i) it paid to Poundwell
approximately $2.23
million to settle and waive inter-company liabilities owed to Zindart Manufacturing and
other transaction costs; (ii) it discharged approximately $1.4 million of Zindart
Manufacturing related bank indebtedness; (iii) it paid $250,000 with respect to the
settlement of capital lease obligations; (iv) it agreed to assume $1.0 million of
property transfer taxes arising from the sale of the factory; and
(v) its subsidiary,
Corgi Classics Limited, entered into a vendor agreement pursuant to
which historical Corgi agreed to
purchase from Zindart Manufacturing at least $7.5 million of product
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in the first year of the contract, $5.5 million in the
second year and $5.0 million in the third
year of the contract, subject to competitive pricing and other conditions;
    
    on December 20, 2006, historical Corgi effected a six
for one share reverse stock split;
    
    on December 20, 2006, historical Corgi shareholders approved the increase of the
number of shares issuable under Corgis 1997 Equity Incentive Plan by 1,369,487 ADSs to
a total of 1,574,996 ADSs;
    
    on December 20, 2006, historical Corgi closed the acquisition of Cards Inc. Limited
for a total of 1,191,110 ADSs pursuant to which 612,213 ADSs are being held in escrow
to cover certain representations and warranties of Cards, including representations
relating to revenues and earnings of Cards for 2008 and 2009;
    
    on December 20, 2006, historical Corgi closed a private placement of $17.6 million
at $6.60 per ADS for an aggregate of 2,666,506 ADSs and issued warrants to purchase
799,938 ADSs with an exercise price of $7.80 per ADS;
    
    on December 20, 2006, historical Corgi converted $5.65 million in principal amount
of convertible notes issued in a private placement in April 2006 at $6.60 per ADSs for
an aggregate of 902,414 ADSs and issued warrants to purchase 270,716 ADSs with an
exercise price of $7.80 per ADS;
    
    on December 20, 2006, Darren Epstein, the former Chief Executive Officer and
principal shareholder of Cards Inc. Limited, became Executive Vice President, Chief
Strategy Officer of historical Corgi and, on December 26, 2006, he became a Director of the
Company;
    
    on December 26, 2006, Timothy Steel become a Director of the Company;
    
    on December 26, 2006, historical Corgi closed the merger with Master Replicas
pursuant to which historical Corgi issued 3,956,867 ADSs to the shareholders of Master
Replicas (including the assumed pre-existing Master Replicas warrants to purchase
139,617 ADSs which were exercised on December 27, 2007), and assumed pre-existing
Master Replicas options to purchase 918,053 ADSs and pre-existing Master Replicas
warrants to purchase 20,314 ADS;
    
    on December 26, 2006, Michael Cookson, formerly the Chief Executive Officer of
Master Replicas, became the Chief Executive Officer of the Company;
    
    on July 9, 2007, Jack Lawrence, previously Chief Financial Officer of Cranium, Inc.,
a privately held Seattle based Games Company, became our Chief Financial Officer and
General Manager, U.S.
    
    on August 22, 2007, we and our warrant holders amended the terms of the 1,070,654
warrants issued in December 2006 to reduce temporarily their exercise price from $7.80
per share to $5.00 per share if exercised by September 5, 2007. Any warrant holder
exercising their warrants would be entitled to receive a new warrant on substantially
the same terms as the existing warrants but with an exercise price of $6.00 per share.
The terms of any warrant not exercised by September 5, 2007 remain unchanged. Holders
of 368,863 warrants exercised such warrants for approximately $1.844 million by
September 5, 2007. The Company issued 184,427 new warrants to such holders with an
exercise price of $6 per ADS.
 Registered Office
  
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B. BUSINESS OVERVIEW
 Business Segments and Principal Activities
   Products, Markets and Marketing Channels
   Master Replicas Brand: Prop Replica Collectible Memorabilia Products.
 
    
    Limited Edition Prop Replicas;
    
    Studio Scale Replicas; and
    
    Scaled Replicas.
 Corgi Brand: Die-Cast Collectibles .
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PopCo: Gifts and Toys .
 
    
    Harry Potter and Golden Compass toy lines (including action figures, play sets and
electronics); and
    
    Pop culture products, including movie memorabilia and gifts (bobble head dolls,
plates, cookie jars).
 Cards Inc.
 
    
    Movie memorabilia (including action figures, statuettes and other collectibles);
    
    Trading cards (Topps, Inkworks, Rittenhouse, Comic Images, Panini, Artbox); and
    
    Collectible game cards (Yu-Gi-Oh and MagicThe Gathering).
    Geographic Markets
  
 Channels of Distribution
  
    
    products with lower price points are generally sold in national accounts and chain
retailers such as Toys R Us, Sharper Image, Tesco and Model Zone;
    
    products with higher prices are typically sold in specialty retailers such as hobby,
collector and gift shops, wholesalers and other international distributors; and
    
    Corgi products are sold direct to consumers through our company websites, in
addition to traditional channels of distribution.
  17




---



##### Table of Contents



Business Strategy
  
    
    producing innovative, high quality pop culture products targeting customers ranging
from younger enthusiasts to the most passionate and discerning high-end collectors;
    
    building and expanding the Corgi brand for die cast vehicles and figurines;
    
    building and expanding the Master Replicas brand for movie-prop replicas and
high-end collectibles and memorabilia;
    
    building and expanding a new brand called PopCo for lower-priced pop culture gift
and toys;
    
    building and expanding our existing Cards Inc. distribution business of pop culture
products, collectibles and memorabilia, including trading cards;
    
    increasing our sales of existing and new products to our current customers who
historically buy only one brand of our products by cross-selling other product brands
to our customers;
    
    building our base business and brands by targeting three key geographic markets for
growth: North America, Northern Europe and Japan;
    
    maintaining and growing a diversified portfolio of license relationships with the
owners of leading entertainment franchises;
    
    expanding our product categories of licensed products over time, either organically
or through acquisitions;
    
    leveraging a multi-prong distribution platform that includes (i) national accounts
and chain retailers; (ii) specialty channels of hobby/collector gift and toy shops;
(iii) international distributors; and (iv) direct-to-consumer sales; and
    
    utililizing third party manufacturing, primarily in China, to produce our products.
  
    
    the strengthening of our management team, including the appointment of our new Chief
Executive Officer, Michael Cookson, and new Executive Vice President, Chief Strategy
Officer, Darren Epstein, our new Chief Financial Officer, Chief
Operating Officer and General Manager, U.S., Jack Lawrence, our
new Managing Director, Europe, Denis Horton, and our new Finance Director, Europe, Bob
Esterbrook;
    
    the sale of historical Corgis Zindart Manufacturing division in the PRC in December
2006;
    
    the addition of complementary distribution channels and customers; and
    
    the continued consolidation of our operations including warehousing and facilities.
  18




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##### Table of Contents



Intellectual
Property
 Trademarks
  Licenses
   
 Sales And Marketing
   
    
    Digital Marketing.The Internet and other digital media are an increasingly
important part of our marketing plan because many consumers have adopted the Internet
as a preferred way to communicate with others about their product preferences and
purchases. Our websites, www.masterreplicas.com, www.cardsinc.com, www.corgi.co.uk,
www.corgi-usa.com/code/ home.php, and www.collectorzone.com, highlight our products,
list product release dates and collect market data
 19




---



##### Table of Contents




    
    Advertising.We place print advertisements in trade and consumer publications with
high circulation targeted to pop culture enthusiasts and collectors. We run television
commercials on a selective basis that target key consumers.
    
    Public Relations.We have developed a trade and consumer public relations effort to
build relationships with editors at publications targeted across all of our product
lines.
    
    Co-op Advertising.We work closely with retail chains to plan and execute ongoing
retailer-driven promotions and advertising. The programs usually involve promotion of
our products in retail customers print circulars, mailings and catalogs, and sometimes
include placing our products in high-traffic locations within retail stores and end-cap
displays.
 
 Competition
  
 Production
 Far East product sourcing.
 Far East production.
 Tooling.
 Product safety.
  20




---



##### Table of Contents




    
    our vendors are made aware of their obligation to comply with the requirements of
EN71 / ASTM. This is stated on each order form we send to them;
    
    our products are independently tested by reputable international testing houses in
order to secure certificates of conformity (without which major customers will not
accept the products);
    
    in light of the recent issues relating to excess lead in paints used on toy
products, we have reviewed our control procedures and are further strengthening our
quality assurance testing requirements, in particular the frequency of testing of paint
to ensure it continues to conform to the approved standard; and
    
    collector models are not intended for use as toys. They have an age grading of 14+
and are clearly marked A Die Cast Model for the Adult Collector. As such they are
not subject to EN71.
 Logistics.
 
    
    Cards, Inc. operates two private warehouses in the U.K.;
    
    Corgi Classics utilizes one public warehouse in the U.K.;
    
    Master Replicas utilizes a public warehouse in New Jersey, one in California and one
in Hong Kong.
   
 Seasonality and the Entertainment Industry
  
 Customers
  
 Employees
  
 Governmental Regulation
 Item 3D Risk
Factors
 21




---



##### Table of Contents



C.
    
    ORGANIZATIONAL STRUCTURE.
  
 D.
    
    PROPERTY, PLANTS AND EQUIPMENT
   
 Item 4A.
    
    Unresolved Staff Comments
  
 Item 5.
    
    Operating and Financial Review and Prospects
 
 Overview
 Business
     22




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##### Table of Contents



Recent Transactions
  As a result of these transactions, for accounting purposes, Master Replicas was deemed to be
the accounting acquirer and, accordingly, Master Replicas financial statements will be presented as
the historical financial statements of the combined entity subsequent to the acquisition.
  Net Sales
     Cost of Good Sold, Gross Profits and Gross Margin.
  
 23




---



##### Table of Contents



Selling, General and Administrative Expenses
    Seasonality.
  Going Concern
   24




---



##### Table of Contents



25




---



##### Table of Contents



A.
    
    OPERATING RESULTS
 
 Year over Year Comparisons of Audited Operating Results  Master Replicas as the Accounting
Acquirer
  (In thousands)YearEnd
    
    
    
    
    
    
    Year12/31/2004
    
    
    
    
    
    
    End
    
    
    
    
    
    Three-month
    
    Year12/31/2005
    
    
    
    
    
    period ended,
    
    EndMaster
    
    
    
    
    
    
    Master
    
    
    
    
    
    3/31/06(1)
    
    3/31/2007Replicas
    
    
    Percent
    
    
    Replicas
    
    
    Percent
    
    
    Master Replicas
    
    Combined
    
    
    PercentSales
    
    $
    9,957
    
    
    
    21.1
    %
    
    $
    47,194
    
    
    
    100.0
    %
    
    
    6,748
    
    
    $
    35,497
    
    
    
    100.0
    %Cost of goods sold
    
    
    (7,658
    )
    
    
    -16.2
    %
    
    
    (31,109
    )
    
    
    -65.9
    %
    
    
    (4,096
    )
    
    
    (28,140
    )
    
    
    -79.3
    %Gross profit
    
    
    2,299
    
    
    
    4.9
    %
    
    
    16,085
    
    
    
    34.1
    %
    
    
    2,652
    
    
    
    7,357
    
    
    
    20.7
    %Selling, general and
administrative
expenses
    
    
    (5,836
    )
    
    
    -12.4
    %
    
    
    (9,842
    )
    
    
    -20.9
    %
    
    
    (1,720
    )
    
    
    (20,667
    )
    
    
    58.2
    %Operating income (loss)
    
    
    (3,537
    )
    
    
    -7.5
    %
    
    
    6,243
    
    
    
    13.2
    %
    
    
    932
    
    
    
    (13,310
    )
    
    
    -37.5
    %Other income (expense):Interest income
    
    
    2
    
    
    
    0.0
    %
    
    
    33
    
    
    
    0.1
    %
    
    
    13
    
    
    
    
    
    
    
    0.0
    %Interest expense
    
    
    (168
    )
    
    
    -0.4
    %
    
    
    (331
    )
    
    
    -0.7
    %
    
    
    (36
    )
    
    
    (538
    )
    
    
    -1.5
    %Change in fair
value of derivative liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (380
    )
    
    
    -1.07
    %Other income (expense)
    
    
    (12
    )
    
    
    0.0
    %
    
    
    46
    
    
    
    0.1
    %
    
    
    
    
    
    
    
    
    
    
    Income
(loss) before income taxes
    
    
    (3,715
    )
    
    
    -7.9
    %
    
    
    5,991
    
    
    
    12.7
    %
    
    
    909
    
    
    
    (14,228
    )
    
    
    40.08
    %Income tax benefit
(expense)
    
    
    (24
    )
    
    
    0.0
    %
    
    
    (1,664
    )
    
    
    -3.5
    %
    
    
    (566
    )
    
    
    965
    
    
    
    2.7
    %Income (loss)
    
    $
    (3,739
    )
    
    
    -7.9
    %
    
    $
    4,327
    
    
    
    9.2
    %
    
    
    $         343
    
    
    
    (13,263
    )
    
    
    37.36
    %
  26




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##### Table of Contents



Results of Combined Operations  12 months Audited Financial Statements
    Year Ended March 31, 2007, Compared to Year Ended December 31, 2005
 Net sales.
  Costs of goods sold,
gross profit and gross margin.
 Selling, general and
administrative expenses.
 Operating
income.
 Net interest expense .
 Change
in fair value of derivative liability.
 Income tax.
 27




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##### Table of Contents



Year Ended December 31, 2005, Compared to Year Ended December 31, 2004
 Net sales.
 Gross profit.
 Selling, general and administrative expenses.
 Operating income.
 Net
interest expense.
 Income tax.
 Unaudited
Pro Forma Financial Information
 Basis
for Preparation of Unaudited Pro Forma Condensed Combined Financial Information
   Unaudited Pro Forma Condensed Combined Financial Information for 12 months Ended March 31, 2006 and
2007
 28




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##### Table of Contents



Year-End March 31(in
thousands)2006
    
    

2007Combined
    
    
    Percent
    
    
    Combined
    
    
    PercentSales
    
    $
    105,588
    
    
    
    100.0
    %
    
    $
    81,549
    
    
    
    100.0
    %Cost of goods sold
    
    
    (74,058
    )
    
    
    -70.1
    %
    
    
    (61,937
    )
    
    
    -76.0
    %Gross profit
    
    
    31,530
    
    
    
    29.9
    %
    
    
    19,612
    
    
    
    24.0
    %Selling, general, and administrative
expenses
    
    
    (40,841
    )
    
    
    -38.7
    %
    
    
    (58,954
    )
    
    
    -72.3
    %Operating income (loss)
    
    
    (9,311
    )
    
    
    -8.8
    %
    
    
    (39,342
    )
    
    
    -48.2
    %Other income (expense):Interest income
    
    
    70
    
    
    
    0.1
    
    
    
    236
    
    
    
    .3
    %Interest expense
    
    
    (565
    )
    
    
    -0.5
    %
    
    
    (951
    )
    
    
    -1.2
    %Other income (expense)
    
    
    (43
    )
    
    
    0.0
    %
    
    
    27
    
    
    
    0.0
    %Income (loss) before income taxes
    
    
    (9,849
    )
    
    
    -93
    %
    
    
    (40,030
    )
    
    
    -49.1
    %Income tax benefit (expense)
    
    
    (3,563
    )
    
    
    -3.4
    %
    
    
    242
    
    
    
    .3
    %Income (loss) from continuing operations
    
    
    (13,412
    )
    
    
    -12.7
    %
    
    
    (39,788
    )
    
    
    -48.8
    %Net income (loss) per share from
continuing operationsBasic
    
    $
    (1.40
    )
    
    
    
    
    
    $
    (4.11
    )Diluted
    
    
    (1.40
    )
    
    
    
    
    
    
    (4.11
    )Weighted average number of sharesDiluted
    
    
    9,602,305
    
    
    
    
    
    
    
    9,684,751
 Net Sales
   Cost of Good Sold, Gross Profits and Gross Margin.
   29




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##### Table of Contents



Selling, General and Administrative Expenses
   Operating
Income (Loss)
  B.
    
    LIQUIDITY AND CAPITAL RESOURCES
        30




---



##### Table of Contents



Foreign Currency Fluctuations
  C.
    
    RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES, ETC.
  D.
    
    TREND INFORMATION
    31




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##### Table of Contents



E.
    
    OFF-BALANCE SHEET ARRANGEMENTS
  F.
    
    CONTRACTUAL OBLIGATIONS
 Payment Due by Periods(in
thousands)MoreLess Than
    
    2 - 3
    
    4 - 5
    
    Than1 Year
    
    Years
    
    Years
    
    5 Years
    
    TotalOn-Balance Sheet:Short-term debt
    
    $
    9,545
    
    
    $
    0
    
    
    $
    0
    
    
    $
    0
    
    
    
    $9,545Long-term debt
    
    
    330
    
    
    
    660
    
    
    
    
    
    
    
    
    
    
    
    990Obligations under capital leases
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Off-Balance Sheet:Capital commitment
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0Licensing commitment
    
    
    1,330
    
    
    
    2,948
    
    
    
    1,062
    
    
    
    
    
    
    
    5,340Operating lease
    
    
    1,321
    
    
    
    2,002
    
    
    
    1,351
    
    
    
    0
    
    
    
    4,674$
    12,526
    
    
    $
    5,610
    
    
    $
    2,413
    
    
    $
    0
    
    
    $
    20,549
  32




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##### Table of Contents



Critical Accounting Policies and Estimates
  Principles of Consolidation and Reverse Purchase Accounting
   Inventory
  33




---



##### Table of Contents



Tooling Costs
  Revenue Recognition
   Income Taxes
  Foreign Currency Translation
  Goodwill and Intangible Assets
  34




---



##### Table of Contents



Stock-Based Compensation
    35




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##### Table of Contents



Item 6. Directors, Senior Management and Employees
 
 A. DIRECTORS AND SENIOR MANAGEMENT
      Board of Directors
 Name
    
    Age
    
    PositionCarrick John Clough(1)(2)
    
    
    59
    
    
    Chairman of the BoardMichael Cookson
    
    
    51
    
    
    Chief Executive OfficerDarren Epstein
    
    
    35
    
    
    Executive Vice President, Chief Strategy OfficerLeo Paul Koulos(1)(2)(3)
    
    
    74
    
    
    DirectorCharles C. McGettigan
    
    
    62
    
    
    DirectorDaniel Widdicombe(2)
    
    
    41
    
    
    DirectorTimothy Steel(1)
    
    
    55
    
    
    Director
 
 (1)
    
    Member of our compensation committee.(2)
    
    Member of our audit committee.(3)
    
    Our Board has determined that Mr. Widdicombe qualifies as an audit committee financial
expert as defined in the applicable rules of the Securities and Exchange Commission. Carrick John Clough, Chairman of the Board
 36




---



##### Table of Contents



Michael Cookson, Chief Executive Officer
 Darren Epstein, Executive Vice President
 Leo Paul Koulos, Director
 Charles McGettigan, Director
 Timothy Steel, Director
 Daniel Widdicombe, Director
 37




---



##### Table of Contents



Executive Officers
 Name
    
    Age
    
    Position
    
    LocationMichael Cookson
    
    
    51
    
    
    Chief Executive Officer
    
    United KingdomDarren Epstein
    
    
    36
    
    
    Executive Vice President,
Chief Strategy Officer
    
    United KingdomJack Lawrence
    
    
    46
    
    
    Chief Financial Officer,
Chief Operating Officer and
General Manager, U.S.
    
    United StatesCynthia Chan
    
    
    32
    
    
    Internal Audit Director, Hong
Kong
    
    Hong KongTrevor Hayes
    
    
    60
    
    
    Vice President of Global
Product Development
    
    United KingdomDenis Horton
    
    
    56
    
    
    Managing Director, Europe
    
    United KingdomBob Esterbrook
    
    
    61
    
    
    Finance Director, Europe
    
    United Kingdom
 Michael Cookson, Chief Executive Officer
 Darren Epstein, Executive Vice Presiden
 Jack Lawrence, Chief Operating Officer, Chief Financial Officer and General Manager, U.S.
  Cynthia Chan, Internal Audit Director, Hong Kong
 Trevor Hayes, Vice President of Global Product Development
 38




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##### Table of Contents



Denis Horton, Managing Director, Europe
 Bob Esterbrook, Finance Director, Europe
 
 B. COMPENSATION
 Compensation of Directors and Executive Officers
      
    
    in August 2006, prior to the merger, we granted to
Mr. Cookson, our Chief Executive Officer, options to purchase
182,918 ADSs at an
exercise price of $6.45 per ADS, all of which automatically vested on
the closing of the merger;
    
    on December 27, 2006, pursuant to the terms of the Cards acquisition agreement, we
granted Mr. Epstein options to purchase 83,333 ADSs at an exercise price of $5.83 per
ADS, with 25% of such options vesting 12 months thereafter and the remaining unvested
options vesting pro rata on a monthly basis over the following three years;
    
    on January 3, 2007, the Company granted to
Ms. Klatt, our former Chief Financial Officer, options to
purchase 100,000 ADSs at an exercise price of $6.87 per ADS. Ms. Klatt resigned
effective June 30, 2007, and all such options automatically lapsed;
    
    on January 11, 2007, we granted to Mr. Cookson, our CEO, options to purchase 550,000
ADSs at an exercise price of $5.83 per ADS, 25% of such options vest 12 months
thereafter and the remaining unvested options vest pro rata on a monthly basis over the
following three years;
    
    on July 20, 2007, we granted to Jack Lawrence, our Chief Financial Officer, Chief
Operating Officer and General Manager, U.S. options to purchase 100,000 ADSs at an
exercise price of $5.00 per ADS, and on September 24, 2007, the Company granted Mr.
Lawrence options to purchase 25,000 ADSs at an exercise price of $3.30 per ADS, with
25% of such options vesting 12 months thereafter and the remaining unvested options
vesting pro rata on a monthly basis over the following three years;
 39




---



##### Table of Contents




    
    on June 11, 2007, we granted to Denis Horton, Managing
Director of the Corgi UK/Europe Group, options to purchase 87,500 ADSs at an exercise price of $5.35 per ADS,
and on September 24, 2007 we granted to Mr. Horton options to purchase 25,000
ADSs at an exercise price of $3.30 per ADS, with 25% of such options vesting 12 months
thereafter and the remaining unvested options vesting pro rata on a monthly basis over
the following three years; and
    
    on June 11, 2007, we granted to Robert Esterbrook,
Finance Director of the Corgi
UK/Europe Group, options to purchase 25,000 ADSs at an exercise price of $5.35 per ADS,
and on September 24, 2007 we granted to Mr. Esterbrook options to purchase
10,000 ADSs at an exercise price of $3.30 per ADS, with 25% of such options vesting 12
months thereafter and the remaining unvested options vesting pro rata on a monthly
basis over the following three years.
 Share Ownership
 Certain Employment Contracts
  Item 7  Related Party Transactions
 
 C. BOARD PRACTICES
 Item 7  Related Party
Transactions
   40




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##### Table of Contents
















D. EMPLOYEES




NumberofEmployeesHong Kong
    
    
    24United Kingdom
    
    
    90United States of America
    
    
    45Total
    
    
    159





E. SHARE OWNERSHIP




41




---



##### Table of Contents



Name
    
    Number of
Options Granted
    
    Exercise Price (1)
    
    Expiration 
Date (2)Carrick John Clough
    
    
    
    
    
    
    
    Michael Cookson
    
    
    1,218,814
    
    
    $5.83 (with respect
to 550,000 shares);
$6.45 (with respect
to 182,919
shares) and $0.55 (with respect to 486,295 shares)
    
    August 2016 (with
respect to
182,919 shares);
January 2017 (with
respect to 550,000
shares); and June 2015 (with respect to 486,798 shares)Darren Epstein
    
    
    83,333
    
    
    $5.50
    
    December 2016Leo Paul Koulos
    
    
    17,410
    
    
    5.50
    
    The expiration
dated for Mr.
Kouloss stock
options range from
2012 to 2017.Charles C. McGettigan
    
    
    
    
    
    
    
    Daniel Widdicombe
    
    
    
    
    
    
    
    Timothy Steel
    
    
    
    
    
    
    
    Jack Lawrence
    
    
    125,000
    
    
    $5.00 (with respect
to 100,000 shares);
$3.30 (with respect
to 25,000 shares)
    
    July 2017 (with
respect to 100,000
shares); September
2017 (with respect
to 25,000 shares)Trevor Hayes
    
    
    6,666
    
    
    $5.50Denis Horton
    
    
    112,500
    
    
    $5.50 (with respect
to 87,500 shares);
$3.30 (with respect
to 25,000 shares)
    
    March 2017 (with
respect to 87,500
shares); September
2017 (with respect
to 25,000 shares)Bob Esterbrook
    
    
    35,000
    
    
    $5.50 (with respect
to 25,000 shares);
$3.30 (with respect
to 10,000 shares)
    
    March 2017 (with
respect to 25,000
shares); September
2017 (with respect
to 10,000 shares)
 
 (1)
    
    All options described above have a term of ten years and an exercise price equal to the
closing price of the ADSs on the trading date immediately prior to the date of grant.(2)
    
    These stock options generally vest 25% on the one year anniversary with the remaining
options vesting monthly over the following three year period on a pro rata basis.    42




---



##### Table of Contents



ADS/Share OwnershipName
    
    Number
    
    % of outstanding(3)Carrick John Clough
    
    
    4,000
    (2)
    
    
    *Michael Cookson
    
    
    589,463
    (1)
    
    
    5.63Darren Epstein
    
    
    1,075,055
    (4)
    
    
    9.73Leo Paul Koulos
    
    
    24,000
    (2)
    
    
    *Charles C. McGettigan
    
    
    45,710
    
    
    
    *Daniel Widdicombe
    
    
    4,000
    (2)
    
    
    *Timothy Steel
    
    
    4,000
    (2)
    
    
    *Jack LawrenceCynthia ChanTrevor HayesDenis HortonBob Esterbrook
 
 *
    
    less than 1%(1)
    
    Mr. Cookson has 669,714 fully vested options of which 182,919 shares have an
exercise price of $6.45 per ADS and 486,795 shares have an exercise price of $0.55 per ADS which were assumed
in the merger of Master Replicas. On January 10, 2007, he
received an option for 550,000 ADSs at $5.83 per ADS with
25% of the shares vesting on the one year anniversary and the remaining options vesting monthly
over the following three year period on a pro rata basis.(2)
    
    Each non-employee director received a restricted stock grant
in December 2006 for 4,000 shares
with quarterly vesting over 12 month period from the date of grant.(3)
    
    Based on 10,465,355 shares outstanding as of March 31, 2007.(4)
    
    612,213 of these ADSs are being held in escrow pursuant to the terms of the Cards Inc.
acquisition agreement. These ADSs will be released to Mr. Epstein if Cards Inc. meets certain
performance targets in 2008 and 2009. 
 Item 7. Major Shareholders and Related Party Transactions
 
 A. Major Shareholders
  43




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##### Table of Contents



Number of Shares
    
    
    Percentage of SharesName of Beneficial Owner
    
    Beneficially Owned
    
    
    Outstanding (%)Knott Partners Offshore Fund, L.P.
    
    
    1,326,297
    
    
    
    10.91485 Underhill Boulevard, Suite 205
Syosset, NY 11791(1)Consor Capital LLC
    
    
    1,282,555
    
    
    
    10.58475 Gate Five Road, Suite 320
Sausalito, CA 94965(2)Special Situations Private Equity Fund, L.P., et al
    
    
    1,068,303
    
    
    
    9.9527 Madison Avenue, Suite 2600
New York, NY 10022(3)Royal Capital Management LLC
    
    
    1,242,055
    
    
    
    10.29623 Fifth Avenue, 24th floor
New York, NY 10022(4)Gruber & McBaine Capital Management LLC
    
    
    1,022,648
    
    
    
    8.6250 Osgood Place-Penthouse
San Francisco, CA 94133(5)Jordan Schwartz
    
    
    725,457
    
    
    
    6.288 Rosedale Terrace
Livingston, NJ 07039(6)Lagunitas Partners LP
    
    
    575,488
    
    
    
    5.04c/o Gruber & McBaine Capital Management LLC
50 Osgood Place-Penthouse
San Francisco, CA 94133(7)
 
 (1)
    
    Based in part on our records and information provided in a
Statement of Beneficial
Ownership filed with the SEC on Form 13(G) on February 14, 2007, by Mr. David M. Knott, Dorset Management Corporation and
Knott Partners Offshore Master Fund, L.P., the number of shares
includes: 310,966 ADSs and warrants
to purchase 95,649 ADSs , or a total of 406,615 ADSs beneficially owned by Knott Partners, L.P.;
454,116 ADSs and warrants to purchase 136,234 ADSs, or a total of 590,350 ADSs beneficially owned
by Matterhorn Offshore Fund; 34,450 ADSs and warrants to purchase 10,335 ADSs, or a total of 44,785
ADSs beneficially owned by Common Fund Hedged Equity Co.; 208,123 ADSs and warrants to purchase
43,044 ADSs, or a total of 251,227 ADSs beneficially owned by Shoshone Partners, L.P.; 14,150 ADSs
and warrants to purchase 2,245 ADSs, or a total of 16,395 ADSs beneficially owned by Finderne, LLC;
10,766 ADSs and warrants to purchase 3,229 ADSs, or 13,995 ADSs beneficially owned by Good Steward
Trading Co. spc.; and 2,216 ADSs and warrants to purchase 664 ADSs, or a total of 2,880 ADSs
beneficially owned by Mulsanne Partners, L.P.(2)
    
    Based in part on our records and information provided in a statement of beneficial
ownership filed with the SEC on Form 13(G) on January 5, 2007, by Consor Capital I, L.P., Consor Capital II, L.P., Consor
Capital, LLC, Josh Huffard and Jay Huffard, the number of shares
includes: 29,440 ADSs and warrants
to purchase 2,272 ADSs, or a total of 31,712 ADSs beneficially owned by Consor Capital I, L.P.;
1,192,238 ADSs and warrants to purchase 11,362 ADSs, or a total of 1,203,600 ADSs beneficially
owned by Consor Capital II, L.P; and 47,243 ADSs and warrants to purchase 11,362 ADSs, or a total
of 58,605 ADSs benefically owned by Josh Huffard. Mr. Josh Huffard serves as manager and principal
of Consor Capital LLC and served as a director of Master Replicas from May 2004 until December 26,
2006. Mr. Huffard currently has been retained by us to provide financial and consulting
services. 44




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##### Table of Contents



45




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##### Table of Contents



B. Related Party Transactions
         46




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##### Table of Contents



Item 8. Financial Information
 
 A. CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION
  
 Legal Proceedings
  
 Dividend Policy
  
 B. SIGNIFICANT CHANGES
  
    
    On April 20, 2006, historical Corgi raised $5.65 million in principal amount of
convertible notes which was converted into ADSs on December 20, 2006.
    
    on December 15, 2006, historical Corgi sold its Zindart Manufacturing division
(including the shares of Zindart Manufacturing Limited and Dongguan Xinda) and leased
the underlying land to Poundwell Limited for a nominal rent until the title of the land
is transferred pursuant to which (i) it paid to Poundwell approximately $2.225 million
to settle and waive inter-company liabilities owed to Zindart Manufacturing and other
transaction costs; (ii) it discharged approximately $1.4 million of Zindart
Manufacturing related bank indebtedness; (iii) it paid $250,000 with respect to the
settlement of capital lease obligations; (iv) it agreed to assume $1.0 million of
property transfer taxes arising from the sale
 47




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##### Table of Contents



of the factory; and (v) our subsidiary, Corgi Classics Limited, entered into a vendor
agreement pursuant to which we agreed to purchase from Zindart Manufacturing at least
$7.5 million of product in the first year of the contract, $5.5 million in the second
year and $5.0 million in the third year of the contract, subject to competitive pricing
and other conditions;
 
    
    on December 20, 2006, historical Corgi effected a six
for one reverse share split;
    
    on December 20, 2006, historical Corgi shareholders approved the increase of the
number of shares issuable under our 1997 Equity Incentive Plan by 1,369,487 ADSs to a
total of 1,574,996 ADSs;
    
    on December 20, 2006, historical Corgi closed the acquisition of Cards Inc. Limited
for a total of 1,191,110 ADSs pursuant to which 612,213 ADSs are being held in escrow
to cover certain representations and warranties of Cards, including representations
relating to revenues and earnings of Cards for 2008 and 2009;
    
    on December 20, 2006, historical Corgi closed a private placement of $17.6 million
at $6.60 per ADS for an aggregate of 2,666,506 ADSs and issued warrants to purchase
799,938 ADSs with an exercise price of $7.80 per ADS;
    
    on December 20, 2006, historical Corgi converted $5.65 million in principal amount
of convertible notes issued in a private placement in April 2006 at $6.60 per ADS for
an aggregate of 902,414 ADSs and issued warrants to purchase 270,716 ADSs with an
exercise price of $7.80 per ADS;
    
    on December 20, 2006, Darren Epstein, the former Chief Executive Officer and
principal shareholder of Cards Inc. Limited, became Executive Vice President, Chief
Strategy Officer of historical Corgi and on December 26, 2006, became one of our
Directors;
    
    on December 26, 2006, Timothy Steel become one of our Directors;
    
    on December 26, 2006, historical Corgi closed the merger with Master Replicas
pursuant to which historical Corgi issued 3,956,867 ADSs to the shareholders of Master
Replicas (including the assumed pre-existing Master Replicas warrants to purchase
139,617 ADSs which were exercised on December 27, 2006), and assumed pre-existing
Master Replicas options to purchase 918,053 ADSs and pre-existing Master Replicas
warrants to purchase 20,314 ADSs;
    
    on December 26, 2006, Michael Cookson, formerly the Chief Executive Officer of
Master Replicas, became the Chief Executive Officer of the Company;
    
    In May 2007, Mr. Denis Horton joined us as Managing Director, Europe, and in June
2007, Bob Easterbrook joined us as Finance Director, Europe;
    
    Effective July 1, 2007, Jack Lawrence became our new Chief Financial Officer, Chief
Operating Officer and General Manager, U.S.; and
    
    Effective August 22, 2007, we and the warrant holders amended the terms of the
1,070,654 warrants issued in December 2006 pursuant to an Amendment to Warrants,
Commitment to Issue Replacement Warrants, Amendment to Registration Rights Agreement
and Waiver, to reduce temporarily their exercise price from $7.80 per share to $5.00
per share if exercised by September 5, 2007.  Any warrant holder exercising their
warrants would be entitled to receive a new warrant on substantially the same terms as
the existing warrants but with an exercise price of $6.00 per share.  The terms of any
warrant not exercised by September 5, 2007 will remain unchanged. Holders of 368,863
warrants took advantage of the amendment and exercised such warrants for approximately
$1.844 million by September 5, 2007, and we issued 184,427 new warrants to such
holders.
 48




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##### Table of Contents



Item 6 
Directors, Senior Management and Employees  Compensation
   
 Item 9. The Offer and Listing
 
 A4. Historical Share Price Information
   In U.S. DollarsHigh
    
    LowYear ending March 31, 2007
    
    $
    7.40
    
    
    $
    0.80First quarter
    
    $
    2.76
    
    
    $
    1.90Second quarter
    
    $
    2.19
    
    
    $
    1.05Third quarter
    
    $
    7.40
    
    
    $
    0.80Fourth quarter
    
    $
    6.87
    
    
    $
    4.80April 2007
    
    $
    5.70
    
    
    $
    4.60May 2007
    
    $
    6.29
    
    
    $
    5.28June 2007
    
    $
    5.91
    
    
    $
    5.01July 2007
    
    $
    5.49
    
    
    $
    4.90August 2007
    
    $
    5.30
    
    
    $
    3.73September 2007
    
    $
    4.91
    
    
    $
    3.23October 2007 (through October 12)
    
    $
    4.50
    
    
    $
    3.84Year ended March 31, 2006
    
    $
    4.86
    
    
    $
    2.60First Quarter
    
    $
    4.54
    
    
    $
    3.52Second Quarter
    
    $
    4.86
    
    
    $
    3.13Third Quarter
    
    $
    3.40
    
    
    $
    2.65Fourth Quarter
    
    $
    3.50
    
    
    $
    2.60Year ended March 31, 2005
    
    $
    6.48
    
    
    $
    4.10First Quarter
    
    $
    6.48
    
    
    $
    4.76Second Quarter
    
    $
    5.72
    
    
    $
    4.26Third Quarter
    
    $
    5.90
    
    
    $
    4.60Fourth Quarter
    
    $
    5.20
    
    
    $
    4.10Year ended March 31, 2004 (full year)
    
    $
    9.34
    
    
    $
    3.50Year ended March 31, 2003 (full year)
    
    $
    4.00
    
    
    $
    1.10Year ended March 31, 2002 (full year)
    
    $
    3.42
    
    
    $
    1.19
 
 C. Markets
  49




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##### Table of Contents



Item 10. Additional Information
 
 A. SHARE CAPITAL
  
 B. MEMORANDUM and ARTICLES OF ASSOCIATION
   
 Voting requirements
  
 C. MATERIAL CONTRACTS
  Agreement and Plan of Merger
 Share Purchase Agreement
 50




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##### Table of Contents



Purchase Agreement
 Registration Rights Agreement Amendment to Warrants, Commitment to Issue
Replacement Warrants, Amendment to Registration Rights Agreement and Waiver Item 7  Related Party Transactions
 Amendment and Waiver Agreement
 Amendment and Waiver Agreement
 Second Amendment and Waiver Agreement
 Third Amendment and Waiver Agreement
 51




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##### Table of Contents



Sale and Purchase Agreement
 Employment Agreement Item 7  Related Party Transactions
 Stock Option Agreement Issued Pursuant to the Corgi International Limited Amended and Restated
1997 Equity Incentive Plan
 Service Agreement Item 7  Related Party Transactions
 Employment Offer Letter Item 7  Related Party Transactions
 Coface receivable financing facility .
 Gateway finance agreement
 
 D. EXCHANGE CONTROLS
  52




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##### Table of Contents



E. TAXATION
  Hong Kong Taxation
  Profits Tax
   Capital Gains/Taxation of Dividends
  53




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##### Table of Contents



Estate Duty
  Stamp Duty
  
 United States Federal Income Tax Considerations
  General
  
    
    an individual who is a citizen or resident of the United States;
    
    a corporation or partnership created in or organized under the law of the United
States or any State or political subdivision thereof;
    
    an estate the income of which is includible in gross income for United States
federal income tax purposes regardless of its source;
    
    a trust the administration of which is subject to the primary supervision of a
United States court and which has one or more United States persons who have the
authority to control all substantial decisions of the trust; or
 54




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##### Table of Contents




    
    a trust that was in existence on August 20, 1996, was treated as a United States
person, for United States federal income tax purposes, on the previous day, and elected
to continue to be so treated.
     Dividends
    55




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##### Table of Contents



Sale or Other Disposition of Shares or ADSs
  PFIC Considerations
  Controlled Foreign Corporation Considerations
  
 Information
Reporting and Backup Withholding
  PRC Taxation
  Income Tax
  Value-Added Tax (VAT)
  56




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##### Table of Contents



Taxation of Dividends from the PRC
  Taxation of Disposition of Interest in PRC Subsidiaries
   
 H. DOCUMENTS ON DISPLAY
  
 Item 11. Quantitative and Qualitative Disclosures About Market Risk
 Interest Rate Risk
  Raw Materials Price Risk
  57




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##### Table of Contents



Foreign Currency Exchange Rate Risk
   
 Item 12. Not applicable .
 
 PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
 
  
 Item 14. Not applicable.
 
 Item 15. Controls and Procedures
 
 Disclosure Controls and Procedures
   58




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##### Table of Contents



Changes in Internal Controls
  
 Item 16A. Audit Committee Financial Expert
  
 Item 16B. Code of Ethics
 www.corgi-international.com.
 59




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##### Table of Contents



Item 16C. Principal Accountant Fees and Services
 Year ended March 31,(in thousands)2007
    
    
    2006Accounting and Audit fees billed (1)
    
    $
    1,577,535
    
    
    $
    811,255Tax
preparation fees (2)
    
    $
    179,429
    
    
    $
    152,571Total
    
    $
    1,756,964
    
    
    $
    963,796
 
 (1)
    
    For the years ended March 31, 2006 and March 31, 2007, these are fees for professional services performed by Eisner LLP, Burr, Pilger & Mayer, KPMG, and Baker Tilly for the audit of our annual financial statements, preparation of our
registration  statement on form F-3 and preparation of our annual report on Form 20-F.(2)
    
    For the years ended March 31, 2006 and March 31, 2007, these are fees for tax preparation for required state and federal filings for Burr, Pilger & Mayer, Baker Tilly and KPMG.  
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  
 PART III
 
 Item 18. Financial Statements
  
 Item 19. Exhibits
 ExhibitNo.
    
    Exhibit Title1.1
    
    Memorandum of Association of the Company.(1)1.2
    
    Articles of Association of the Company.(2)2.1
    
    Form of Deposit Agreement by and among Corgi International Limited, The Bank of New York and
Owners and Holders of American Depositary Receipts, dated March 5, 1997.(9)2.2
    
    Amended and Restated 1997 Equity Incentive Plan.(7)2.3
    
    Master Replicas Stock Option Plan.*4.1
    
    Land Use Certificate for State-Owned Land, Dongguan Government State-Owned (1993) No. 49.(1)4.2
    
    Land Use Certificate for State-Owned Land, Dongguan Government State-Owned (1994) No. 664.(1)
 60




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##### Table of Contents



ExhibitNo.
    
    Exhibit Title4.3
    
    Land Use Certificate for State-Owned Land, Dongguan Government State-Owned (1994) No. 665.(1)4.4
    
    Land Use Certificate for State-Owned Land, Dongguan Government State-Owned (1994) No. 666.(1)4.5
    
    Form of Registration Rights Agreement dated as of December 20, 2006, by and among Corgi
International Limited and the other parties signatories thereto.(10)4.6
    
    Note and Warrant Purchase Agreement dated April 28, 2006, by and between Corgi International
Limited and certain investors listed on the Schedule of Purchasers attached thereto.(8)4.7
    
    Form of Promissory Note issued by Corgi International Limited to the other parties to the Note
and Warrant Purchase Agreement dated April 28, 2006.(8)4.8
    
    Form of Warrant issued by Corgi International Limited to the other parties to the Note and
Warrant Purchase Agreement dated April 28, 2006.(8)4.9
    
    Share Purchase Agreement, dated November 2, 2006, between the Company and the shareholders of
Cards Inc. Limited. (10)4.10
    
    Sale and Purchase Agreement, dated November 3, 2006, between the Company, Poundwell Limited,
Zindart Manufacturing Limited, Dongguan Xinda Giftware Co., Ltd., Luen Tat Model Design Company
Limited, Luen Tat Mould Manufacturing Limited and Onchart Industrial (BVI) Limited. (10)4.11
    
    Amendment and Waiver Agreement, dated November 15, 2006, among the Company, Master Replicas Inc.
and LightSaber Acquisition Corp.(10)4.12
    
    Amendment and Waiver Agreement, between the Company and the investors party to the Note and
Warrant Purchase Agreement, dated April 28, 2006.(10)4.13
    
    Second Amendment and Waiver Agreement, dated August 2006, between the Company and the investors
party to the Note and Warrant Purchase Agreement.(10)4.14
    
    Third Amendment and Waiver Agreement, dated November 16, 2006, between the Company and the
investors party to the Note and Warrant Purchase Agreement.(10)4.15
    
    Purchase Agreement, dated November 16, 2006, between the Company and the investors named therein.
(10)4.16
    
    Agreement and Plan of Merger dated as of October 4, 2006, by and among Master Replicas, Inc.,
Corgi International Limited and LightSaber Acquisition Corp.(11)4.17
    
    Amendment to Warrants, Commitment to Issue Replacement Warrants, Amendment to Registration Rights
Agreement and Waiver between the Company and various warrant holders effective as of August 22,
2007*4.18
    
    Form of Warrant issued by Corgi International Limited to the other parties to the Amendment to
Warrants, Commitment to Issue Replacement Warrants, Amendment to Registration Rights Agreement
and Waiver between the Company and various warrant holders effective as of August 22, 2007*4.19
    
    Receivables Finance Agreement, by and between Corgi Classics Ltd. and Coface Receivables Finance
Limited, dated June 26, 2006.*4.20
    
    Receivables Finance Standard Terms and Conditions, dated June 6, 2006, by and between Corgi
International Limited and Coface Receivables Finance Limited.*4.21
    
    All Assets Debenture by and between Corgi International Limited and Coface Receivables Limited.*4.22
    
    Purchasing Arrangement Agreement, by and between Corgi International Limited and Gateway Trade
Finance, LLC, dated July 25, 2007.*4.23
    
    Employment Agreement by and between Corgi International Limited and Michael J. Cookson, dated
December 26, 2006.(11)4.24
    
    Stock Option Agreement Issued Pursuant to the Corgi International Limited Amended and Restated
1997 Equity Incentive Plan, by and among Corgi International Limited and Michael Cookson, dated
as of January 2007.(11)4.25
    
    Service Agreement by and between Cards Inc. Limited and Darren Epstein, dated as of December 20,
2006.(11)
 61




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##### Table of Contents



ExhibitNo.
    
    Exhibit Title4.26
    
    Letter Agreement by and between Corgi International Limited and Jack Lawrence, dated May 22, 2007*8.1
    
    List of subsidiaries*12.1
    
    Section 302 Certification of Michael Cookson*12.2
    
    Section 302 Certification of Jack Lawrence*13.1
    
    Section 906 Certification of Michael Cookson and Jack Lawrence*23.1*
    
    Consent of Eisner LLP.23.2*
    
    Consent of Burr, Pilger and Mayer LLP
 
 *
    
    Filed herewith(1)
    
    Incorporated by reference in our Registration Statement on Form F-1, as amended (File No.
333-17973).(2)
    
    Incorporated by reference in our Registration Statement on Form F-1, as amended (File No.
333-08134).(3)
    
    Incorporated by reference in our Annual Report on Form 10-K, filed June 29, 2000 (File No.
000-22161).(4)
    
    Incorporated by reference in our Quarterly Report on Form 10-Q, filed February 14, 2001 (File
No. 000- 22161).(5)
    
    Incorporated by reference in our Quarterly Report on Form 10-Q, filed February 12, 2002.(6)
    
    Incorporated by reference in our Annual Report on Form 10-K, filed June 28, 2001.(7)
    
    Incorporated by reference in our Annual Report on Form 10-K, filed July 1, 2002.(8)
    
    Incorporated by reference in our Form 6-K, filed May 26, 2006.(9)
    
    Incorporated by reference in our Registration Statement on Form F-6 (File No. 333-08226), filed
January 20, 1998.(10)
    
    Incorporated by reference in our Form 6-K (File No. 000-22161) filed with the Commission on
November 20, 2006.(11)
    
    Incorporated by reference in our Form 6-K (File No. 000-22161) filed with the Commission on
April 19, 2007.(12)
    
    Incorporated by reference in our Form 6-K (File No. 000-22161) filed with the Commission on
October 26, 2006. 62




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##### Table of Contents



SIGNATURES
  CORGI INTERNATIONAL
LIMITED/s/ Jack LawrenceJack LawrenceChief Financial Officer, ChiefOperating Officer and GeneralManager, U.S.(Principal Financial Officer)Date:
October 15, 2007
 63




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##### Table of Contents



EXHIBIT
INDEX
 ExhibitNo.
    
    Exhibit Title1.1
    
    Memorandum of Association of the Company.(1)1.2
    
    Articles of Association of the Company.(2)2.1
    
    Form of Deposit Agreement by and among Corgi International Limited, The Bank of New York and
Owners and Holders of American Depositary Receipts, dated March 5, 1997.(9)2.2
    
    Amended and Restated 1997 Equity Incentive Plan.(7)2.3
    
    Master Replicas Stock Option Plan.*4.1
    
    Land Use Certificate for State-Owned Land, Dongguan Government State-Owned (1993) No. 49.(1)4.2
    
    Land Use Certificate for State-Owned Land, Dongguan Government State-Owned (1994) No. 664.(1)4.3
    
    Land Use Certificate for State-Owned Land, Dongguan Government State-Owned (1994) No. 665.(1)4.4
    
    Land Use Certificate for State-Owned Land, Dongguan Government State-Owned (1994) No. 666.(1)4.5
    
    Form of Registration Rights Agreement dated as of December 20, 2006, by and among Corgi
International Limited and the other parties signatories thereto.(10)4.6
    
    Note and Warrant Purchase Agreement dated April 28, 2006, by and between Corgi International
Limited and certain investors listed on the Schedule of Purchasers attached thereto.(8)4.7
    
    Form of Promissory Note issued by Corgi International Limited to the other parties to the Note
and Warrant Purchase Agreement dated April 28, 2006.(8)4.8
    
    Form of Warrant issued by Corgi International Limited to the other parties to the Note and
Warrant Purchase Agreement dated April 28, 2006.(8)4.9
    
    Share Purchase Agreement, dated November 2, 2006, between the Company and the shareholders of
Cards Inc. Limited. (10)4.10
    
    Sale and Purchase Agreement, dated November 3, 2006, between the Company, Poundwell Limited,
Zindart Manufacturing Limited, Dongguan Xinda Giftware Co., Ltd., Luen Tat Model Design Company
Limited, Luen Tat Mould Manufacturing Limited and Onchart Industrial (BVI) Limited. (10)4.11
    
    Amendment and Waiver Agreement, dated November 15, 2006, among the Company, Master Replicas Inc.
and LightSaber Acquisition Corp.(10)4.12
    
    Amendment and Waiver Agreement, between the Company and the investors party to the Note and
Warrant Purchase Agreement, dated April 28, 2006.(10)4.13
    
    Second Amendment and Waiver Agreement, dated August 2006, between the Company and the investors
party to the Note and Warrant Purchase Agreement.(10)4.14
    
    Third Amendment and Waiver Agreement, dated November 16, 2006, between the Company and the
investors party to the Note and Warrant Purchase Agreement.(10)4.15
    
    Purchase Agreement, dated November 16, 2006, between the Company and the investors named therein.
(10)4.16
    
    Agreement and Plan of Merger dated as of October 4, 2006, by and among Master Replicas, Inc.,
Corgi International Limited and LightSaber Acquisition Corp.(11)4.17
    
    Amendment to Warrants, Commitment to Issue Replacement Warrants, Amendment to Registration Rights
Agreement and Waiver between the Company and various warrant holders effective as of August 22,
2007*4.18
    
    Form of Warrant issued by Corgi International Limited to the other parties to the Amendment to
Warrants, Commitment to Issue Replacement Warrants, Amendment to Registration Rights Agreement
and Waiver between the Company and various warrant holders effective as of August 22, 2007*4.19
    
    Receivables Finance Agreement, by and between Corgi Classics Ltd. and Coface Receivables Finance
Limited, dated June 26, 2006.*4.20
    
    Receivables Finance Standard Terms and Conditions, dated June 6, 2006, by and between Corgi
International Limited and Coface Receivables Finance Limited.*4.21
    
    All Assets Debenture by and between Corgi International Limited and Coface Receivables Limited.*4.22
    
    Purchasing Arrangement Agreement, by and between Corgi International Limited and Gateway Trade
Finance, LLC, dated July 25, 2007.*4.23
    
    Employment Agreement by and between Corgi International Limited and Michael J. Cookson, dated
December 26, 2006.(11)4.24
    
    Stock Option Agreement Issued Pursuant to the Corgi International Limited Amended and Restated
1997 Equity Incentive Plan, by and among Corgi International Limited and Michael Cookson, dated
as of January 2007.(11)4.25
    
    Service Agreement by and between Cards Inc. Limited and Darren Epstein, dated as of December 20,
2006.(11)




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##### Table of Contents



ExhibitNo.
    
    Exhibit Title4.26
    
    Letter Agreement by and between Corgi International Limited and Jack Lawrence, dated May 22, 2007*8.1
    
    List of subsidiaries*12.1
    
    Section 302 Certification of Michael Cookson*12.2
    
    Section 302 Certification of Jack Lawrence*13.1
    
    Section 906 Certification of Michael Cookson and Jack Lawrence*23.1*
    
    Consent of Eisner LLP.23.2*
    
    Consent of Burr, Pilger and Mayer LLP
 *
    
    Filed herewith(1)
    
    Incorporated by reference in our Registration Statement on Form F-1, as amended (File No.
333-17973).(2)
    
    Incorporated by reference in our Registration Statement on Form F-1, as amended (File No.
333-08134).(3)
    
    Incorporated by reference in our Annual Report on Form 10-K, filed June 29, 2000 (File No.
000-22161).(4)
    
    Incorporated by reference in our Quarterly Report on Form 10-Q, filed February 14, 2001 (File
No. 000- 22161).(5)
    
    Incorporated by reference in our Quarterly Report on Form 10-Q, filed February 12, 2002.(6)
    
    Incorporated by reference in our Annual Report on Form 10-K, filed June 28, 2001.(7)
    
    Incorporated by reference in our Annual Report on Form 10-K, filed July 1, 2002.(8)
    
    Incorporated by reference in our Form 6-K, filed May 26, 2006.(9)
    
    Incorporated by reference in our Registration Statement on Form F-6 (File No. 333-08226), filed
January 20, 1998.(10)
    
    Incorporated by reference in our Form 6-K (File No. 000-22161) filed with the Commission on
November 20, 2006.(11)
    
    Incorporated by reference in our Form 6-K (File No. 000-22161) filed with the Commission on
April 19, 2007.(12)
    
    Incorporated by reference in our Form 6-K (File No. 000-22161) filed with the Commission on
October 26, 2006.




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##### Table of Contents



Index
to Financial Statements
 F-2
    
    Report
of Independent Registered Public Accounting FirmF-3
    
    Report
of Independent Registered Public Accounting FirmF-4
    
    Consolidated
Balance Sheets as of March 31, 2006 and 2007F-5
    
    Consolidated
statements of Operations for the years ended December 31, 2004,
December 31, 2005, the three month period ended March 31,
2006 and the year ended March 31, 2007F-6
    
    Consolidated
statements of stockholders equity for the years ended December 31, 2004,
December 31, 2005, the three month period ended March 31,
2006 and the year ended March 31, 2007F-7
    
    Consolidated
statements of Cash Flows for the years ended December 31, 2004,
December 31, 2005, the three month period ended March 31,
2006 and the year ended March 31, 2007F-9
    

Notes
to the consolidated financial statements
 F-1




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     
 F-2




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
    
 F-3




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##### Table of Contents



Corgi International Limited
 March 31, 2006
    
    
    March 31, 2007ASSETS (NOTE 8)Current assets:Cash
    
    $
    616,444
    
    
    $
    2,149,180Accounts receivable, net
    
    
    4,030,254
    
    
    
    11,462,229Income tax receivable
    
    
    
    
    
    
    354,850Inventory
    
    
    5,787,605
    
    
    
    14,791,241Prepaid expenses and other assets
    
    
    381,568
    
    
    
    5,301,552Deferred tax
assets
    
    
    485,000
    
    
    
    728,000Total current assets
    
    
    11,300,871
    
    
    
    34,787,052Property and equipment, net
    
    
    247,810
    
    
    
    620,151Notes receivable
    
    
    
    
    
    
    102,415Tooling costs, net
    
    
    202,503
    
    
    
    4,466,970Goodwill
    
    
    
    
    
    
    14,639,284Intangible assets, net
    
    
    
    
    
    
    13,214,286Deferred tax
assets, non-current
    
    
    48,309
    
    
    
    Total assets
    
    $
    11,799,493
    
    
    $
    67,830,158LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Short Term
Debt (see Note 8)
    
    $
    
    
    
    $
    9,544,643Accrued expenses
    
    
    1,955,775
    
    
    
    10,685,502Trade accounts payable
    
    
    1,697,607
    
    
    
    16,516,588Income taxes payable
    
    
    874,654
    
    
    
    205,017Current portion long term debt
    
    
    
    
    
    
    329,992Total current liabilities
    
    
    4,528,036
    
    
    
    37,281,742Long term debt, net of current portion
    
    
    989,975
    
    
    
    659,9845,518,011
    
    
    
    37,941,726Redeemable convertible Series B preferred stock; par value $0.0001;
4,716,508 shares authorized; 3,412,174 and 0 issued and outstanding;
redemption value and liquidation preference of $2,821,553 and $0
    
    
    2,802,949
    
    
    
    Stockholders equitySeries A convertible preferred stock, authorized 329,802 shares,
par value $0.0001, issued and outstanding, 319,528 and 0,
liquidation preference of $264,217 and $0
    
    
    528
    
    
    
    Ordinary stock, authorized 20,000,000 shares, par value $0.384
(Hong Kong equivalent HK $3), issued and outstanding 37,440 and
9,873,142, (including 166,435 shares to be issued)
    
    
    14,377
    
    
    
    3,791,282Additional paid-in capital
    
    
    1,027,631
    
    
    
    37,073,942Retained earnings (Accumulated deficit)
    
    
    2,435,997
    
    
    
    (10,826,847
    )Accumulated other comprehensive income (loss), net of tax
    
    
    
    
    
    
    (149,945
    )Total stockholders equity
    
    
    3,478,533
    
    
    
    29,888,432Total liabilities and stockholders equity
    
    $
    11,799,493
    
    
    $
    67,830,158
  F-4




---



##### Table of Contents



Corgi International Limited
 Three month periodYear ended
    
    
    Year ended
    
    
    ended
    
    
    Year endedDecember 31, 2004
    
    
    December 31, 2005
    
    
    March 31, 2006
    
    
    March 31, 2007Net sales
    
    $
    9,956,572
    
    
    $
    47,194,243
    
    
    $
    6,747,665
    
    
    $
    35,497,317Cost of goods sold
    
    
    7,657,753
    
    
    
    31,109,570
    
    
    
    4,095,489
    
    
    
    28,140,004Gross profit
    
    
    2,298,819
    
    
    
    16,084,673
    
    
    
    2,652,176
    
    
    
    7,357,313Operating expensesAdministration, sales and marketing expenses
    
    
    5,836,224
    
    
    
    9,841,742
    
    
    
    1,719,596
    
    
    
    20,667,062Income (loss) from operations
    
    
    (3,537,405
    )
    
    
    6,242,931
    
    
    
    932,580
    
    
    
    (13,309,749
    )Other
(income) expense:Interest expense
    
    
    178,190
    
    
    
    252,078
    
    
    
    23,321
    
    
    
    538,273Change in fair value of derivative liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    380,000(Loss)
income before provision (benefit) for income taxes
    
    
    (3,715,595
    )
    
    
    5,990,853
    
    
    
    909,259
    
    
    
    (14,228,022
    )Provision (benefit) for income tax
    
    
    23,564
    
    
    
    1,664,000
    
    
    
    566,000
    
    
    
    (965,178
    )Net (loss ) income
    
    $
    (3,739,159
    )
    
    $
    4,326,853
    
    
    $
    343,259
    
    
    $
    (13,262,844
    )Other
comprehensive loss, net of tax:Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (149,945
    )Comprehensive income (loss)
    
    $
    (3,739,159
    )
    
    $
    4,326,853
    
    
    $
    343,259
    
    
    $
    (13,412,789
    )Income (loss) per ordinary shareBasic
    
    $
    (115.04
    )
    
    $
    115.57
    
    
    $
    9.17
    
    
    $
    (5.28
    )Diluted
    
    $
    (115.04
    )
    
    $
    0.93
    
    
    $
    0.07
    
    
    $
    (5.28
    )Weighted Average Ordinary SharesBasic
    
    
    32,503
    
    
    
    37,440
    
    
    
    37,440
    
    
    
    2,511,103Diluted
    
    
    32,503
    
    
    
    4,645,000
    
    
    
    4,631,584
    
    
    
    2,511,103
  F-5




---



##### Table of Contents



Corgi
International Limited
 Series A


    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    AccumulatedConvertible

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    OtherMembership
    
    

Preferred Stock
    
    

Ordinary Stock
    
    
    Additional Paid-
    
    

Retained
Earnings
    
    
    comprehensiveUnits
    
    
    Equity
    
    
    Shares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    in Capital
    
    

(Accumulated Deficit)
    
    
    (loss) income
    
    
    TotalBalance of Members equity at January 1, 2004
    
    
    178,146
    
    
    $
    92,462
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    92,462Conversion of notes payable and accrued interest
into cash membership units
    
    
    12,487
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of noncash membership units
    
    
    6,416
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issuance of ordinary shares under stock options
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,361
    
    
    
    523
    
    
    
    (301
    )
    
    
    
    
    
    
    
    
    
    
    222Issuance of ordinary shares for LLC noncash
membership units
    
    
    (25,751
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31,142
    
    
    
    11,958
    
    
    
    (11,958
    )
    
    
    
    
    
    
    
    
    
    
    Issuance of preferred stock for cash membership
units
    
    
    (12,487
    )
    
    
    
    
    
    
    15,101
    
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    249,715
    
    
    
    
    
    
    
    
    
    
    
    249,740Issuance of preferred stock for 2004 convertible
notes and accrued interest, net of costs
    
    
    
    
    
    
    
    
    
    
    108,597
    
    
    
    179
    
    
    
    
    
    
    
    
    
    
    
    1,841,656
    
    
    
    
    
    
    
    
    
    
    
    1,841,835Issuances of preferred stock for LLC Membership
units
    
    
    (158,811
    )
    
    
    
    
    
    
    189,637
    
    
    
    314
    
    
    
    
    
    
    
    
    
    
    
    (314
    )
    
    
    
    
    
    
    
    
    
    
    Issuance of preferred stock for accrued investor
interest
    
    
    
    
    
    
    
    
    
    
    2,405
    
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    49,621
    
    
    
    
    
    
    
    
    
    
    
    49,625Issuance of preferred stock in exchange for
services
    
    
    
    
    
    
    
    
    
    
    3,788
    
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    78,294
    
    
    
    
    
    
    
    
    
    
    
    78,300Issuance of preferred stock warrants on conversion
from LLC membership units
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,664
    
    
    
    
    
    
    
    
    
    
    
    54,664Contributions on conversion to Corporation
    
    
    
    
    
    
    1,412,591
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,505,053
    )
    
    
    
    
    
    
    
    
    
    
    (92,462
    )Net loss for year ended December 31, 2004
    
    
    
    
    
    
    (1,505,053
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,234,106
    )
    
    
    
    
    
    
    (3,739,159
    )Balance at December 31, 2004
    
    
    
    
    
    $
    
    
    
    
    319,528
    
    
    $
    528
    
    
    
    32,503
    
    
    $
    12,481
    
    
    $
    756,324
    
    
    $
    (2,234,106
    )
    
    
    
    
    
    $
    (1,464,773
    )Issuance of ordinary shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,937
    
    
    
    1,896
    
    
    
    (1,663
    )
    
    
    
    
    
    
    
    
    
    
    233Deferred stock-based compensation arising from
options issued to employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89,748
    
    
    
    
    
    
    
    
    
    
    
    89,748Net Income for year ended December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,326,844
    
    
    
    
    
    
    
    4,326,844Balance at December 31, 2005
    
    
    
    
    
    $
    
    
    
    
    319,528
    
    
    $
    528
    
    
    
    37,440
    
    
    $
    14,377
    
    
    $
    844,409
    
    
    $
    2,092,738
    
    
    
    
    
    
    $
    2,952,052Deferred Stock-based compensation arising from
options issued to employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    183,222
    
    
    
    
    
    
    
    
    
    
    
    183,222Net Income
for three months ended March 31, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    343,259
    
    
    
    
    
    
    
    343,259Balance at March 31, 2006
    
    
    
    
    
    $
    
    
    
    
    319,528
    
    
    $
    528
    
    
    
    37,440
    
    
    $
    14,377
    
    
    $
    1,027,631
    
    
    $
    2,435,997
    
    
    
    
    
    
    $
    3,478,533Stock-based compensation arising from options
issued to employees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,010,834
    
    
    
    
    
    
    
    
    
    
    
    1,010,834Issuance of ordinary shares for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    131,220
    
    
    
    50,384
    
    
    
    675,640
    
    
    
    
    
    
    
    
    
    
    
    726,024Preferred Shares repurchased
    
    
    
    
    
    
    
    
    
    
    (10,840
    )
    
    
    (32
    )
    
    
    
    
    
    
    
    
    
    
    (71,272
    )
    
    
    
    
    
    
    
    
    
    
    (71,304
    )Conversion preferred Series A and Series B
    
    
    
    
    
    
    
    
    
    
    (308,688
    )
    
    
    (496
    )
    
    
    3,720,862
    
    
    
    1,428,811
    
    
    
    1,374,634
    
    
    
    
    
    
    
    
    
    
    
    2,802,949Exercise of stock warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    139,617
    
    
    
    53,613
    
    
    
    12,735
    
    
    
    
    
    
    
    
    
    
    
    66,348Acquisition of Cards Inc. Limited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    578,897
    
    
    
    222,296
    
    
    
    3,019,527
    
    
    
    
    
    
    
    
    
    
    
    3,241,823Deemed Acquisition of Corgi International Limited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,265,106
    
    
    
    2,021,801
    
    
    
    29,644,213
    
    
    
    
    
    
    
    
    
    
    
    31,666,014Conversion of Series B warrant liability to equity
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    380,000
    
    
    
    
    
    
    
    
    
    
    
    380,000Foreign currency translation adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (149,945
    )
    
    
    (149,945
    )Net loss for year ended March 31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,262,844
    )
    
    
    
    
    
    
    (13,262,844
    )Balance at March 31, 2007
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    
    9,873,142
    
    
    $
    3,791,282
    
    
    $
    37,073,942
    
    
    $
    (10,826,847
    )
    
    $
    (149,945
    )
    
    $
    29,888,432
  F-6




---



##### Table of Contents



Corgi
International Limited  
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Fiscal periodsThree monthYear ended
    
    
    Year ended
    
    
    period ended
    
    
    Year endedDecember 31, 2004
    
    
    December 31, 2005
    
    
    March 31, 2006
    
    
    March 31, 2007Cash flows from operating activities:Net income (loss)
    
    $
    (3,739,159
    )
    
    $
    4,326,853
    
    
    $
    343,259
    
    
    $
    (13,262,844
    )Adjustments to reconcile net income
(loss) to net cash provided by (used in) operating
activities:Bad debt expense
    
    
    48,642
    
    
    
    
    
    
    
    
    
    
    
    Write-off of website development costs
    
    
    246,813
    
    
    
    
    
    
    
    
    
    
    
    Loss from inventory write off
    
    
    286,596
    
    
    
    
    
    
    
    
    
    
    
    Loss from sale of fixed assets
    
    
    
    
    
    
    3,971
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    908,537
    
    
    
    965,997
    
    
    
    150,157
    
    
    
    3,281,426Deferred
income taxes
    
    
    9,000
    
    
    
    (935,975
    )
    
    
    393,666
    
    
    
    (194,691
    )Deferred compensation and stock
options
    
    
    
    
    
    
    89,748
    
    
    
    183,222
    
    
    
    1,010,834Common stock issued for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    726,074Change in
fair value of Derivative liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    380,000Investor interest accrued
    
    
    131,807
    
    
    
    
    
    
    
    
    
    
    
    Changes in operating accounts:Accounts receivable
    
    
    308,576
    
    
    
    (6,082,287
    )
    
    
    3,400,032
    
    
    
    5,221,476Income tax receivable
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (354,850
    )Inventory
    
    
    (297,939
    )
    
    
    (5,465,862
    )
    
    
    700,050
    
    
    
    2,370,057Prepaid expenses and other assets
    
    
    (221,552
    )
    
    
    (440,466
    )
    
    
    (104,984
    )
    
    
    5,517,020Royalty Advances
    
    
    52,091
    
    
    
    
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    (6,959
    )
    
    
    
    
    
    
    Accrued expenses
    
    
    35,144
    
    
    
    4,640,198
    
    
    
    (3,226,172
    )
    
    
    (5,579,712
    )Trade accounts payable
    
    
    87,773
    
    
    
    4,577,879
    
    
    
    (4,684,632
    )
    
    
    1,221,941Income taxes payable
    
    
    
    
    
    
    1,624,975
    
    
    
    (750,321
    )
    
    
    (874,564
    )Net cash flows provided by / (used
in) operating activities
    
    
    (2,143,671
    )
    
    
    3,298,072
    
    
    
    (3,595,723
    )
    
    
    (537,833
    )Cash flows from investing activities:Cash
received in acquisition of Cards Inc. Limited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,823Cash
received in acquisition of Corgi International Limited
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,401,448Purchase of
property and equipment
    
    
    (109,067
    )
    
    
    
    
    
    
    (51,841
    )
    
    
    (390,831
    )Website
development cost
    
    
    (152,665)
    
    
    
    (321,674)
    
    
    
    
    
    
    
    Cost
incurred in acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,074,899
    )Tooling costs
    
    
    (836,939
    )
    
    
    (472,810
    )
    
    
    (117,743
    )
    
    
    (1,436,956
    )Net cash used in investing activities
    
    
    (1,098,671
    )
    
    
    (794,484
    )
    
    
    (169,584
    )
    
    
    3,541,585
 F-7




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##### Table of Contents



Corgi
International Limited  CONSOLIDATED STATEMENTS OF CASH FLOWS
 Fiscal PeriodsThree monthYear ended
    
    
    Year ended
    
    
    period ended
    
    
    Year endedDecember 31, 2004
    
    
    December 31, 2004
    
    
    March 31, 2006
    
    
    March 31, 2007Cash flows from financing activities:Net
(payments to) proceeds from line of
credit
    
    $
    (150,000
    )
    
    $
    (150,000
    )
    
    
    
    
    
    $
    2,142,063Repayment of debt
assumed in acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,458,178
    )Exercise of warrants for common shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from issuance of standby
subordinated promissory notes
    
    
    150,000
    
    
    
    (150,000
    )
    
    
    
    
    
    
    66,348Proceeds from issuance of convertible
notes payable
    
    
    1,037,500
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from issuance of notes
payable
    
    
    865,000
    
    
    
    
    
    
    
    
    
    
    
    Proceeds from issuance of convertible
promissory notes
    
    
    2,210,000
    
    
    
    
    
    
    
    
    
    
    
    Payments on capital lease obligations
    
    
    (10,154
    )
    
    
    (8,642
    )
    
    
    
    
    
    
    Proceeds from accounts receivable
factoring
    
    
    (158,744
    )
    
    
    
    
    
    
    
    
    
    
    Proceeds from inventory financing
    
    
    120,371
    
    
    
    (120,371
    )
    
    
    
    
    
    
    Proceeds from sale of assets
    
    
    
    
    
    
    754
    
    
    
    
    
    
    
    Repurchase of stock
    
    
    (50,700
    )
    
    
    
    
    
    
    
    
    
    
    Preferred
shares repurchased
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (71,304
    )Payment for capital-raising costs
    
    
    (311,938
    )
    
    
    
    
    
    
    
    
    
    
    Payments for purchase of stock
    
    
    222
    
    
    
    1,615,682
    
    
    
    
    
    
    
    Net cash provided by / (used in)
financing activities
    
    $
    3,701,557
    
    
    $
    1,187,423
    
    
    $
    
    
    
    $
    (1,321,071
    )Effect of foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (149,945
    )Net Increase (decrease) in cash and cash
equivalents
    
    
    459,215
    
    
    
    3,691,011
    
    
    
    (3,765,307
    )
    
    
    1,532,736Cash at beginning of period
    
    
    231,525
    
    
    
    690,740
    
    
    
    4,381,751
    
    
    
    616,444Cash at end of period
    
    $
    690,740
    
    
    $
    4,381,751
    
    
    $
    616,444
    
    
    $
    2,149,180Supplemental disclosure of cash flow
information:Cash paid for interest
    
    $
    26,564
    
    
    $
    125,494
    
    
    $
    36,341
    
    
    $
    298,359Cash paid for taxes
    
    $
    39,862
    
    
    $
    975,686
    
    
    $
    906,700
    
    
    $
    1,013,203Supplemental disclosure of non-cash
Investing and financing activities:Issuance of
ordinary shares in connection
with Cards acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    3,241,823Issuance of
ordinary shares and warrants in
connection with Corgi acquisition
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    31,666,014Conversion of Series A and B Preferred
shares to ordinary shares
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    2,802,949Acquisition of equipment in exchange for
capital leases
    
    $
    1,941
    
    
    
    
    
    
    
    
    
    
    
    
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##### Table of Contents



Corgi
International Limited
 
  1.
    
    Organization, Merger and Basis of PresentationCorgi International Limited (the Company) is composed of the operations of Master Replicas,
Inc. and the operations of two entities that were acquired for accounting purposes by Master
Replicas, Inc. in December 2006, Corgi International Limited and Cards Inc. Limited. Also, in
December 2006, Corgi International Limited completed a private financing of $17.6 million, sold
its manufacturing division, converted $5.65 million in outstanding convertible notes raised in
April 2006 into American Depositary Shares (ADSs) and warrants, and effected a six for one
reverse stock split of its ordinary shares (these transaction are referred to, collectively, as
the Merger). All information related to shares gives retroactive effect to the reverse stock
split. All references to Corgi International Limited, Master Replicas, Inc. and Cards Inc.
Limited refer to those entities prior to the Merger. The Company has status as a foreign
private issuer.The legal form of the transaction was the merger of Corgi International Limited with Master
Replicas, Inc. and the acquisition by Corgi International Limited of
all of the outstanding shares of Cards Inc. Limited. For accounting purposes, Master Replicas, Inc. was deemed to be
the accounting acquirer and, accordingly, Master Replicas, Inc.s financial statements are now
the historical financial statements of the Company. The balance sheet as of March 31, 2006 and
the statements of operations, stockholders equity and cash flows for the three months ended
March 31, 2006 and the years ended December 31, 2005 and 2004 represent the financial position,
results of operations and cash flows of Master Replicas, Inc. The balance sheet as of March 31,
2007 and the statements of operations, stockholders equity and cash flows for the year ended
March 31, 2007 represent the financial position, results of operations and cash flows of Master
Replicas, Inc. for the full year and the results of operations and cash flows of Corgi
International Limited and Cards Inc. Limited for the period from the date of the Merger through
March 31, 2007. All share and per share amounts for all periods presented prior to the Merger
have been retroactively adjusted to reflect the legal capital structure of Corgi International
Limited.The Company designs, produces, markets and distributes licensed and unlicensed pop culture
collectibles, gifts and toys ranging from high-end movie and television prop replicas to lower
price-point gifts and toys. The Company markets its consumer products under three brands:
Master Replicas, Corgi, and PopCo, and conducts its distribution business under its Cards Inc.
brand. The Company holds licenses for pop culture collectibles, gifts and toys for many of the
highest grossing film franchises of all time including Batman, Disney Classics, Harry Potter,
James Bond, Pirates of the Caribbean, Star Trek, and Spiderman 3.Master Replicas Inc. was founded in 2003 and was a designer and marketer of movie and
television prop replicas, including the Star Wars Lightsaber. Master Replicas, Inc. sold its
products principally to customers in the United States. Cards Inc. Limited was founded in 1989
and was a distributor of trading cards and pop culture memorabilia principally in the United
Kingdom and Europe. Corgi International Limited was originally founded in 1956 in England and
was a marketer of collectible die-cast models of trucks, buses, cars and airplanes with its
principal markets in the United Kingdom and Northern Europe. Corgi International Limited was
incorporated in Hong Kong as a limited company under the Hong Kong Companies Ordinance in July
1977. The Companys ADSs have been listed on the Nasdaq Global Market (formerly the Nasdaq
National Market) since February 1997.In connection with the Merger, Michael Cookson, formerly Chief Executive Officer of Master
Replicas, Inc., and Darren Epstein, the Chief Executive Officer of Cards Inc. Limited joined
the Board of Directors of the Company (along with Timothy Steel) and became the Companys Chief
Executive Officer and Executive Vice President, Chief Strategy Officer, respectively.
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##### Table of Contents



Corgi
International Limited
  Background to the MergerOn October 4, 2006, pursuant to an Agreement and Plan of Merger between the Master Replicas,
Inc. and Corgi International Limited, and LightSaber Acquisition Corp. (a wholly-owned
subsidiary of Corgi International Limited) (Merger Sub), Merger Sub merged with and into
Master Replicas, Inc. The Merger included Tax Indemnity Agreements under which the Company indemnified the former
shareholders of Master Replicas, Inc. against United States (U.S.) federal, state and local
income taxes, interest and penalties resulting from failure of the Merger to qualify as
reorganization as defined by section 368(a) of the tax code.On November 2, 2006, Corgi International Limited entered into a binding purchase agreement with
the shareholders of Cards Inc. Limited providing for the acquisition of all outstanding capital
stock of Cards Inc. Limited (the Cards Acquisition). It
was a condition to the Merger that the
Cards Acquisition be consummated.It was also a condition to the Merger that Corgi International Limited dispose of its Zindart
Manufacturing division in China. On November 3, 2006, Corgi International Limited entered into
such an agreement with an unrelated third party.Corgi International Limited affected a reverse stock split of 6 to 1 on December 20, 2006.
Another condition to the Merger was that Corgi International Limited obtain a minimum of $10
million in gross proceeds from a financing (the Financing) that would close in connection
with the Merger. On November 15, 2006, Corgi International Limited signed a binding agreement
to raise $17.6 million. On December 20, 2006, the Corgi International Limited closed a private
placement for the Financing for gross proceeds of approximately $17.6 million in exchange for
approximately 2.67 million of the Corgi International Limiteds ADSs and warrants to purchase
an additional 799,938 of the ADSs. The warrants exercise price was $7.80 per share, which was
amended on August 22, 2007 to $5.00 per ADS for any exercises by September 5, 2007 of which
368,863 warrants were exercised.On December 20, 2006, Corgi International Limited completed the Cards Acquisition for 1,191,110
ADSs, of which 612,213 ADSs are being held in escrow until certain representations and
warranties are resolved. They include representations relating to revenues and earnings of the
Cards Inc. Limited business for 2008 and 2009.On December 20, 2006, Corgi International Limited converted $5.65 million in principal amount
of convertible notes for an aggregate of 902,414 ADSs and issued warrants to purchase 270,716
ADSs with an exercise price of $7.80 per ADS.On December 26, 2006, Corgi International Limited completed the merger with Master Replicas,
Inc. pursuant to which Corgi International Limited issued 3,956,867 ADSs to the shareholders of
Master Replicas, Inc. (including the assumed pre-existing Master Replicas, Inc. warrants to
purchase 139,617 ADSs which were exercised on December 27, 2006), and assumed pre-existing
Master Replicas, Inc. options to purchase 918,053 ADSs and pre-existing Master Replicas, Inc.
warrants to purchase 20,314 ADS.On December 26, 2006 the Merger transaction was considered complete as all conditions discussed
above had been satisfied.Basis of PresentationThe accompanying consolidated financial statements have been prepared assuming the Company will
continue as a going concern. This contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. The realization of assets and the satisfaction
of liabilities in the normal course of business are dependent on, among other things, the
Companys ability to operate
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##### Table of Contents



Corgi
International Limited
  profitably, to generate cash flows from operations, and to maintain credit facilities adequate
to support working capital requirements. The Company has suffered losses from operations, has a
working capital deficiency, an accumulated deficit and has been generating negative cash flows.
These factors raise substantial doubt about the Companys ability to continue as a going
concern.The Company continues to face difficult market conditions, which have caused significant
operating losses and placed considerable pressure on the Companys liquidity. The Company
continues to work with its banks to attempt to provide adequate liquidity to support the
business, but there can be no assurance that such cash will be available and if available, at
what terms.In the event that market conditions and demand for the Companys products do not improve,
resulting in operating losses and negative cash flows, the Company will be required to secure
additional financing sources from lenders and/or other parties to fund its operations and
obligations. The Company may be required to dispose of certain of its businesses, perhaps at a
significant discount to the carrying value, seek bankruptcy protection or commence liquidation
or other administrative proceedings.The accompanying consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.2.
    
    Summary of Significant Accounting PoliciesPrinciples of Consolidation and Reverse Purchase AccountingAs a result of the Merger, the historical consolidated financial statements of the Company for
the periods prior to the Merger are those of Master Replicas, Inc. and the equity components
have been adjusted to reflect the reverse acquisition of Corgi International Limited by Master
Replicas, Inc. for accounting purposes.Intercompany balances and transactions from the date of the Merger have been eliminated.ReclassificationCertain amounts in the December 31, 2004, 2005 and
March 31, 2006 consolidated financial statements have been
reclassified to conform to the presentation used in the
March 31, 2007 consolidated financial statements.Financial InstrumentsFinancial instruments consist of cash and cash equivalents, accounts receivable, accounts
payable, short and long term debt. The estimated fair value of these financial instruments
approximates their carrying value.Use of EstimatesThe preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosed amounts of
contingent assets and liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reported period. Significant estimates include
estimates for the recoverability of accounts receivable; returns and allowances; inventory;
impairment of goodwill and intangible assets and deferred taxes. Actual results could differ
from those estimates.Cash and Cash EquivalentsCash 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.
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##### Table of Contents



Corgi
International Limited
  Allowance for Doubtful AccountsBad debts are provided for based on managements evaluation of outstanding accounts receivable.
As of March 31, 2006 and March 31, 2007, the Company reserved approximately $44,000 and
$1,694,000, respectively, for uncollectible accounts receivable. Bad debt expense for the year
ended December 31, 2004, the year ended December 31, 2005, the three month period ended March
31, 2006 and the year ended March 31, 2007 was approximately $49,000, $0, $44,000 and $442,000,
respectively.The Company performs credit evaluations of its customers and requires no collateral from its
customers. The Company periodically checks the balance history, aging and reevaluates credit
of its customers.Property and EquipmentProperty and equipment are stated at cost. Depreciation and amortization is computed using the
straight-line method based upon the estimated useful life of the assets, which range from three
to five years.Repairs and maintenance are charged to expense as incurred, costs of significant renewals and
improvements added to the depreciable base of the property.Web Site DevelopmentIn accordance with Statement of Position 98-1 Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use, issued by the American Institute of Certified Public
Accountants, the Company capitalized costs associated with Web development, or building of its
Website. Costs incurred in the preliminary project stage were expensed as incurred. Costs
incurred in the development stage were capitalized. Costs incurred for maintenance are expensed
as incurred. Capitalized costs are stated at cost and are amortized on a straight-line basis
over the estimated useful life of two years.InventoryInventory consists of finished goods and is valued at the lower of cost (first-in, first-out)
or market. Provisions, when required, are made to reduce excess and obsolete inventories to
their estimated net realizable values.The Company provides a reserve for obsolescence based on the determination of future demand
forecasts and marketability. Reserves for obsolescence at March 31, 2006 and March 31, 2007
were approximately $112,000 and $2,358,000, respectively.The Companys finished goods inventory is held at third party distribution centers in North
America, United Kingdom and Hong Kong.Tooling CostsTooling costs consist of the costs incurred to make manufacturing materials required to produce
the replicas, such as molds or specialized tools. Tooling costs are amortized over the economic
life of the tools, which management has determined is one to three years. Amortization expense
is included in cost of goods sold as a product cost.
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##### Table of Contents



Corgi
International Limited
  Revenue RecognitionThe Company recognizes revenue when products are shipped and, in certain circumstances, when
the products reaches the destination as specified by the customer, 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 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 Companys revenue
would result.Revenue from internet sales which commenced in 2004 amounted to approximately $3,000,000,
$5,535,000, $1,596,000 and $4,965,000 for the years ended December 31, 2004, December 31, 2005,
the three month period ended March 31, 2006 and the year ended March 31, 2007, respectively.SeasonalitySales of the Companys products and its operating results are highly seasonal. Net sales and
operating results are customarily lower in the fourth quarter of the Companys fiscal year. The
accompanying statement of operations includes the results of Corgi International Limited and
Cards Inc. Limited for the date of the Merger, which therefore includes sales and operating
results for those entities for only the fourth quarter of their fiscal years. Cost of good sold
include product cost, freight, warehousing, fulfillment, royalty and tooling amortization. A
significant amount of these costs are fixed in nature, and therefore cause significant
variation in the Companys gross profit percentage for each period, relative to sales volume.Income TaxesThe Company accounts for income taxes in accordance with Statement of Financial Accounting
Standards (SFAS) No. 109, Accounting for Income Taxes, which is the asset and liability
method for accounting and reporting for income taxes. Under SFAS No. 109, deferred tax assets
and liabilities are recognized based on temporary differences between the financial reporting
and income tax bases of assets and liabilities using statutory rates. In addition, SFAS No. 109
requires a valuation allowance against net deferred tax assets if, based upon available
evidence, it is more likely than not that some or all of the deferred tax assets will not be
realized.Advertising CostsAdvertising costs are expensed as incurred. Advertising expense was approximately $168,000,
$443,000, $223,000 and $2,606,000 for the year ended December 31, 2004, the year ended December
31, 2005, the three month period ended March 31, 2006, and the year ended March 31, 2007,
respectively.Freight and Shipping CostsFreight-in for inventory is capitalized in the cost of inventory.Shipping costs for internet sales are included in cost of goods and revenue. The amount
included in revenue for the year ended December 31, 2004, the year ended December 31, 2005, the
three month period ended March 31, 2006 and the year ended March 31, 2007 was approximately
$550,000, $863,000, $163,000 and $553,000, respectively.Earnings per Ordinary ShareBasic (loss) earnings per ordinary share is computed in accordance with SFAS No. 128, Earnings
Per Share, by dividing the net (loss) income by the weighted average number of ordinary shares
outstanding during the year. Diluted (loss) income per ordinary share is computed based on
dividing the net (loss) income by the weighted average number of ordinary shares outstanding
and giving effect to the dilutive potential of outstanding stock options to the extent the
effect of including such securities were dilutive during the year.
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##### Table of Contents



Corgi
International Limited
  Foreign Currency TranslationThe Companys functional and reporting currency is the 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 these subsidiaries are reflected as a component of accumulated other comprehensive income
(loss) within stockholders equity.Impairment of Long-Lived AssetsLong-lived assets, such as property 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.An asset is tested for impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable. An asset is considered to be impaired when its
carrying amount exceeds the sum of the undiscounted future net cash flows expected to result
from the use of the asset and its eventual disposition.No impairment has been recorded in any period.Goodwill and Intangible AssetsGoodwill represents the excess of costs over fair value of assets of businesses acquired. The
Company follows the provisions of SFAS No. 142, Goodwill and Other Intangible Assets (SFAS
142). Goodwill acquired in a purchase business combination is determined to have an indefinite
useful life, is not amortized, but instead tested for impairment at least annually. The
goodwill at March 31, 2007 was the result of the Merger in December 2006. The Company has not
yet undertaken any impairment analysis given the recent nature of the acquisition and plans to
undertake its annual goodwill impairment analysis as of December 31 of each year.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.Provision for ReturnsThe accompanying financial statements include a provision for product returns of approximately
$465,000 and $606,000 at March 31, 2006 and March 31, 2007, respectively. These amounts are
based on current sales and estimates of future returns. The estimates are derived from
historical cost experience. This amount is deducted from accounts receivable in the
accompanying balance sheets.Concentrations of Credit RiskThe Companys accounts receivable are subject to a concentration of credit risk with customers
in North America, Hong Kong and the United Kingdom.For the year ended March 31, 2007 no individual customer accounted for sales in excess of 5% of
consolidated sales. As of March 31, 2007, no individual customers accounts receivable was in
excess of 10% of total accounts receivable.
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##### Table of Contents



Corgi International Limited
  Customers make no binding long-term commitments to the Company regarding purchase volumes and
make all purchases by delivering one-time purchase orders. Any customer could reduce its
overall purchases of the Companys products, reduce the number and variety of the Companys
products that it carries and the shelf space allotted for the Companys products, or otherwise
seek to materially change the terms of the business relationship at any time. Any such change
could significantly impact the Companys business and operating results. In addition, the loss
of any one of its major customers would have a material adverse effect on the Companys
business, financial condition and results of operations. Further, several of the Companys
licenses apply to products that generate a large volume of sales. To the extent the Company is
unable to maintain these licenses; the lost sales would have a significant impact on future
sales.The Company performs ongoing credit evaluations of its customers financial condition and
generally requires no collateral from its customers. The Companys five largest trade accounts
receivable accounted for approximately 86% and 35% of the Companys total gross trade accounts
receivable as of March 31, 2006 and 2007. There is a risk that customers will not pay, or
that payment may be delayed, because of bankruptcy or other factors beyond the Companys
control, which could increase the Companys exposure to losses from bad debts. In addition, if
these or other customers were to cease doing business as a result of bankruptcy, or
significantly reduce the number of stores operated, it could have a material adverse effect on
the Companys business, financial condition and results of operations.The Company relies on several manufacturers based in the Peoples Republic of China to
produce its products. Manufacturing alternatives may be available, but there can be no
assurance that the Company will be able to find alternate quality producers on a timely basis,
if at all. In addition, prices charged by the alternate vendors may be higher than charged by
the Companys current manufacturers. The related price increases could unfavorably impact the
Companys financial results.The Company maintains cash balances at various U.S. financial institutions. Accounts at each
U.S. institution are insured by the Federal Deposit Insurance Corporation up to $100,000. At
March 31, 2006 and March 31, 2007, the Companys uninsured cash balance was approximately
$516,000 and $920,000, respectively. At March 31, 2007, cash maintained in the United Kingdom
was approximately $135,000 and cash maintained in Hong Kong was approximately $894,000,
respectively.Stock-Based CompensationThrough December 31, 2004, the Company accounted for stock-based awards to employees using the
intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. Under the intrinsic value method,
compensation expense is measured on the date of the grant as the difference between the deemed
fair value of our common stock and the exercise or purchase price multiplied by the number of
stock options or restricted stock awards granted.From January 1, 2005 through December 31, 2005, the Company accounted for stock-based
compensation expense for employees and for non-employees using the fair value method prescribed
by SFAS No. 123, Accounting for Stock-Based Compensation, and Emerging Issues Task Force No.
96-18, Accounting for Equity Instruments that are Issued to Other than Employees for
Acquiring, or in Conjunction with Selling, Goods and Services, and recorded the fair value of
non-employee stock options as an expense over the vesting term of the option.In December 2004, FASB issued SFAS No. 123(R), Share-Based Payments,which requires companies
to expense the fair value of employee stock options and other forms of stock-based
compensation. The Company adopted SFAS No. 123(R) effective January 1, 2006 using the modified
prospective method.
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##### Table of Contents



Corgi International Limited
  Effective with the adoption of SFAS No. 123(R), the Company has elected to use the
Black-Scholes option pricing model to determine the fair value of stock options granted to
employees. In accordance with SFAS No. 123(R), the Company recognizes the fair value of
employee stock-based awards unvested, granted or modified on or after January 1, 2006 over the
vesting period of the award.Recent Accounting PronouncementsIn February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities, including an amendment of
FASB Statement No. 115. SFAS 159 permits companies to choose to measure many financial
instruments and certain other items at fair value that are not currently required to be
measured at fair value and establishes presentation and disclosure requirements designed to
facilitate comparisons between companies that choose different measurement attributes for
similar types of assets and liabilities. SFAS 159 is effective for fiscal years beginning after
November 15, 2007. The Company does not expect the adoption of SFAS No. 159 to have a material
impact on its consolidated financial position, results of operation or cash flows.In September 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans  an amendment of FASB Statements No. 87, 88, 106 and
132(R). SFAS No. 158 requires an employer that sponsors one or more single-employer defined
benefit plans to (a) recognize the overfunded or underfunded status of a benefit plan in its
statement of financial position, (b) recognize as a component of other comprehensive income,
net of tax, the gains or losses and prior service costs or credits that arise during the period
but are not recognized as components of net periodic benefit cost pursuant to SFAS No. 87,
Employers Accounting for Pensions, or SFAS No. 106, Employers Accounting for
Postretirement Benefits Other Than Pensions, (c) measure defined benefit plan assets and
obligations as of the date of the employers fiscal year-end, and (d) disclose in the notes to
financial statements additional information about certain effects on net periodic benefit cost
for the next fiscal year that arise from delayed recognition of the gains or losses, prior
service costs or credits, and transition asset or obligation. SFAS No. 158 is effective for the
Companys fiscal year ending March 31, 2007. The adoption
of SFAS 158 did not have a material impact of the Companys
consolidated financial position, results of operations and cash flows.In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, or SFAS No. 157. SFAS
No. 157 defines fair value, establishes a framework for measuring fair value in accordance with
generally accepted accounting principles, and expands disclosures about fair value
measurements. SFAS No. 157 applies under other accounting pronouncements that require or permit
fair value measurements, the Board of Directors having previously concluded in those accounting
pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS No. 157
does not require any new fair value measurements. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007, and interim periods
within those fiscal years. The Company does not expect the adoption of SFAS No. 157 to have a
material impact on its consolidated financial position, results of operation or cash flows.In June 2006, the FASB published FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes, an Interpretation of FASB Statement No. 109which clarifies the accounting for
uncertainty in income taxes recognized in an enterprises financial statements in accordance
with SFAS No. 109, Accounting for Income Taxes. This Interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of
tax position taken or expected to be taken in a tax return. This Interpretation also provides
guidance on de-recognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. This Interpretation is effective for the Companys fiscal
year beginning April 1, 2007. Management is assessing the impact that the adoption of this
standard will have on the Companys consolidated financial position, results of operation and
cash flows.
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Corgi International Limited
  In September 2006, the SEC issued Staff Accounting Bulletin (SAB) No. 108. Due to diversity
in practice among registrants, SAB No. 108 expresses SEC staff views regarding the process by
which misstatements in financial statements are evaluated for purposes of determining whether
financial statement restatement is necessary. SAB No. 108 is effective for fiscal years ending
after November 15, 2006. The adoption of SAB No. 108 did not have a material impact on the
Companys consolidated financial position, results of operation or cash flows.3.
    
    AcquisitionsIn December 2006, for accounting purposes, Master Replicas, Inc. acquired Corgi International
Limited and Cards, Inc. Limited in a series of conditional transactions accounted for as a
reverse merger. The Company acquired 100 % of the outstanding shares of Cards Inc. Limited and
was deemed to have acquired 100 % of the outstanding shares of Corgi International Limited.
For accounting purposes, Master Replicas, Inc. was deemed to be the accounting acquirer. The
acquisitions were treated as business combinations and accounted for under the purchase method
of accounting. The Company believes that the combined company will be able to take advantage
of the diversified products, license, management team and other synergies of bringing the three
companies together. The results of operation of Corgi International Limited and Cards, Inc.
Limited have been consolidated with the results of operations from the date of the Merger.The following table summarizes the approximate estimated fair value of the assets acquired and
liabilities assumed of Corgi International Limited at the date of the acquisition:
 Cash
    
    $
    7,400,000Accounts receivable
    
    
    7,904,000Inventory
    
    
    5,780,000Fixed assets and tooling
    
    
    4,955,000Intangibles
    
    
    8,400,000Other assets
    
    
    9,750,000Liabilities
    
    
    (23,717,000
    )Goodwill
    
    
    12,750,000Purchase Price
    
    $
    33,222,000
 The approximate purchase price for Corgi International Limited was determined as follows:
 Value of shares at fair value(5,265,106 shares at $5.60 per share)
    
    $
    29,484,000Fair value of options and warrants
    
    
    2,182,000Costs incurred*
    
    
    1,556,000Purchase Price
    
    $
    33,222,000
 
 *
    
    Costs incurred were allocated 75% to the acquisition of Corgi International Limited and 25%
to the acquisition of Cards Inc. Limited. F-17




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##### Table of Contents



Corgi International Limited
  The following table summarizes the portion of purchase price of Corgi International Limited
allocated to certain intangible assets, and the estimated useful lives of those intangible assets,
based on a valuation:
 Value
    
    
    Estimated Useful LifeTrade Name
    
    
    4,800,000
    
    
    8 YearsCustomer Relationships
    
    
    2,700,000
    
    
    4 - 8 YearsOther
    
    
    900,000
    
    
    1 - 3 YearsTotal
    
    $
    8,400,000
 When Corgi International Limited sold its manufacturing
facility (prior to the merger), it agreed to assume $1.0 million
of property transfer taxes that may be due. Such amount is included
in liabilities of the acquired entity.
 The purchase price for Cards Inc. Limited does not include 612,213 ADSs that were issued, but
held in escrow to be released upon achievement of certain levels of sales and profitability.
If the levels of profitability are not satisfied, the escrowed ADSs will be sold on the public
market. The following table summarizes the approximate estimated fair value of the assets acquired and
liabilities assumed of Cards Inc Limited at the date of the acquisition:
 Cash
    
    $
    43,000Accounts receivable
    
    
    4,750,000Inventory
    
    
    5,593,000Fixed assets
    
    
    250,000Intangibles
    
    
    5,700,000Other assets
    
    
    790,000Liabilities
    
    
    (15,254,000
    )Goodwill
    
    
    1,889,000Purchase Price
    
    $
    3,761,000
 The purchase price for Cards Inc. Limited was determined as follows:
 Value of shares at fair value
(578,897 shares at $5.60 per
share)
    
    $
    3,242,000Costs incurred *
    
    
    519,000Purchase Price
    
    $
    3,761,000
 
 *
    
    Costs incurred were allocated 75% to the acquisition of Corgi International Limited and 25%
to the acquisition of Cards Inc. Limited. The following table summarizes the portion of purchase price of Cards, Inc Limited allocated
to certain intangible assets, and the estimated useful lives of those intangible assets, based on a
valuation.
 F-18




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##### Table of Contents



Corgi International Limited
  Value
    
    
    Estimated Useful LifeSupplier Relationships
    
    $
    1,700,000
    
    
    7 YearsOther
    
    
    1,400,000
    
    
    1 - 5 YearLicensing Relationships
    
    
    2,600,000
    
    
    3 YearsTotal
    
    $
    5,700,000
 The allocation of assets acquired and liabilities assumed for both acquisitions is based on a
preliminary allocation and is subject to change.
  The following pro forma consolidated amounts give effect to the acquisitions accounted for by
the purchase method of accounting as if they had occurred at the beginning of the periods
presented. The pro forma results are not necessarily indicative of the operating results that
would have been achieved had the transaction been in effect as of the beginning of the periods
presented and should not be construed as being representative of future operating results.
 For year ended
    
    
    For year endedMarch 31, 2006
    
    
    March 31, 2007Net Sales
    
    $
    105,588,000
    
    
    $
    81,549,000Operating loss
    
    
    (9,311,000
    )
    
    
    (39,342,000
    )Net loss
    
    
    (13,412,000
    )
    
    
    (39,788,000
    )Loss per ordinary share
    
    $
    (1.40
    )
    
    $
    (4.11
    )
 4.
    
    Tooling CostsTooling costs consist of the following:
 March 31, 2006
    
    
    March 31, 2007Tooling Costs
    
    $
    1,933,044
    
    
    $
    8,320,482Accumulated Amortization
    
    
    (1,730,541
    )
    
    
    (3,853,512
    )Net Tooling
Costs
    
    $
    202,503
    
    
    $
    4,466,970
 F-19




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##### Table of Contents



Corgi International Limited
  Amortization expense was approximately $725,000, $758,000, $103,000 and $2,123,000 for the year
ended December 31, 2004, the year ended December 31, 2005, the three month period ended March
31, 2006, and the year ended March 31, 2007, respectively. Amounts for fully amortized tools no
longer in service are removed from the accounts.5.
    
    Property and EquipmentProperty and equipment consists of the following
 March 31, 2006
    
    
    March 31, 2007Computer Equipment
    
    $
    157,706
    
    
    $
    345,750Furniture and Fixtures
    
    
    74,509
    
    
    
    303,261Website Development
    
    
    330,011
    
    
    
    524,765Automobiles
    
    
    
    
    
    
    33,532Total Property and Equipment
    
    
    562,226
    
    
    
    1,207,308Accumulated
Depreciation and amortization
    
    
    (314,416
    )
    
    
    (587,157
    )Property and Equipment
    
    $
    247,810
    
    
    $
    620,151
 Depreciation and amortization expense was approximately $184,000, $208,000, $47,000 and
$273,000 for the year ended December 31, 2004, the year ended December 31, 2005, the three
month period ended March 31, 2006, and the year ended March 31,2007, respectively.6.
    
    Intangible AssetsAmortizable intangible assets are summarized as follows:
 Gross
    
    
    
    
    
    Net
    
    EstimatedCarrying
    
    Accumulated
    
    Carrying
    
    useful lifeAmount
    
    Amortization
    
    Amount
    
    in yearsTrade Names
    
    $
    5,100,000
    
    
    $
    (168,750
    )
    
    $
    4,931,250
    
    
    
    5 to 8Customer Relationships
    
    
    2,900,000
    
    
    
    (156,250
    )
    
    
    2,743,750
    
    
    
    2 to 8Licensing Relationships
    
    
    2,600,000
    
    
    
    (216,667
    )
    
    
    2,383,333
    
    
    
    3Supplier Relationships
    
    
    2,300,000
    
    
    
    (110,714
    )
    
    
    2,189,286
    
    
    
    3 to 7Other
    
    
    1,200,000
    
    
    
    (233,333
    )
    
    
    966.667
    
    
    
    1 to 3Total
    
    $
    14,100,000
    
    
    $
    (885,714
    )
    
    $
    13,214,286
 F-20




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##### Table of Contents



Corgi International Limited
  Amortization expense for the next five years and thereafter is as follows:
 Year ended March 31:2008
    
    $
    3,342,8582009
    
    
    2,717,8572010
    
    
    2,342,8572011
    
    
    1,380,3572012
    
    
    1,167,857Thereafter
    
    
    2,262,500$
    13,214,286
 Amortization of intangibles assets for the year ended March 31, 2007 amounted to approximately
$886,000. Amortization expense was calculated from the date of acquisition of Corgi
International Limited and Cards Inc. Limited, which represented a period of approximately three
months.7.
    
    Accrued Expenses and Prepaid ExpensesAccrued expenses consist of the following:
 March 31, 2006
    
    
    March 31, 2007Accrued Royalties
    
    $
    1,240,169
    
    
    $
    2,638,974Accrued Professional Fees
    
    
    104,861
    
    
    
    1,886,211Accrued Freight and Production Costs
    
    
    
    
    
    
    1,813,050Accrued Other
    
    
    352,429
    
    
    
    1,981,976Accrued
Property Tax
    
    
    
    
    
    
    1,000,000Accrued Finance Charges
    
    
    
    
    
    
    521,566Accrued Salaries and Related
    
    
    258,316
    
    
    
    474,858Accrued Selling Expenses
    
    
    
    
    
    
    368,867$
    1,955,775
    
    
    $
    10,685,502
 Prepaid expenses consist of the following:
 March 31, 2006
    
    
    March 31, 2007Prepaid Other
    
    $
    381,568
    
    
    $
    1,606,110Prepaid Marketing
    
    
    
    
    
    
    1,203,337Prepaid Production
    
    
    
    
    
    
    1,072,150Prepaid Royalties
    
    
    
    
    
    
    747,332Prepaid Inventory
    
    
    
    
    
    
    396,624Prepaid Rent
    
    
    
    
    
    
    275,999$
    381,568
    
    
    $
    5,301,552
 8.
    
    Short-Term DebtAs of March 31, 2007 the Companys Corgi division had a revolving Invoice Discounting Agreement
with Coface Receivables Finance Limited in the amount of $4,209,000. This facility is for $10
million and allows for borrowings of up to 75% of the eligible accounts receivables based on
the weekly levels of sales and customer payments of the Companys Corgi division in the United
Kingdom. The interest rate is based on 1.75% plus LIBOR. The note is collateralized by all
the assets
 F-21




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##### Table of Contents



Corgi International Limited
  of the Companys Corgi division (approximately
$39,627,000 at March 31, 2007). The
agreement automatically renews every July with a 6 month advance termination notice
requirement. The agreement requires the Company to provide financial
statements within 6 months after the end of the Companys
fiscal year. The Company has not provided its statements within that
time period and is, therefore, in default of this agreement. However,
the Company has received a waiver from Coface with respect to this
requirement. This agreement may be cancelled by the lender at any
time. In addition, at March 31, 2007 the Company exceeded the
borrowing base allowed under this agreement.As of March 31, 2007, the Companys Cards division has a short-term note with Barclays Bank in
the amount of $3,193,578. The short term debt is separated into a guaranteed note ($2,000,000)
and an invoice discount facility ($1,193,580). The interest rate is 2.25% plus Bank of England
base rate percentage (5.25% at March 31, 2007). The note is collateralized by all of the
assets of Companys Cards division (approximately $17,429,000 at March 31, 2007). The note
also has a partial personal guarantee by Darren Epstein, Executive Vice President of the
Company. The Invoice Discount facility has maximum borrowing of up to $5,000,000. This
facility allows for borrowings of up to 50% of the eligible accounts receivables that based on
the weekly levels of sales and vendor customer payments for the Companys Cards division. The
interest rate is based on 1.5 plus Bank of
England base rate (5.25% at March 31, 2007). This agreement may
be cancelled by the lender at any time.In May of 2006 Master Replicas, Inc. entered into a line of credit with Ropart Asset
Management, II, LLC (Ropart) for a $2,000,000 credit line with an added principal of $142,063
at an interest rate of 18% per annum. This agreement renews every six months in May and
November. In May of 2007, upon renewal, the interest rate increased to 20% with the note
balance due November 2007. The outstanding balance at March 31, 2007 totals $2,142,063. The
line of credit is secured by a lien and security interest in all assets of the Companys
Master Replicas division. Ropart is also a shareholder in the Company.Interest expense incurred to Ropart for the line of credit which commenced in fiscal 2007
amounted to approximately $181,000 in the year ended March 31, 2007.9.
    
    Long Term DebtNotes payable to Ropart accrue interest at a rate of 13% per annum. The notes are payable in
three equal annual principal installments beginning in May 2007. The Company makes monthly
interest only payments. The notes are collateralized by all assets of the Company.Maturities of long term debt and interest are as follows:
 2008
    
    $
    329,9922009
    
    
    329,9922010
    
    
    329,992Principal and Interest Balance
    
    
    989,976Less current portion
    
    
    (329,992
    )Long term
debt
    
    $
    659,984
 Interest expense incurred to Ropart for these notes amounted to approximately $54,000,
$127,000, $32,000 and $131,000 for the year ended December 31, 2004, the year ended December
31, 2005, the three month period ended March 31, 2006 and the year ended March 31, 2007,
respectively. Ropart is a shareholder in the Company.10.
    
    License AgreementsThe Company markets a significant portion of its products with licenses from other parties. The
Company has license agreements with entertainment, publishing and media companies; automotive
 F-22




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##### Table of Contents



Corgi International Limited
  and truck manufacturers and agricultural and construction vehicle and equipment manufacturers;
among others. The licenses are limited in scope and duration and authorize the sale of
specific licensed products generally on a nonexclusive basis. For the year ended December 31,
2004, the year ended December 31, 2005, the three month period ended March 31, 2006 and the
year ended March 31, 2007, net sales of the Companys products with the licensed properties of
Lucasfilms Ltd. (Star Wars) accounted approximately 78%, 91%, 95%, and 62% of the Company net
sales. No other licensed property accounted for more than 10% of the Company total net sales
for any of those periods. As of March 31, 2007, a significant number of the Companys licenses
require the Company to make minimum guaranteed royalty payments whether or not the Company
meets specific sales targets. Aggregate future minimum guaranteed royalty payments as of March
31, 2007, are $5.3 million through 2012, with the individual license minimum guarantees ranging
from $1.00 to $1.7 million. The Company is party to over 50 license agreements, approximately
40 of which are actively
used in current product lines, with terms generally of two to three years. Any termination of
or failure to renew the significant licenses, or inability to develop and enter into new
licenses, could limit the Companys ability to market products or develop new products and
reduce sales and profitability. Over the next two years, license agreements in connection with
several key licensed properties, including licenses for certain Star Wars, Spiderman and Harry
Potter products, are scheduled to expire.The Companys existing license with Lucasfilm Ltd. for Star Wars products expires on December
31, 2007. Lucasfilm Ltd. had previously notified the Company that it was not willing to provide
a new license on the terms proposed by the Company. The Company believed that it was not in the
best interest of its shareholders to accept a new license on the terms proposed by Lucasfilm
Ltd and therefore the parties agreed not to renew the contract.Royalty expenses for all licenses were approximately $1,351,000, $6,800,000, $810,000 and
$3,025,000 for the year ended December 31, 2004, the year ended December 31, 2005, the three
month period ended March 31, 2006 and the year ended March 31, 2007, respectively.As of March 31, 2007 approximate future minimum annual royalty commitments were as follows:
 For the year ended March 31:2008
    
    $
    1,330,0002009
    
    
    1,442,0002010
    
    
    1,506,0002011
    
    
    1,002,0002012
    
    
    60,000$
    5,340,000
 11.
    
    ContingenciesThe Company is involved in various legal proceedings arising in the ordinary course of
business. The Company, based on discussions with its counsel, does not believe that such
proceedings, even if determined adversely, will have a material adverse effect on the Companys
business, financial condition, or results of operations.
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##### Table of Contents



Corgi International Limited
  12.
    
    Lease CommitmentsThe Company has entered into various lease agreements for office space. Approximate future
minimum lease obligations at March 31, 2007 are as follows:
 For the years ended March 31:2008
    
    $
    1,321,0002009
    
    
    1,038,0002010
    
    
    964,0002011
    
    
    767,0002012
    
    
    584,000Total
    
    $
    4,674,000
 Rent expense was approximately $107,000, $189,000, $47,000 and $534,000 for the year ended
December 31, 2004, the year ended December 31, 2005, the three month period ended March 31,
2006, and the year ended March 31, 2007, respectively.13.
    
    Income TaxesPrior to the Merger the Company was subject to income taxes in the Unites States. Subsequent to
the Merger, the Company, and certain of its subsidiaries, are subject to tax reporting in the
United States, the United Kingdom and Hong Kong. For tax reporting purposes, Corgi
International Limited was considered to be the parent. For the year ended March 31, 2007, the
loss before income tax benefit consisted of approximately $ 6.8 million generated in the Unites
States and $7.4 million generated by foreign operations. As of March 31, 2007, each of the
entities, Corgi International Limited, Master Replicas, Inc. and Cards
Inc. Limited are each filing their own stand alone tax returns.
The tax year for Master Replicas is currently December 31. The Company is currently evaluating
its tax requirements and determining the optimal way to file and report taxes in the future. As
a result of the Merger, the ability to utilize future net operating losses in the United States
may be limited due to the ownership change that has occurred with respect to each entity.
  Three MonthsYear Ended
    
    
    Year Ended
    
    
    Ended
    
    
    Year EndedDecember 31, 2004
    
    
    December 31, 2005
    
    
    March 31, 2006
    
    
    March 31, 2007Current:Federal
    
    $
    
    
    
    $
    2,050,000
    
    
    $
    250,000
    
    
    $
    (820,070
    )State
    
    
    (14,564
    )
    
    
    550,000
    
    
    
    110,000
    
    
    
    49,583Foreign
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total current
    
    
    (14,564
    )
    
    
    2,600,000
    
    
    
    360,000
    
    
    
    (770,487
    )Deferred:Federal
    
    
    (8,000
    )
    
    
    (721,000
    )
    
    
    93,000
    
    
    
    (194,691
    )State
    
    
    (1,000
    )
    
    
    (215,000
    )
    
    
    113,000
    
    
    
    
 F-24




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##### Table of Contents



Corgi
International Limited
  Three MonthsYear Ended
    
    
    Year Ended
    
    
    Ended
    
    
    Year EndedDecember 31, 2004
    
    
    December 31, 2005
    
    
    March 31, 2006
    
    
    March 31, 2007Foreign
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total Deferred
    
    
    (9,000
    )
    
    
    (936,000
    )
    
    
    206,000
    
    
    
    (194,691Total Tax (benefit)
    
    $
    (23,564
    )
    
    $
    1,664,000
    
    
    $
    566,000
    
    
    $
    (965,178
    )
 The income tax provisions for the years ended December 31, 2004, the year ended December 31,
2005, the three month period ended March 31, 2006 and the year ended March 31, 2007 differ from
the amounts computed by applying the statutory federal income tax rate to the consolidated
income before income taxes, as follows:
 Year Ended
    
    
    Year Ended
    
    
    Three Year Ended
    
    
    Months EndedDecember 31, 2004
    
    
    December 31, 2005
    
    
    March 31, 2006
    
    
    March 31, 2007Federal expense (benefit) computed at
statutory rate
    
    $
    (1,263,000
    )
    
    $
    2,037,000
    
    
    $
    309,000
    
    
    $
    (2,315,400
    )State expense (benefit) at statutory rate
    
    
    (223,000
    )
    
    
    359,000
    
    
    
    55,000
    
    
    
    (612,900
    )Foreign expense (benefit) at statutory rate
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,299,580Increase (Decrease) resulting from:Deferred tax valuation allowance
    
    
    1,462,436
    
    
    
    (732,000
    )
    
    
    125,000
    
    
    
    4,262,702Adjustment to prior year
    
    
    
    
    
    
    
    
    
    
    77,000
    
    
    
    Provision (benefit) for income taxes
    
    $
    (23,564
    )
    
    $
    1,664,000
    
    
    $
    566,000
    
    
    $
    (965,178
    )
 Significant components of the Companys net deferred tax assets and liabilities are as follows:
 March 31, 2006
    
    
    March 31, 2007Deferred tax assets:Accruals and allowance
    
    $
    606,000
    
    
    $
    863,000Depreciation
    
    
    117,000
    
    
    
    1,169,000Net Operating losses
    
    
    
    
    
    
    13,072,000Gross deferred tax assets
    
    
    723,000
    
    
    $
    15,104,000Less valuation allowance
    
    
    (190,000
    )
    
    
    (10,416,000
    )Deferred Tax
liability: Intangible Assets
    
    
    
    
    
    
    (3,960,000
    )Total net deferred tax assets
    
    $
    533,000
    
    
    $
    728,000
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##### Table of Contents



Corgi
International Limited
  In evaluating the ability to realize its net deferred tax assets, the Company considers all
available evidence, both positive and negative, including past operating results, the existence
of cumulative losses in the most recent fiscal years, tax planning strategies that are prudent,
and feasible, and forecasts of future taxable income. In considering sources of future taxable
income, the Company makes certain assumptions and judgments which are based on the plans and
estimates used to manage the underlying business of the Company. The cumulative Net Operating
Loss for Corgi International Limited and Cards Inc. Limited is approximately $44,000,000 and
the deferred tax asset would be approximately $13,000,000 using a 30% tax rate (the tax rate in
the United Kingdom). A partial valuation allowance has been recorded against the gross
deferred tax assets for all periods presented since management believes that after considering
a number of factors including the positive and negative evidence regarding the realization of
deferred tax assets, that it is more likely than not that a portion of these assets will not be
realized. The portion of deferred tax assets which do not require a valuation allowance relates to current deferred tax assets of Master Replicas, Inc. which the
Company can carry back to year it paid taxes. The valuation allowance increased
by approximately $ 190,000 and $10,266,000 for the three months period ended March 31, 2006 and
the year ended March 31, 2007, respectively. The increase in the valuation allowance during
2007 was due primarily to the Merger as discussed in Note 1. The Company may be subject to
limitation on the availability of net operating loss carry forwards in the United States due to
changes in ownership.As of March 31, 2007, the Company estimates it will receive approximately $355,000 primarily
for Federal losses incurred by Master Replicas Inc. for the tax year ended December 31, 2006
which is expected to be carried back to the 2005 tax year when Master Replicas Inc. paid
federal taxes.14.
    
    Stock Option PlanThe Company has a stock incentive plan (the 1997 Stock Plan the Plan) that was recently
amended in conjunction with the Merger. Under the Plan the Company may grant stock options to
directors, officers and key employees to purchase ADSs representing ordinary shares of the
company. The total number of options authorized under the Plan is 1,574,996. These options
generally expire 10 years from the date of grant and generally vest over a four year period.
The summary option activity listed below represents Master Replicas activity until the Merger
in December 2006 under Master Replicas pre-existing plan. Upon the Merger, Master Replicas
stock options for 918,053 ADSs representing ordinary shares of Corgi were assumed by Corgi and
converted. On March 31, 2007 the plans had 2,217,791 ADSs outstanding and the exercise prices
vary from $0.17 to $41.25 per ADS. Stock based compensation on unvested options which will be recognized in the future is approximately $4,351,000.The fair value of each option granted is estimated on the grant date using the Black-Scholes
model.The following assumptions were made in estimating fair value of options in those periods
presented after adopting SFAS 123R Stock based compensation effective January 1, 2006:
 Three Months Ended
    
    Year endedAssumptions
    
    March 31, 2006
    
    March 31, 2007Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %Risk free interest rate
    
    
    4.70
    %
    
    
    4.50
    %Expected live (in years)
    
    
    10
    
    
    
    5Expected volatility
    
    
    100.00
    %
    
    
    75.00
    %
 The Company estimated volatility based upon the Companys limited equity transactions and the
volatility that a similar industry company stock has undertaken. In the three months end March
31, 2006, the expected life of the option was the legal life of the option. In the year ended
March 31,
 F-26




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##### Table of Contents



Corgi
International Limited
  2007, the expected life was set at 5 years. The risk free interest rate is based
upon government investment.Stock based compensation charged to operations related to stock options was $183,000 and
$1,011,000 for the three months period ended March 31, 2006 and the year ended March 31, 2007,
respectively.Summary of Activity
 Non-Vested OptionsAvailable for Grant
    
    Options Outstanding
    
    Vested Excerisable
    
    OutstandingBalance
    
    January 1, 2005
    
    
    
    75,332
    
    
    
    3,930
    
    
    
    3,023
    
    
    
    907Authorized
    
    
    
    
    
    
    859,389
    
    
    
    763,373
    
    

    
    
    
    
    
    763,373Granted
    
    
    
    
    
    
    (763,373
    )
    
    
    (1,411
    )
    
    
    (1,411
    )
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    365,099
    
    
    
    (365,099
    )Vested
    
    
    
    
    
    
    
    
    
    
    (23,745
    )
    
    
    (944
    )
    
    
    (22,801
    )Cancelled
    
    
    
    
    
    
    23,745Balance
    
    December 31, 2005
    
    
    
    195,093
    
    
    
    742,147
    
    
    
    365,767
    
    
    
    376,380Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,747
    
    
    
    Vested
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (80,747
    )Cancelled
    
    
    
    
    
    
    4,669
    
    
    
    (4,669
    )
    
    
    
    
    
    
    (4,669
    )Balance
    
    March 31, 2006
    
    
    
    199,762
    
    
    
    737,478
    
    
    
    446,514
    
    
    
    290,964Authorized
    
    
    
    
    
    
    (1,342,757
    )
    
    
    1,342,757
    
    
    
    
    
    
    
    1,342,757Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    206,067
    
    
    
    (206,067
    )Cancelled
    
    
    
    
    
    
    32,846
    
    
    
    (32,846
    )
    
    
    (30,501
    )
    
    
    (2,345
    )Merger
    
    
    
    
    
    
    1,385,447
    
    
    
    170,402
    
    
    
    101,663
    
    
    
    68,739Balance
    
    March 31, 2007
    
    
    
    275,298
    
    
    
    2,217,791
    
    
    
    723,743
    
    
    
    1,494,048
 The weighted average grant date fair value of the 1,342,757 options issued during the year ended
March 31, 2007 is $4.19 per option.
 WeightedWeighted
    
    
    
    
    
    
    Average
    
    
    IntrinsicAverage
    
    
    
    
    
    
    Exercise
    
    
    Values ofVesting
    
    Exercise
    
    
    Number
    
    
    Remaining Life
    
    
    Number
    
    
    Price of
    
    
    ExercisableSchedule
    
    Price
    
    
    Outstanding
    
    
    in Years
    
    
    Exercisable
    
    
    Exercisable
    
    
    Options
    
    
    Term$
    0.165
    
    
    
    1,209
    
    
    
    8.25
    
    
    
    739
    
    
    $
    0.165
    
    
    $
    1,222
    
    
    
    10$
    0.495
    
    
    
    221,463
    
    
    
    9.25
    
    
    
    80,678
    
    
    $
    0.495
    
    
    $
    106,740
    
    
    
    10$
    0.545
    
    
    
    486,795
    
    
    
    9.25
    
    
    
    365,096
    
    
    $
    0.545
    
    
    $
    464,921
    
    
    
    10$
    1.819
    
    
    
    28,011
    
    
    
    9.66
    
    
    
    
    
    
    $
    1.819
    
    
    $
    
    
    
    
    10March 31, 2006
    
    
    
    
    
    
    737,478
    
    
    
    9.25
    
    
    
    446,514
    
    
    
    
    
    
    $
    572,883Market Value  $.11 per share
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##### Table of Contents



Corgi
International Limited
  WeightedWeighted
    
    
    
    
    
    
    Average
    
    
    IntrinsicAverage
    
    
    
    
    
    
    Exercise
    
    
    Values ofVesting
    
    Exercise
    
    
    Number
    
    
    Remaining Life
    
    
    Number
    
    
    Price of
    
    
    ExercisableSchedule
    
    Price
    
    
    Outstanding
    
    
    in Years
    
    
    Exercisable
    
    
    Exercisable
    
    
    Options
    
    
    Term$
    0.17
    
    
    
    1,209
    
    
    
    7.2
    
    
    
    1,142
    
    
    $
    0.17
    
    
    $
    5,287
    
    
    
    10$
    0.50
    
    
    
    212,120
    
    
    
    8.3
    
    
    
    123,737
    
    
    $
    0.50
    
    
    $
    532,069
    
    
    
    10$
    0.55
    
    
    
    486,795
    
    
    
    8.3
    
    
    
    486,795
    
    
    $
    0.55
    
    
    $
    2,068,879
    
    
    
    10$
    1.82
    
    
    
    28,008
    
    
    
    8.7
    
    
    
    12,448
    
    
    $
    1.82
    
    
    $
    37,095
    
    
    
    10$
    5.05
    
    
    
    252,826
    
    
    
    10.0
    
    
    
    
    
    
    $
    5.05
    
    
    $
    
    
    
    
    10$
    5.50
    
    
    
    185,160
    
    
    
    8.9
    
    
    
    70,191
    
    
    $
    5.50
    
    
    $
    
    
    
    
    10$
    5.85
    
    
    
    550,000
    
    
    
    9.8
    
    
    
    
    
    
    $
    5.85
    
    
    $
    
    
    
    
    10$
    6.45
    
    
    
    182,919
    
    
    
    9.4
    
    
    
    
    
    
    $
    6.45
    
    
    $
    
    
    
    
    10$
    6.87
    
    
    
    268,678
    
    
    
    9.8
    
    
    
    
    
    
    $
    6.87
    
    
    $
    
    
    
    
    10$
    9.24
    
    
    
    3,246
    
    
    
    5.4
    
    
    
    3,246
    
    
    $
    9.24
    
    
    $
    
    
    
    
    10$
    15.90
    
    
    
    24,000
    
    
    
    8.8
    
    
    
    7,000
    
    
    $
    15.90
    
    
    $
    
    
    
    
    10$
    18.18
    
    
    
    5,000
    
    
    
    5.8
    
    
    
    5,000
    
    
    $
    18.18
    
    
    $
    
    
    
    
    10$
    30.12
    
    
    
    4,166
    
    
    
    7.6
    
    
    
    4,166
    
    
    $
    30.12
    
    
    $
    
    
    
    
    10$
    30.60
    
    
    
    8,333
    
    
    
    7.8
    
    
    
    4,687
    
    
    $
    30.60
    
    
    $
    
    
    
    
    10$
    35.88
    
    
    
    333
    
    
    
    7.2
    
    
    
    333
    
    
    $
    35.88
    
    
    $
    
    
    
    
    10$
    40.50
    
    
    
    3,332
    
    
    
    1.8
    
    
    
    3,332
    
    
    $
    40.50
    
    
    $
    
    
    
    
    10$
    41.25
    
    
    
    1,666
    
    
    
    2.8
    
    
    
    1,666
    
    
    $
    41.25
    
    
    $
    
    
    
    
    10March 31, 2007
    
    
    
    
    
    
    2,217,791
    
    
    
    8.9
    
    
    
    723,743
    
    
    
    
    
    
    $
    2,643,330Market Value  $4.80 per share
 15.
    
    Outstanding Stock WarrantsIn connection with the Merger transaction described in Note 1, certain notes payable of $5.65
million in principal were converted into 902,419 ADSs of ordinary shares of Corgi. In
connection with these notes payable agreements entered into prior to the merger, the Company
had issued 270,716 warrants to purchase ADSs at an exercise price of $7.80. As of March 31,
2007 all these warrants are still outstanding and are exercisable through 2016.As of March 31, 2006, Master Replicas, Inc. had outstanding warrants to purchase 72,561 shares
of
Common Stock to certain holders of Redeemable Series B preferred stock. The warrants were part
of the 2004 convertible loan agreements. The convertible notes were converted to Redeemable
Series B preferred stock in 2005 at an exercise price of approximately $0.002 per share. The
warrants are exercisable any time before the termination date, which is the earlier of
December 14, 2014 or five years after the repayment in full of the standby lines of credit
owing to the warrant holders. The fair value of these warrants was estimated to be nominal on
the date of the initial convertible note payable agreement was entered into during 2005 and no
separate value was assigned to these warrants. On December 27, 2006, 59,500 warrants were
exercised. As of March 31, 2007, the Company had outstanding warrants to purchase 13,061 ADSs
of Corgi at an exercise price of $0.402 per share.As of March 31, 2006, the Company had outstanding warrants to purchase 10,276 shares of
Series A convertible Preferred Stock at an exercisable price of $20.70 per share. The warrants
were issued in conjunction with the conversion of notes payable to Series A preferred Stock in
2004. The warrants are exercisable at any time before the termination dates, ranging from
May 17, 2009 to May 20, 2014. The fair value of these warrants was estimated to be $54,664 at
the time of issuance. The fair value of the warrants were treated as a cost of conversion and
recorded as paid in capital of the Series A Preferred Stock. As of the date of the merger,
3,022 warrants were forfeit as a condition of the merger, and the remaining warrants converted
to warrants for ADSs in the new entity. As of March 31, 2007, the
 F-28




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##### Table of Contents



Corgi
International Limited
  Company had outstanding
warrants to purchase 7,254 ADSs of Corgi at an exercise price of $20.68 per share.As of March 31, 2006, Master Replicas had outstanding warrants, to purchase 80,119 shares of
Series B Preferred Stock at an exercisable price of $0.80 per share. As of December 27, 2006,
all of these warrants were exercised for cash and the shares converted to ADSs. As of March 31,
2006 the warrants were convertible into Series B Preferred Stock which stock is not classified
within the equity section of the balance sheet, the warrants to purchase shares of Series B
Preferred were treated as a derivative liability and are recorded at fair value and adjusted to
fair value at all reporting dates. The fair value of these warrants was de minims on the date
of issuance. At March 31, 2006, the value of these warrants had not changed. At the date of the
Merger, the Company recorded a charge of $380,000 in the accompanying statement of operations
related to the change in value of the derivative liability. Upon completion of the Merger, the
warrants were converted in shares of the Company, and accordingly, the derivative liability was
reclassified into equity.Total warrants outstanding to purchase ADSs at March 31, 2007 totaled 1,090,968.16.
    
    Stockholder Equity and Redeemable Preferred Series B StockDuring the year ended March 31, 2007, the Company issued 131,220 of restricted shares for
services performed during the year. The value of such services aggregated $726,024 and was charged to operations for the year ended March 31, 2007. The shares
issued included 58,945 to the Chief Executive Officer of Master Replicas, Inc. prior to Merger,
45,454 shares for services related to the Merger (see note 21), 4,000 shares to each of the
five Board of Directors, and 6,818 issued to employees related to their terminations from the
Company.Upon the execution of the Merger described in Note 1, all Series A and B preferred stock of
were converted into ordinary shares on a one for one basis. As a result of the redemption
privileges that were given to the redeemable preferred Series B stockholders, these shares
could not be considered and classified as permanent equity and were classified outside of
shareholders equity for purposes of financial statement presentation for all periods presented
prior to the Merger.Pursuant to the Registration Rights Agreement dated as of December 20, 2006 as amended by the
Amendment to Warrants, Commitment to Issue Replacement Warrants, Amendment to Registration
Rights Agreement and Waiver, dated as of August 22, 2007, the Company is obligated to use
commercially reasonable efforts to maintain the effectiveness of its Registration Statement
filed on Form F-3 on April 19, 2007 and declared effective in June 2007, until the earlier of
the date all securities registered thereon has been sold or may be sold pursuant to Rule
144(k). If sales of the registered securities cannot be made for any reason (including the
failure to update the Registration Statement), but excluding the inability of an investor to
sell their ADS due to market conditions and except as excused pursuant to an allowed delay as
described below, the Company will make pro rata payments to each affected investor as
liquidated damages an amount equal to 2.0% of the aggregate amount invested by such investors
in such registered securities for each 30-day period or pro rata for any portion thereof
following the date by which such Registration Statement should have been declared effective.
For not more than twenty (20) consecutive days or for a total of not more than 45 days in any
12 month period, the Company may delay the disclosure of material non-public information
concerning the Company by suspending the use of the prospectus in the Form F-3 Registration
Statement (an allowed delay) and not incur liquidated damages..17.
    
    Employee Benefit Plans and Employment ContractsThe employees of the Company are covered by different benefit plans. Employees of the Companys
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##### Table of Contents



Corgi
International Limited
  Corgi division in the United Kingdom and the United States are entitled to join defined
contribution funds managed by independent trustees in the United Kingdom and the United State
after completing a probation period. The Company arranged for its employees in Hong Kong to
participate in a defined contribution plan managed by an independent trustee.Total expense for all plans was approximately $0, $0, $13,000 and $146,000 for the year ended
December 31, 2004, the year ended December 31, 2005, the three month period ended March 31,
2006 and the year ended March 31, 2007, respectively.The Company has entered into various employment arrangements with four key executives in the
company. The terms are summarized below:
 
    
    On December 26, 2006, the Company entered into a three year employment agreement
with Michael J. Cookson, pursuant to which Mr. Cookson will be employed as our Chief
Executive Officer.
    
    On December 20, 2006, Cards Inc. Limited and Darren Epstein entered into a service
agreement, pursuant to which Mr. Epstein will be employed as our Executive Vice
President.
    
    On April 28, 2006, the Company entered into a Letter agreement with Denis Horton as
Corgi Group Managing Director, Europe.
    
    On May 22, 2007, the Company we entered into a Letter Agreement with Jack Lawrence
in connection with Mr. Lawrences appointment as our Chief Financial Officer, Chief
Operating Officers and General Manager North America.
 The total combined executive compensation for base salary is $1,060,000. In addition, the
Company Executives will have the opportunity to earn a performance based bonus of approximately
50% of salary for the year ended March 31, 2008. The executive employment agreements include
severance payments ranging from six months to one year of salary. Lastly, a combined total of
737,500 of stock options were granted to the executives listed above.18.
    
    Earnings per ShareThe following table sets forth the computation of basic and diluted loss per ordinary share:
 2004
    
    2005
    
    2006
    
    2007In thousands except per share amounts
    
    (000)
    
    (000)
    
    (000)
    
    (000)Numerator for basic and diluted loss per
ordinary share:Net Income ( loss)
    
    
    (3,739
    )
    
    
    4,327
    
    
    
    343
    
    
    
    (13,263
    )Denominator:Basic weighted average number of
ordinary shares outstanding
    
    
    33
    
    
    
    37
    
    
    
    37
    
    
    
    2,511Convertible Stock
    
    
    
    
    
    
    3,720
    
    
    
    3,720
    
    
    
    Options and Warrants
    
    
    
    
    
    
    888
    
    
    
    875
    
    
    
    Diluted weighted average number of shares
    
    
    33
    
    
    
    4,645
    
    
    
    4,632
    
    
    
    2,511Basic and Diluted Income per common share:Basic Earnings ( loss)
    
    
    115.04
    )
    
    
    115.57
    
    
    
    9.17
    
    
    
    (5.28
    )Fully Diluted Earnings (loss)
    
    
    (115.04
    )
    
    
    0.93
    
    
    
    0.07
    
    
    
    (5.28
    )
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##### Table of Contents



Corgi
International Limited
  Dilutive securities, options and warrants, which are convertible into approximately 65,000 and
3,308,759 ordinary shares as of December 31, 2004 and March 31, 2007, respectively, have not
been included in the weighted-average shares used for the calculation of earnings per share
since the effect of such securities would be anti-dilutive.As disclosed in note 1, the Merger provides for additional purchase price in the release of
ordinary shares to the shareholders of Cards Inc. Limited, contingent upon attainment of
certain amounts of earnings and approval by the board of directors of the Company. For the
purpose of the above 2007 diluted income per share calculations, these 612,213 ADS subject to
escrow have not been included because their inclusion would be anti-dilutive.19.
    
    Segment InformationSubsequent to the Merger, the Companys operations consist of Corgi, Master Replicas and Cards.
Corgi primarily consists of the design, marketing and distribution of die-cast products under
its proprietary brand names. Master Replicas consists of the design, marketing and distribution
of movie and television prop replicas. Cards are a distributor of trading cards and pop culture
memorabilia. Segment information is being provided exclusively as of and for the year ended
March 31, 2007 as all other periods presented represent the financial information solely of
Master Replicas. 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 is as follows (in thousands):(a)
    
    Net Sales
 20072007 net sales consist of the following:Master Replicas
    
    
    22,951Cards
    
    
    4,080Corgi
    
    
    8,466Total 2007 net sales
    
    
    35,497Geographical analysis of net sales:United States of America
    
    
    23,666Other countries
    
    
    11,83135,497
 (b)
    
    Net Loss
 2007Master Replicas
    
    
    (3,831
    )Cards
    
    
    (1,844
    )Corgi
    
    
    (7,588
    )Total 2007 (loss) from operations
    
    
    (13,263
    )
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Corgi
International Limited
  (c)
    
    Reportable Segment Asset and LiabilitiesThe reconciliation of segment assets and liabilities is as follows:
 Geographical LocationUnited
    
    
    UnitedStates
    
    
    Kingdom
    
    
    Hong Kong
    
    
    TotalTotal assets:Master Replicas
    
    
    9,774
    
    
    
    9,774
    
    
    
    
    
    
    
    
    
    
    
    9,774Cards
    
    
    17,429
    
    
    
    
    
    
    
    17,429
    
    
    
    
    
    
    
    17,429Corgi
    
    
    39,627
    
    
    
    2,559
    
    
    
    35,046
    
    
    
    2,022
    
    
    
    39,627Total assets
    
    $
    66,830
    
    
    $
    12,333
    
    
    
    52,475
    
    
    
    2,322
    
    
    $
    66,830Total liabilities:Master Replicas
    
    
    6,401Cards
    
    
    16,044Corgi
    
    
    15,496Total liabilities
    
    $
    37,941
 (d)
    
    Long-Lived Assets
 2007
    
    
    Geographical LocationUnited
    
    
    UnitedStates
    
    
    Kingdom
    
    
    Hong Kong
    
    
    TotalLong-lived assets:Master Replicas Inc.
    
    
    539
    
    
    
    539
    
    
    
    
    
    
    
    
    
    
    
    539Cards Inc. Limited
    
    
    7,294
    
    
    
    
    
    
    
    7,294
    
    
    
    
    
    
    
    7,294Corgi International Limited
    
    
    24,108
    
    
    
    
    
    
    
    24.105
    
    
    
    3
    
    
    
    24,108Total long-lived assets
    
    
    31,941
    
    
    $
    539
    
    
    
    31,399
    
    
    
    3
    
    
    $
    31,941
 Long-lived assets represent property and equipment, tooling, intangible assets and goodwill.20.
    
    Subsequent EventsAs required by an Registration Rights agreements entered into in connection with December
private financings and the Merger, the Company filed a registration statement on Form F-3 with
the SEC registering 8,616,755 ADSs for resale (including 1,090,968 ADSs issuable upon exercise
of existing warrants) which has been declared effective.The Companys existing license with Lucasfilm Ltd. for Star Wars products expires on December
31, 2007. Lucasfilm Ltd. had previously notified the Company that it was not willing to provide
a new license on the terms proposed by the Company. The Company believed that it was not in the
best interest of its shareholders to accept a new license on the terms proposed by Lucasfilm
Ltd and therefore notified Lucasfilm Ltd. that it would not renew the contract.
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##### Table of Contents



Corgi International Limited
  On August 22, 2007 the Company and its warrant holders amended the terms of the 1,070,654
warrants issued in December 2006 to reduce their exercise price from $7.80 per share to $5.00
per share if exercised by September 5, 2007. The terms of any warrant not exercised by
September 5, 2007 will remain unchanged. Holders of 368,863 warrants exercised their warrants
for approximately $1.844 million. The Company expects to file with the SEC a registration
statement for resale of these shares within 120 days their
exercise. In addition, those holders who exercised their warrants at
$5.00 per share received 184,427 additional warrants on
substantially the same terms as the one exercised, with an exercise
price at $6.00 per share. The company will record a charge to
operators for the value of the new warrants issued.In July of 2007, the Company entered into a revolving inventory financing facility with Gateway
Trade Finance, LLC. The amount of financing available under this facility is based on
committed orders for inventory in the United States and is limited to $3.5 million, unless otherwise agreed to by Gateway.In June 2007, as part of a new License Agreement with Disney,
the Company obtained a $315,000 Letter of
Credit securing the minimum royalty commitment.21.
    
    Related Party TransactionsIn December 2006, the Company paid McGettigan Wick & Co. and Consor Capital LLC, entities
related to the Company through the Companys Board of Directors
or through ownership of the
Companys shares, each $300,000 for services in connection with the December 2006 transactions
and other consulting services, of which $150,000 was paid in ADSs at a value of $6.60 per ADS
and $150,000 was paid in cash.
 F-33