ZINDART LTD, 10-K, 2000-06-29

ZINDART LTD
10-K, 2000-06-29
GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES)

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------

FORM 10-K
------------------------
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

(MARK ONE)

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

FOR THE FISCAL YEAR ENDED MARCH 31, 2000

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

FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .

COMMISSION FILE NUMBER: 000-22161

ZINDART LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C>
HONG KONG S.A.R., CHINA NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

FLAT C&D, 25/F, BLOCK 1, NOT APPLICABLE
TAI PING INDUSTRIAL CENTRE (ZIP CODE)
57 TING KOK ROAD, TAI PO,
NEW TERRITORIES, HONG KONG S.A.R., CHINA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 011-852-2665-6992

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
NOT APPLICABLE. NOT APPLICABLE.
</TABLE>

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

AMERICAN DEPOSITARY SHARES
(REPRESENTING ORDINARY SHARES)
(TITLE OF CLASS)

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

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

The approximate aggregate market value of the American Depositary Shares
("ADSs") held by non-affiliates of the Registrant, based upon the last sale
price of the ADSs reported on the Nasdaq National Market on June 28, 2000 was
24,293,843.75.

The number of ordinary shares ("Shares") outstanding as of March 31, 2000
was 8,834,125.

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REPORTS TO SHAREHOLDERS

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

FORWARD-LOOKING STATEMENTS

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

DOCUMENTS INCORPORATED BY REFERENCE

Certain parts of the Zindart Limited Proxy Statement relating to the annual
general meeting of shareholders to be held on September 8, 2000 (the "Proxy
Statement") are incorporated by reference into Part III of this Annual Report on
Form 10-K.

CURRENCY CONVERSIONS

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

PART I

ITEM 1 -- BUSINESS

Zindart Limited was organized under the laws of Hong Kong in 1978. Unless
the context otherwise requires, references in this Annual Report on Form 10-K to
the "Company" refer to Zindart Limited and its subsidiaries (including Hua Yang
and Corgi), the term "Zindart" refers to Zindart Limited and its subsidiaries
(excluding Hua Yang and Corgi), the term "Hua Yang" refers to Hua Yang Holdings
Co., Ltd., its main operating subsidiary, Hua Yang Printing Holdings Co.,
Limited, and its other subsidiaries and "Corgi" refers to Corgi Classics
(Holdings) Ltd., and its main operating subsidiary, Corgi Classics Ltd. The
Company's executive offices are located at Flat C&D, 25/F, Block 1, Tai Ping
Industrial Centre, 57 Ting Kok Road, Tai Po, New Territories, Hong Kong, and its
telephone number is 011-852-2665-6992.

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packaging and other paper products. The Company is headquartered in Hong Kong
and its manufacturing operations are located in the neighboring Guangdong
Province of the PRC.

The Company serves a growing number of customers that are brand-name
marketers of die-cast and injection-molded giftware and collectibles, as well as
packagers and publishers of books in the United States and Europe. Customers for
die-cast and injection-molded products include Hallmark Cards, Inc.
("Hallmark"), Mattel(R) Toys ("Mattel(R)"), Hasbro, Inc., Sieper Werke GmbH,
Revell Monogram, Alcone Marketing Group Inc. and Freeplay Group. Customers for
books, paper and packaging products include Mattel(R), Intervisual Books, Inc.,
Reader's Digest, Inc., The Metropolitan Museum of Art, Jetta Co. Ltd., Penguin
Putnam Inc. and Macmillan Children's Books. See Note 24 -- "Segment Information"
of the Notes to Consolidated Financial Statements of Zindart.

DEVELOPMENT OF THE COMPANY

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

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

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

In the Hua Yang Acquisition, the shareholders of Hua Yang exchanged all of
the outstanding ordinary shares and preferred shares of Hua Yang Holdings Co.,
Ltd. for $35.0 million in cash and up to 1,000,000 Shares (collectively, the
"Acquisition Consideration"). Of the 1,000,000 Shares, 666,667 were issued at
the closing of the Hua Yang Acquisition and placed in escrow for a period of six
months to secure certain indemnification obligations under the Exchange
Agreement. By the terms of the Exchange Agreement, the remaining 333,333 Shares
were to remain unissued until completion of an independent audit of Hua Yang's
financial results for the two-year period ending March 31, 1999. Because Hua
Yang did not meet the earn-out requirement as of March 31, 1999, the Company has
not issued and will not issue the remaining 333,333 Shares. As of March 31, 2000
the Company was still in the process of issuing the 666,667 Shares reserved in
connection with the Hua Yang Acquisition.

In July 1999, the Company acquired (the "Corgi Acquisition") Corgi Classics
Ltd. ("Corgi"), a leading collectibles company in the United Kingdom. Corgi
produces classics collectible scale model cars, trucks,

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buses and planes and distributes its collectibles in Europe, the United States
and Asia. The Company expects the Corgi Acquisition to establish synergies
between Corgi's branded collectibles, marketing capabilities and product
innovations in the collectibles industry with Zindart's manufacturing
capabilities. The Corgi Acquisition is also expected to allow the Company to
strengthen its marketing infrastructure and advance its goals to continue
worldwide growth and expansion and increase brand-building opportunities. In
November 1999, Corgi acquired in an asset purchase (the "Lledo Acquisition") the
rights to the name Lledo, a leading brand in the U.K. premium collectibles
industry, and certain tooling for collectibles manufactured by Lledo for an
aggregate of GBP1.95 million in cash. The Lledo Acquisition is expected to
further grow Corgi's collectible business in the U.K. market.

THE COMPANY'S SOLUTION

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

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

High-Quality Production

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

Manufacturing Capacity

The Company currently employs approximately 9,000 production workers and
has an aggregate of 1,962,000 square feet of manufacturing space with the
capacity for up to 15,800 workers in its two manufacturing facilities. The
Company believes that its available production capacity provides added
flexibility to further shorten production cycles, which in turn will enable the
Company to offer, among other things, a just-in-time manufacturing service.

Turnkey Manufacturing Service

The Company's turnkey manufacturing service fulfills a customer's
requirements at every stage in the production process, including component
sourcing, computer-aided product engineering and design, model and mold making
and manufacturing, assembling and packaging of the finished product. This
coordinated, one-stop production process provides the Company's customers with
(1) shortened lead times from design to production, (2) a single participant in
the manufacturing process instead of the multiple participants previously
required and (3) increased efficiency, resulting in lower per-unit costs. See
"Business -- Manufacturing."

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Commitment to Efficiency

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

THE COMPANY'S STRATEGY

The Company's goal is to become the leading manufacturer of high-quality
die-cast and injection-molded collectibles, hand-made books, specialty packaging
and other paper products for the premier designers and marketers of such items.
The Company also seeks to expand its self-branded presence in in the global
collectibles market through the Corgi Acquisition and Lledo Acquisition. The
Company's business strategy to achieve these goals is to focus on the following:

Develop Additional Major Customers

Currently, the Company has a small core group of large customers, but it
also manufactures products for many other smaller customers. The Company expects
that it may be able to develop several of these smaller customers into major
customers as they become familiar with the benefits of the Company's turnkey
manufacturing service. The Company offers major customers a dedicated production
team and dedicated production space which can provide such customers with
attractive advantages. For example, the Company can customize its production
facility to meet the specific needs of such customers, and the customer is able
to exercise greater control over the production process, thereby enhancing
quality control and cost efficiency, increasing confidentiality, and expediting
scheduling and delivery timetables. The Company believes that its ability to
offer such dedicated production services has led to enhanced relationships with
its core customer base. During fiscal year 2000, the Company successfully
started business relationships with new customers in the U.S., Europe and Asia,
including being selected as a non-exclusive approved factory for the manufacture
of Alcone Marketing Group's Pokemon gold trading cards.

Diversify Product Offerings

The Company has established itself as a leading manufacturer of die-cast
collectibles, collectible holiday ornaments, toys, hand-made books, specialty
packaging and other paper products. The Company intends to diversify its product
offerings to include the manufacture of other consumer products that utilize the
Company's current competitive advantages and production expertise. In fiscal
year 2000, the Company expanded its offerings to include die-cast trading cards
for Alcone Marketing Group and flashlights and radios for Freeplay Group. While
the Company maintains its strength in manufacturing collectibles, it seeks to
expand its manufacturing of premium and electronic products.

Deploy Advanced Management Information Systems

The Company seeks to enhance its manufacturing and business processes
through the deployment of advanced management information systems that enable
the real-time monitoring and management of its operating and financial
performance and resources. The Company has developed custom manufacturing
software and deployed a comprehensive enterprise software solution. The
implementation of the software has improved the efficiency of the production
lines to which they have been applied, and the Company is extending the software
to cover other production lines.

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MARKETS, PRODUCTS AND CUSTOMERS

Die-cast Collectibles

The Company manufactures a wide range of metal die-cast collectible scale
model replicas of trucks, planes and automobiles, such as the Ford Taurus,
Chevrolet Monte Carlos Ferrari, Audi TT, Corvette, Mustang and Formula One cars.
These replicas, which come in various scales from 1/18 to 1/64 of the size of
the original product, are medium and high-feature products that must meet
exacting standards. Many of the die-cast replicas have complex designs which
require high-quality workmanship and decorative details, with pad printing of as
many as one hundred imprints. The most complex of these models incorporate up to
200 moveable parts. The die-cast scale model replicas manufactured by the
Company are sold through hobby shops, collectors' clubs, car and equipment
dealers, toy and gift stores and other channels. These products typically retail
in the United States for between $150 and $180 for the high-feature products,
between $25 and $60 for the medium-feature products and between $5 and $10 for
the small-scale products. Many of these products have nostalgic appeal to adult
consumers. In addition, some of these products, especially the automobile
replicas, have attracted a following of collectors and are traded on secondary
markets. The Company believes, based on many years of sales experience, that
many die-cast collectibles have enduring consumer appeal.

The Company's primary customers for die-cast collectibles are Mattel(R) and
Hallmark. During the year, the Company has decided to end its business
relationship with Ertl, formerly the Company's largest customer due to the
change in standards and price requirements of Ertl under its new owner, Racing
Champions. Although the loss of business from Ertl has not yet fully replaced by
new customers, the Company believes that Corgi and any newly developed business
will eventually make up the loss. For the fiscal year ended March 31, 2000,
sales to new customers including Alcone Marketing Group and Freeplay Group
represented approximately 8.1% of the Company's total revenues. Sales to
Mattel(R), a leading U.S. designer and marketer of die-cast collectible replicas
and general toys that has had a business relationship with the Company since
March 1997, represented 21.1% of the company's total revenues for the fiscal
year ended March 31, 2000 while sales to Hallmark represented 8.5% of the
company's total revenues for the fiscal year 2000. See "Risk Factors -- Risks
Relating to the Company -- Dependence on Major Customers."

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

Collectible Holiday Ornaments

Hallmark, long known as a leading producer of greeting cards, also
distributes collectible holiday ornaments and giftware products. Hallmark relies
on the Company to manufacture many of its Keepsake Ornaments, which consist of a
variety of Christmas ornaments, holiday-themed pieces and other giftware both in
die-cast zinc alloy and plastic. Hallmark's Keepsake Ornaments products also
include free-standing decorations such as die-cast replicas of pedal cars. The
production of Keepsake Ornaments products requires highly-developed hand spray
painting skills and attention to quality by each member of the Company's
workforce in order to meet Hallmark's exacting aesthetic and quality
requirements.

The Keepsake Ornaments manufactured by the Company are collectibles sold
through authorized retail outlets. These products typically retail in the U.S.
for between $7 and $25. Many purchasers of Keepsake Ornaments consider these
products to be valuable, collectible items. In addition to traditional holiday
themes, many Keepsake Ornaments depict characters from storybooks and films such
as the Wizard of Oz, Star Trek, Star Wars, Madam Alexandra and Peanuts, as well
as various well-known Disney characters. For the fiscal year ended March 31,
2000, sales to Hallmark represented approximately 8.5% of the Company's total
revenues. See "Risk Factors -- Risks Relating to the Company Dependence on Major
Customers."

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Books

The Company manufactures "pop-up" books, novelty books and board books.
Pop-up books are books containing specially die-cut, folded and glued paper
pieces that, when the book is opened, "pop" out of the book in three dimensions.
These products typically retail in the U.S. for between $3 and $50. Most of the
Company's "pop-up" books are targeted at children, but a small segment also
caters to the adult and young adult markets. Novelty books, sometimes also
referred to as "book-plus," incorporate an extra or unusual element. These
elements often make the book interactive or provide play value; examples include
an electronic device, a noise maker, plastic, vinyl, textured or scented
materials, or a plush toy. Board books usually are die-cut or punched into an
unusual shape, thus requiring hand-assembly. These books are made of
heavyweight, stiff paperboard, are durable in nature and usually are targeted at
the children's market. Often board books come in a set of three or more titles
and are grouped together in a hand-assembled slip case, sleeve or custom made
box. These books are sold through toy and book stores, authorized dealers and
other channels.

Specialty Packaging

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

Other Paper Products

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

Corgi Products

Corgi is one of the oldest and fastest growing U.K. -- based producers of
classics collectible scale model cars, trucks, buses and planes. Corgi has a
comprehensive network of distribution channels, including retail, wholesale,
direct mail and the Internet.

Corgi die-cast models comprise a broad portfolio of different products,
ranging from highly authentic models produced in limited editions to lower
priced models targeted primarily at the toy market. Its product portfolio is
broadly divided into the following categories: (1) collectible steam vehicles,
trucks and other road transport; (2) collectible public transport; (3)
collectible aircraft; (4) traditional die-cast toys; and (5) collectible metal
figurines. Corgi holds licences for a number of major properties including The
Beatles, James Bond, Guinness, Manchester United and Madame Tussauds. In
addition to the Corgi brand, Corgi distributes its various product ranges under
the brand names Aviation Archive, The Original Omnibus Company, ICON figurines
and Lledo.

Corgi's products are sold in 30 markets around the world. In addition to
the United Kingdom, other important markets include the United States, Canada,
France, Germany, Hong Kong and Japan.

MANUFACTURING

The Company offers a fully-integrated turnkey manufacturing service. With
this service, the Company integrates component sourcing, computer-aided product
engineering, model-making and mold-making, as well as manufacturing, assembling
and packing of finished product. This enables the Company to meet all of a

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customer's design engineering and manufacturing needs and eliminates the need
for intermediaries. By coordinating product development and process design with
production and packaging, the Company is able to shorten the lead time from
conceptual design to product delivery and to lower product cost while
maintaining high quality and reliability.

The Company's die-cast and injection-molded production facilities are
located in Dongguan, in the PRC. The Dongguan Facility includes (1) a product
engineering area, (2) model-making and mold-making areas, (3) die-casting and
injection-molding areas, (4) hand-spray and electrostatic painting and pad
printing areas, (5) assembly and packing areas, (6) a warehouse, and (7)
dormitory, dining and recreational facilities. The Company's product engineering
staff makes extensive use of sophisticated computer-aided design systems for the
development of prototype-scale models. The die-casting, injection-molding and
electrostatic painting areas operate on a two-shift basis. The hand-spray, pad
printing and assembly and packing areas run on a single-shift basis. Assembly
and hand painting areas account for most of the total work force and production
area. The Company's hand-made book, specialty packaging and paper production
facilities are located between Dongguan and Hong Kong in Shenzhen (the "Shenzhen
Facility") in the PRC. The Shenzhen Facility includes (1) a pre-press area,
press rooms and print finishing area, (2) die-cut, trimming, guillotining and
punching areas, (3) packaging and book hand assembly areas, (4) a warehouse, and
(5) dormitory and dining facilities. The press rooms operate on a two-shift
basis with seven advanced German presses delivering up to six-color printing
capability. The die-cut department also runs on a two-shift basis during the
peak season. Hand assembly for both packaging and books generally works one
shift, adding an additional shift during the peak season, and accounts for most
of the total work force and production areas.

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

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

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

COMPETITION

The Company faces significant competition in each of its product segments.
In die-cast collectibles and collectible holiday ornaments, the Company competes
with several companies located primarily in the PRC. In toys, the Company
competes with numerous companies located all over the world. In "pop-up" books,
the Company competes with several companies located in Southeast Asia and South
America. In novelty and board books as well as packaging, the Company competes
with several companies located in Hong Kong. The Company believes that the basis
of competition in the manufacturing of all of its products is price, quality,
technical capabilities and the ability to produce in required volumes and to
timely meet delivery schedules. The ability to meet increasing demands of
just-in-time ordering by customers is becoming one of the essential factors for
maintaining competitive advantage in the die-cast market. The Company believes
that it can maintain this competitive advantage through its expanded facilities
and reorganization programs. The

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Company also expects increased competition from other industry participants that
may seek to enter one or more of the Company's high margin product segments.
Many of the existing and potential competitors have significantly greater
financial, technical, manufacturing and marketing resources than the Company.

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

SUBSIDIARIES

The Company has a controlling interest in two mold-making subsidiaries. In
August 1994, Zindart acquired a 55% interest in Onchart Industrial Limited, a
British Virgin Islands corporation. In December 1994, Zindart acquired a 51%
interest in Luen Tat Mould Manufacturing Limited ("Luen Tat"), and in July 1998,
Zindart increased its ownership interest in Luen Tat to a 90% stake by
committing to payment of $1.65 million pursuant to a payment schedule that was
completed on September 29, 1999. Goodwill in this acquisition accounted for
$0.54 million and will be amortized over 10 years. Presently, Luen Tat conducts
its mold-making operations in one of the Company's factories, and provides the
Company with the largest in-house mold and model-making capacity in southern
China. Dongguan Xinda Giftware Company Limited is a Sino-foreign contractual
joint venture between the Company and Dongguan Hengli Trading General Company,
an entity that is controlled by PRC governmental bodies. This contractual joint
venture was established in the PRC to own and operate the Dongguan Facility.
This joint venture has a term of 15 years, expiring in November 2009. Under the
joint venture agreement and the supplemental agreement thereto, the Company is
entitled to 100% of the joint venture's profit, after paying its joint venture
partner a pre-determined annual fee.

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

BACKLOG AND SEASONALITY

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

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

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

In light of the increasing demands of just-in-time manufacturing and the
competitive environment in the books and packaging sector, the Company expects
to face pressure on its sales and revenue. As of March 31, 2000, the Company had
orders on hand of approximately $32.1 million, compared to $34.0 million as of
March 31, 1999, a decrease of 5.6% from the previous year.

TRADEMARKS AND OTHER PROPRIETARY RIGHTS

The Company has no registered trademarks. The Company has received a U.S.
patent on a novelty book product. The Company's key employees have entered into
confidentiality agreements with the Company.

EMPLOYEES

As of March 31, 2000, the Company employed approximately 11,320 persons, of
whom approximately 9,000 were production workers, 1,420 were administrative
staff and 900 were engineering and technical personnel. As is customary for
employers in the PRC, each of the Company's production facilities includes
housing facilities for workers. The Company is committed to providing good
working and living conditions for its employees in the PRC. To that end, the
Company has adopted a code of conduct relating to human rights, including a
prohibition on use of child labor, and guidelines regarding worker safety, wages
and hours.

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

FINANCIAL INFORMATION ABOUT FOREIGN OPERATION

Information as to foreign operations is included in Note 24 to the
consolidated financial statements "Segment Information" appearing on pages 49 to
51 of this Annual Report on Form 10-K.

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THE CORGI ACQUISITION

Overview

On July 28, 1999, the Company acquired all of the outstanding shares of
stock of Corgi Classics Limited, a corporation registered in England and Wales.
Corgi is a globally recognized brand name with a reputation for high quality and
technical innovation. Corgi die-cast vehicles were launched in 1956 and rapidly
became a leading brand name in the collectibles industry. The "James Bond" Aston
Martin die-cast model car sold over 5 million pieces during the first year on
the market. The Corgi brand name has enjoyed renewed prominence since a
management buyout of Corgi in 1995, after which Corgi's management focused on
the nostalgic value of the line and the potential to create a collectibles
market. Located in Leicester, United Kingdom, Corgi employs 59 people at its
facilities in the United Kingdom and Hong Kong . There are over 300 Corgi retail
outlets, including 30 Collector Centers in the United Kingdom which carry the
full line of Corgi's cars, trucks, buses, and airplane die-cast scale models.
Corgi also sponsors a Corgi Classics Roadshow vehicle which can be seen at over
40 events a year and is visited by an estimated 1.5 million people every year.

Terms of Transaction

Pursuant to a Sale and Purchase Agreement dated July 28, 1999 among the
Company, Exitarena Limited ("Exitarena"), Christopher Guest, Esq. and certain
other parties (collectively with Mr. Guest, the "Stockholders"), Exitarena
acquired all of the outstanding shares of stock of Corgi Classics Limited from
the Stockholders and was subsequently renamed Corgi Classics (Holdings) Ltd. As
a result of the Corgi Acquisition, Corgi Classics Ltd. became a wholly owned
subsidiary of Exitarena, which is a wholly owned subsidiary of the Company. In
consideration for the shares of stock of Corgi, the Company paid total
consideration of GBP29,000,000 to the Stockholders, including the procurement or
repayment by Corgi Classics Ltd.'s existing bank indebtedness as well as certain
preferred stock issued to a number of Stockholders for GBP6,557,817.21 and the
issuance by Exitarena of a total of GBP3,000,000 in loan notes (the "Loan Note")
to certain Stockholders who are members of senior management of Corgi. The Loan
Note carries with it a right exercisable by the Noteholders (as defined in the
Loan Note) to require the Company to purchase the outstanding amount of the Loan
Note in exchange for the issuance to the Noteholders of shares of the Company at
a price equal to 80 percent of the average market price of the common stock over
a ten-day period prior to exercise of the right, so long as the average market
price is above $12. This right is exercisable over a three-year period
commencing on July 28, 1999 subject to certain conditions.

The acquisition of Corgi was financed by a $30,000,000 term loan extended
on July 28, 1999 to Exitarena by ABN AMRO Bank N.V., London Branch (the "Term
Loan"). A standby letter of credit facility between ABN AMRO Bank, N.V., Hong
Kong Branch, and certain other financial institutions and the Company also in
the amount of $30,000,000, was entered into on the same date in support of the
Term Loan.

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RISK FACTORS

Limited Precedent

There is limited precedent with which to evaluate the potential risks and
rewards related to the development, financing, ownership and operation of a
light manufacturing company in the PRC.

Limited Reporting Requirements

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

Risks Relating to the Company

Dependence on Major Customers. Sales to two core customers -- Hallmark, and
Mattel(R) -- account for a majority of the Company's total net sales. Sales to
Hallmark, and Mattel(R) as a percentage of the Company's total net sales during
fiscal years 1999 and 2000 were approximately 41.3% and 29.6%, respectively.
Zindart began a business relationship with Mattel(R) in February 1997. As a
result, the Company may be more susceptible to a loss of business from Mattel(R)
than it would be from its other customers with which the Company has longer-term
relationships. For example, in fiscal year 1999, Mattel(R) switched to internal
production of its small scale (1/64) cars, which had previously been produced by
Zindart. Sales to the eight next largest customers as a percentage of the
Company's total net sales during fiscal 1999 and 2000 were approximately 34.6%
and 30.0%, respectively. The Company's dependence on its core customers is
expected to continue in the foreseeable future. Although management believes
that any one of its customers could be replaced eventually, the loss of any one
of its major customers, particularly Mattel(R) or Hallmark would have a material
adverse effect on the Company's business, financial condition and results of
operations. The Company's sales transactions with all of its customers are based
on purchase orders received by the Company from time to time that are subject to
cancellation.

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

Competition. The Company faces significant competition in each of its
product segments. In die-cast collectibles and collectible holiday ornaments,
the Company competes with several companies located primarily in Hong Kong and
the PRC. In toys, the Company competes with numerous companies located all over
the world. In "pop-up" books, the Company competes with several companies
located in Southeast Asia and South America. In novelty and board books as well
as packaging, the Company competes with several companies located in Hong Kong
and other parts of the PRC. The Company believes that the basis of

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competition in the manufacturing of all of its products is price, quality,
technical capabilities and the ability to produce in required volumes and to
meet delivery schedules in a timely manner. The Company expects increased
competition from other industry participants that may seek to enter one or more
of the Company's high margin product segments. Many of the existing and
potential competitors have significantly greater financial, technical,
manufacturing and marketing resources than the Company.

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

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

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

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

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result in production delays and have an adverse effect on the book and packaging
division's business, financial condition and results of operations.

If a natural disaster, such as a typhoon, fire or flood, were to destroy or
significantly damage any of the Company's facilities or if any such facility
were to otherwise become unavailable or inoperable, the Company would need to
obtain alternative facilities from which to conduct its operations, which would
result in significantly increased operating costs and significant delays in the
fulfillment of customer orders. No assurance can be given that alternative
facilities could be obtained at an affordable price or at all. Such increased
costs or delays, or inability to obtain alternative facilities, would have a
material adverse effect on the Company's business, financial condition and
results of operations.

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

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

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

The Company purchases its raw materials from a limited number of suppliers.
The Company has no formal written agreements with any of its suppliers, but the
Company is not dependent upon any single

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

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

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

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

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

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itself maintains quality assurance, there can be no assurance that the Company's
products will not be found to violate applicable laws, rules and regulations,
which could have a material adverse effect on the business, financial condition
and results of operations of the Company. In addition, there can be no assurance
that more restrictive laws, rules and regulations will not be adopted in the
future, or that the Company's products will not be marketed in the future in
countries with more restrictive laws, rules and regulations, either of which
could make compliance more difficult or expensive, and which could have a
material adverse effect on the Company's business, financial condition and
results of operations.

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

Taxation. The Hong Kong statutory income tax rate is currently 16%, and the
PRC income tax rate on the Company's Sino-foreign joint ventures is currently a
maximum of 27% (24% state income tax and 3% local income tax). The Company
presently is exempt from PRC income tax pursuant to tax holidays that decreased
to partial exemptions in March 1997 and terminate as early as March 2001. The
Company will be required to pay taxes in the PRC based on the income, if any, of
its subsidiaries in the PRC as these tax holidays expire. The Company's
effective tax rate was 9.6% for fiscal year 1999 and 18.3% for fiscal year 2000.
The amount of income realized is based in a large measure on the transfer prices
the Company pays for the products manufactured in its joint ventures located in
the PRC. In the event that the PRC were to successfully challenge the transfer
prices established by the Company, the Company would become subject to increased
taxation in that jurisdiction. As a result, the effective tax rate of the
Company would increase, which in turn could have a material adverse effect on
the Company's business, financial condition and results of operations. Under
interpretations relating to allocation of income under Hong Kong tax law,
Zindart recognizes one-half of the gross profit of Zindart as taxable income in
Hong Kong, regardless of the amount of gross profit realized in the PRC. In the
event that these interpretations change or are held invalid, the Company could
be required to recognize more taxable income in Hong Kong. As a result, the
effective tax rate of the Company would increase, which would in turn have a
material adverse effect on the Company's business, financial condition and
results of operations. See Note 16 of the Notes to Consolidated Financial
Statements of Zindart.

Year 2000 Matters. To date, the Company has not experienced any significant
problems related to Year 2000 issues associated with the computer systems,
software, other property and equipment we use. However, the Company cannot
ensure that the Year 2000 problem will not adversely affect its business,
operating results or financial condition at some point in the future. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Implications."

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

Environmental Matters. The Company's operations involve the use of certain
toxic substances, including plastic resins, oil-based paints and cleaning
solvents. The Company is, and is likely to continue to be, subject to PRC
national, provincial and local environmental protection laws and regulations.
Such laws and regulations currently impose a uniform fee on industrial
wastewater discharges and a graduated schedule of pollution fees for the
discharge into the environment of waste substances in excess of applicable
standards, require the payment of fines for violations of laws, regulations or
decrees and provide for possible closure by the central, provincial or local
government of any facility that fails to comply with orders requiring it to
cease or cure certain activities deemed by such authorities to be causing
environmental damage. The Company

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currently disposes of its waste substances in a manner it believes is consistent
with similarly-situated companies operating in the PRC. Such disposal practices
may not be consistent with those of companies operating in the United States.
There can be no assurance that the Company will be in compliance with applicable
laws and regulations and will avoid incurring the consequences of
non-compliance, or that PRC authorities will not impose additional regulatory
requirements that would necessitate additional expenditures for environmental
compliance. Any such occurrence could have a material adverse effect on the
Company's business, financial condition and results of operations.

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

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

Country Risks

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

Market Decline in Southeast Asia. Several countries in Southeast Asia,
including Korea, Thailand and Indonesia, experienced significant devaluation of
their currencies and a decline in the value of their capital markets in 1997
Asian financial crisis. There can be no assurance that the Company's operation
results will not be affected by the general economic climate in these areas.
Because virtually all of the Company's products are sold into developed
countries not experiencing these declines, the Company does not believe that the
declines in Southeast Asia will affect the demand for the Company's products.
Furthermore, because most of the Company's products are, or at the Company's
request may be, paid for in U.S. dollars, the Company believes that it is less
susceptible to the effects of a devaluation, if subsequently experienced, in the
Hong Kong dollar or the RMB. The decline in the currencies of these countries
may, however, render the Company's products less competitive if competitors in
Southeast Asia are able to manufacture competitive products at a lower effective
cost. No assurance can be given as to the ability of the Company's products to
continue to compete with the products of competitors from these countries or
that currency devaluation or other effects of the decline in Southeast Asia will
not have a material adverse effect on the Company's business, financial
condition and results of operations.

17
<PAGE> 18

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

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

Risks Relating to Hong Kong

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

Risks Relating to the PRC

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

NTR Status. The PRC currently enjoys normal trading relations ("NTR")
status granted by the United States, pursuant to which the United States imposes
the lowest applicable tariffs on PRC exports to the United States. No assurance
can be given that the PRC's NTR status will be continued in future years. The
PRC's loss of NTR status could adversely affect the Company's business by
raising prices for its products in the United States, which could result in a
reduction in demand for the Company's products by its U.S. customers.
Furthermore, trade friction between the PRC and the United States may have an
influence on after-market prices of the ADSs offered hereby.

18
<PAGE> 19

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

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

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

ITEM 2 -- PROPERTIES

The Company is headquartered in part of one building in the Tai Ping
Industrial Centre comprising approximately 26,100 square feet in Hong Kong. The
facilities in Hong Kong are owned by the Company, and the land on which such
facilities are located is subject to medium-term leases.

The Company's manufacturing operations are conducted in the Dongguan
Facility and the Shenzhen Facility. The Company's die-cast and injection-molded
production facilities are located in the Dongguan Facility. The Company's
hand-made book, specialty packaging and paper production facilities are located
in

19
<PAGE> 20

the Shenzhen Facility. The Company's manufacturing facilities have an aggregate
of approximately 1,962,000 square feet of manufacturing space and approximately
643,000 square feet of dormitory space. Virtually all land in the PRC is
state-owned, but can be leased from the government on a long-term basis. The
Dongguan Facility is built on land held by Zindart pursuant to a 50-year lease
of this nature. The operation of the Dongguan Facility is structured as a
contractual joint venture with a PRC governmental entity, Dongguan Hengli
Trading General Company, which receives an annual fee from the Company but does
not share in the profits or losses of the joint venture. This contractual joint
venture has a term of 15 years. At the end of this term, the Company will
continue to own the principal assets of the joint venture, including the 50-year
land lease. Part of the operation of the Shenzhen Facility is structured as a
15-year contractual joint venture known as Shenzhen Huaxuan Printing Product
Co., Ltd. with Goshu Economic Development Company, Shenzhen, which receives an
annual fee from the Company but does not share in the profits or losses of the
joint venture. Unlike the Dongguan Facility, the Company does not own but leases
its factory building and land at the Shenzhen Facility. At the end of the joint
venture term, the Company will continue to own the other assets of the joint
venture, but the land and building will revert to the PRC party of the joint
venture company. See "Risk Factors -- Risks Relating to the
Company -- Production Facilities; Capacity Limitations" and "-- Dependence on
PRC Parties." The plants and equipment owned and operated or leased by the
Company are subject to comprehensive PRC laws and regulations that involve
substantial risks. See "Risk Factors -- Country Risks -- Risks Relating to the
PRC" and "Business -- Manufacturing."

ITEM 3 -- LEGAL PROCEEDINGS

The Company is not a party to any material litigation.

The Company currently maintains insurance coverage with the The People's
Insurance Co. of China on its property, plant and equipment in an amount in
excess of the current net book value of such assets. It carries business
interruption and third-party liability insurance to cover claims arising out of
bodily injury or property or environmental damage caused by accidents on its
property, or otherwise relating to its operations. The Company also maintains
directors and officers liability insurance for all of its directors and
officers.

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

No matters were submitted to a vote of the Company's security holders
during the fourth quarter of fiscal year 2000.

20
<PAGE> 21

PART II

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

The ADSs are traded on the Nasdaq National Market under the symbol "ZNDT".
The table below sets forth the high and low sales prices for the ADSs (as
reported on the Nasdaq National Market) during the periods indicated. The
reported last sale price of the ADSs on the Nasdaq National Market on June 28,
2000 was $2 3/4.

<TABLE>
<CAPTION>
PRICE RANGE OF ADSS
--------------------
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year Ending March 31, 1999
1st Quarter............................................ $15.50 $12.06
2nd Quarter............................................ 15.13 6.50
3rd Quarter............................................ 8.63 5.25
4th Quarter............................................ 7.38 4.88
Fiscal Year Ending March 31, 2000
1st Quarter............................................ $ 8.63 $ 5.44
2nd Quarter............................................ $ 9.25 $ 7.00
3rd Quarter............................................ $14.50 $ 6.38
4th Quarter............................................ $ 7.25 $ 4.00
</TABLE>

As of May 31, 2000, there were two holders of record of the Shares
(including the Depositary on behalf of the holders of ADSs) and 35 holders of
record of ADSs. Zindart's Shares are not traded on any market. Since certain of
the ADSs are held by nominees, the above number is not representative of the
actual number of U.S. beneficial holders or the number of ADSs beneficially held
by U.S. persons. The depositary for the ADSs is The Bank of New York.

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

In fiscal year 1992 through fiscal year 1995, Zindart declared and paid
dividends per Share in the amount of $0.44, $0.29, $0.39, and $0.21,
respectively. The aggregate amount of dividends paid in these fiscal years was
$2,222,000, $1,473,000, $1,959,000, and $1,073,000, respectively. In fiscal
1996, Zindart distributed a dividend in kind of approximately $0.60 per Share
consisting of $2,994,000 of a loan receivable and amounts due from a debtor of
Zindart. Zindart did not declare a cash dividend in fiscal years 1997, 1998,
1999 or 2000. Hua Yang has never declared any dividends.

Hua Yang redeemed outstanding preferred stock for $5.0 million upon
completion of the Hua Yang Acquisition and further redeemed certain outstanding
preferred stock for $6.0 million during fiscal year 2000.

RECENT SALES OF UNREGISTERED SECURITIES

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

In connection with the Hua Yang Acquisition, the Company reserved to issue
an aggregate of 666,667 Shares to Karl Chan, HYP Holdings Limited and Mr. Karl
Chan (BVI) Holdings Limited, the shareholders of Hua Yang (the "Hua Yang
Shareholders"), pursuant to Regulation S and Regulation D of the Securities Act
of 1933, as amended. In the Hua Yang Acquisition, the Hua Yang Shareholders
exchanged all outstanding ordinary shares and preferred shares of Hua Yang for
$35.0 million in cash and up to 1.0 million Shares. Of the 1.0 million Shares,
666,667 Shares were issued at the closing of the Hua Yang Acquisition and

21
<PAGE> 22

placed in escrow for a period of six months to secure the indemnification
obligations of Hua Yang, the Hua Yang Shareholders, ChinaVest and certain funds
managed by Advent under the Exchange Agreement. As of March 31, 2000, the
Company was still in the process of issuing the 666,667 Shares reserved in
connection with the Hua Yang acquisition from escrow.

CERTAIN FOREIGN ISSUER CONSIDERATIONS

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

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

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

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

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

While the Company's subsidiary, Corgi is incorporated under the Company Law
of England and Wales.

TAXATION

The following discussion generally summarizes the material Hong Kong tax
consequences of an investment in the ADSs and the material Hong Kong taxes
applicable to the Company's operations in Hong Kong. The discussion does not
deal with all possible tax consequences relating to an investment in the ADSs
and does not purport to deal with the tax consequences applicable to all
categories of investors, some of which (such as dealers in securities, insurance
companies and tax-exempt entities) may be subject to special rules. In
particular, the discussion does not address the tax consequences under state or
local law or the laws of countries other than Hong Kong. Accordingly,
prospective investors should consult their own tax advisors regarding the
particular tax consequences to them of an investment in the ADSs. The following
discussion is based upon laws and relevant interpretations thereof in effect as
of the date of this Annual Report on Form 10-K, all of which are subject to
change, possibly with retroactive effect.

Profits Tax. The Company is subject to profits tax on all profits
(excluding capital profits) arising in or derived from Hong Kong. The source of
income is therefore the relevant factor, and this is generally regarded as a
question of fact. There are certain situations in which the Hong Kong tax
authorities are prepared to accept apportionment of chargeable profits, for
example when a Hong Kong-based company has manufacturing facilities in the PRC.
The proportion of income originating from the PRC and Hong Kong respectively in
such situations is a question of fact. However, where apportionment is
appropriate, the Hong Kong tax authorities usually adopt a 50:50 allocation
unless compelling circumstances dictate otherwise. Profits tax is levied at the
rate of 16% for corporations and 15.0% for unincorporated entities. Generally
speaking, business losses may be carried forward indefinitely to be offset
against future profits of the Company. See "Risk Factors -- Risks Relating to
the Company -- Taxation."

22
<PAGE> 23

Capital Gains/Taxation of Dividends. Hong Kong does not have any form of
capital gains tax. Neither does it have any form of dividend taxation or
withholding taxes, and hence profits accumulated in a Hong Kong company can be
distributed as dividends without tax deduction in Hong Kong. However, Hong Kong
profits tax will be charged on trading gains from the sale of property that are
derived from or arose in Hong Kong, by persons carrying on a trade in Hong Kong
where such gains are from such trade. Liability for Hong Kong profits tax would
therefore arise in respect of trading gains from the sale of the ADSs or Shares
realized by persons carrying on a business of trading or dealing in securities
in Hong Kong.

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

Stamp Duty. Hong Kong stamp duty is generally payable by the purchaser on
every purchase, and by the seller on every sale, of shares of Hong
Kong-incorporated companies. The duty is charged to both the purchaser and the
seller at the rate of HK$1.25 per HK$1,000 or part thereof of the consideration
for, or (if greater) the value of, the shares transferred. In addition, a fixed
duty of HK$5 is currently payable on an instrument of transfer of such shares.
Under the current practices of the Hong Kong Inland Revenue Department, if ADSs
are not specifically identified to correspond with particular underlying Shares,
the issuance of ADSs upon the deposit of Shares issued directly to the
Depositary or for the account of the Depositary should not be subject to stamp
duty, nor should any Hong Kong stamp duty be payable upon the transfer of ADSs
outside Hong Kong.

23
<PAGE> 24

ITEM 6 -- SELECTED CONSOLIDATED FINANCIAL DATA

RESTATED COMPANY

The following selected consolidated financial data are that of Zindart
including operating results of Hua Yang, after giving retroactive effect for
fiscal 1996 to fiscal 1998 presented to the Hua Yang Acquisition as a
reorganization of companies under common control, similar to a pooling of
interests. Under such presentation, net income is reduced through the minority
interests for the portion of shareholdings in Hua Yang not held under common
control. The following consolidated financial data presented for fiscal year
2000 are that of Zindart after including the operating results of Corgi from
July 1999, the date of acquisition. The following selected consolidated
statement of operations data for the fiscal years ended March 31, 1998, 1999 and
2000 and selected consolidated balance sheet data as of March 31, 1999 and 2000
are derived from the audited Consolidated Financial Statements of the Company,
prepared in accordance with United States Generally Accepted Accounting
Principles ("U.S. GAAP"), and notes thereto appearing elsewhere in this Annual
Report on Form 10-K, which have been audited by Arthur Andersen & Co,
independent public accountants. The selected consolidated statement of
operations data for the year ended March 31, 1996 and 1997 and the selected
consolidated balance sheet data as of March 31, 1997 and 1998 not included
elsewhere in this Annual Report have been prepared in accordance with U.S. GAAP
and have been audited by Arthur Andersen & Co, independent public accountants.

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

<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:-
Net sales............................... $ 83,333 $ 95,616 $111,534 $113,605 $137,120
Cost of goods sold...................... (56,910) (69,388) (77,422) (78,323) (91,845)
-------- -------- -------- -------- --------
Gross profit.......................... 26,423 26,228 34,112 35,282 45,275
Selling, general and administrative
expenses.............................. (13,158) (14,833) (19,140) (20,479) (30,806)
Interest income (expense), net.......... (375) (878) 389 35 (1,691)
Other income (expense), net............. (430) 330 (314) (537) (1,334)
-------- -------- -------- -------- --------
Income before income taxes............ 12,460 10,847 15,047 14,301 11,444
Provision for income taxes.............. (488) (781) (1,419) (1,377) (2,099)
-------- -------- -------- -------- --------
Income before minority interests...... 11,972 10,066 13,628 12,924 9,345
Minority interests...................... (4,514) (2,920) (3,632) (757) (307)
-------- -------- -------- -------- --------
Net income............................ $ 7,458 $ 7,146 $ 9,996 $ 12,167 $ 9,038
======== ======== ======== ======== ========
Earnings per common share
-- Basic................................ $ 1.41 $ 1.33 $ 1.41 $ 1.38 $ 1.02
======== ======== ======== ======== ========
-- Diluted(1)........................... $ 1.41 $ 1.33 $ 1.40 $ 1.38 $ 1.02
======== ======== ======== ======== ========
Weighted average number of common shares
outstanding(2)
-- Basic................................ 5,280 5,383 7,109 8,804 8,822
======== ======== ======== ======== ========
-- Diluted.............................. 5,280 5,383 7,155 8,827 8,874
======== ======== ======== ======== ========
Balance Sheet Data:
Cash and bank deposits.................. $ 6,267 $ 21,286 $ 22,373 $ 17,061 $ 12,488
Working capital......................... 16,221 34,096 40,246 27,429 10,081
Property, machinery, equipment and
capital leases, net................... 21,034 21,662 29,177 30,311 35,804
Total assets............................ 60,330 77,568 105,827 90,911 146,598
Short-term debt(3)...................... 10,212 3,920 -- -- 21,046
Long-term debt, capital lease
obligations and convertible note,
non-current portion................... 4,321 2,888 30,000 -- 18,492
Shareholders' equity.................... 20,448 39,836 50,827 67,778 76,805
</TABLE>

24
<PAGE> 25

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

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

(3) Includes current portions of long-term debt, capital lease obligations and
convertible note.

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

The financial data presented herein for fiscal years 1999 and 2000 are
actual. The following discussion relating to statement of operations for fiscal
1998 are on both a restated and pro forma basis.

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

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

The fiscal year ended March 31, 2000 is referred to herein as fiscal 2000,
the fiscal year ended March 31, 1999 is referred to herein as fiscal 1999 and
the fiscal year ended March 31, 1998 is referred to herein as fiscal 1998.

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

Overview

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

The Company's customers for die-cast and injection-molded products include
Hallmark, Mattel(R), Hasbro, Inc., Sieper Werke GmbH, Revell Monogram, Alcone
Marketing Group Inc. and Freeplay Group. For books, paper and packaging
products, the Company's customers include Mattel(R), Intervisual Books, Inc.,
Reader's Digest Inc., The Metropolitan Museum of Art, Jetta Co. Ltd., Penguin
Putnam Inc. and Macmillan Children's Books. The Company is dependent on sales to
Hallmark and Mattel(R). See "Risk Factors -- Risks Relating to the
Company -- Dependence on Major Customers."

25
<PAGE> 26

After the completion of Phase III construction of its Dongguan plant in
December 1998, including an additional dormitory and a warehouse, the Company
now has an aggregate of 1,962,000 square feet of manufacturing space with the
capacity for up to 15,800 workers in its two manufacturing facilities. See "Risk
Factors -- Country Risks -- Dependence on PRC Parties" and "Risks Relating to
the PRC -- Loss of PRC Facilities; Nationalization; Expropriation."

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

The table below sets forth certain statement of operations data as a
percentage of net sales for fiscal 1998, 1999 and 2000. Figures presented for
fiscal 1998 are on a restated basis whereas the figures for fiscal 1999 and 2000
are actual.

<TABLE>
<CAPTION>
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0%
Gross profit........................................ 30.6% 31.1% 33.0%
Selling, general and administrative expenses........ 17.2% 18.0% 22.5%
Operating income.................................... 13.4% 13.0% 10.6%
Interest income (expenses), net..................... 0.3% -- (1.2)%
Other income (expenses), net........................ (0.2)% 0.1% 0.2%
Amortization of goodwill............................ -- (0.6)% (1.1)%
Income before income taxes.......................... 13.5% 12.6% 8.3%
Provision for income taxes.......................... 1.3% 1.2% 1.5%
Minority interests.................................. 3.3% 0.7% 0.2%
Net income.......................................... 9.0% 10.7% 6.6%
</TABLE>

The table below sets forth certain statement of operations data as a
percentage of net sales for fiscal 1998, 1999 and 2000. Figures presented for
fiscal 1998 is on pro forma basis whereas the figures for fiscal 1999 and 2000
are actual.

<TABLE>
<CAPTION>
1998 1999 2000
----- ----- -----
<S> <C> <C> <C>
Net sales........................................... 100.0% 100.0% 100.0%
Gross profit........................................ 30.6% 31.1% 33.0%
Selling, general and administrative expenses........ 17.4% 18.0% 22.5%
Operating income.................................... 13.1% 13.0% 10.6%
Interest income (expenses), net..................... 1.8% -- (1.2)%
Other income (expenses), net........................ (0.2)% 0.1% 0.2%
Amortization of goodwill............................ 0.5% (0.6)% (1.1)%
Income before income taxes.......................... 10.6% 12.6% 8.3%
Provision for income taxes.......................... 1.3% 1.2% 1.5%
Minority interests.................................. 0.7% 0.7% 0.2%
Net income.......................................... 8.7% 10.7% 6.6%
</TABLE>

26
<PAGE> 27

Years Ended March 31, 2000 and 1999

Net Sales. The Company's net sales were $137.1 million for fiscal 2000, an
increase of $23.5 million, or 20.7%, from $113.6 million in fiscal 1999. The
increase was primarily due to the contributions of Corgi which was acquired in
July 1999, as well as growth in the paper and packaging division.

Gross Profit. The Company's gross profit was $45.3 million for fiscal 2000,
an increase of $10.0 million, or 28.3%, from $35.3 million in fiscal 1999. Gross
margin was 33.0% in fiscal 2000 and 31.1% in fiscal 1999. Gross margin increased
due to the higher margin of Corgi products.

Selling, General and Administrative Expenses. The Company's selling,
general and administrative expenses were $30.8 million for fiscal 2000, an
increase of $10.3 million, or 50.2%, from $20.5 million in fiscal 1999. Selling,
general and administrative expenses constituted 22.5% of net sales in fiscal
2000 and 18.0% in fiscal 1999. Selling, general and administrative expenses for
the Company increased due to the higher selling, general and administrative
expenses of Corgi and the higher selling, general and administrative expenses of
paper and packaging division resulting from growth in sales of the division.

Interest Income (Expense), Net. The Company's interest income (expense),
net, was $(1.7 million) in fiscal 2000, as compared to $35,000 in fiscal 1999.
The increase in interest expense is primarily due to the Company's acquisition
of Corgi. The Company incurred $2.0 million in interest expense associated with
the acquisition of Corgi.

Other Income (Expenses), Net. The Company's other income (expenses), net,
was $208,000 in fiscal 2000, as compared to $161,000 in fiscal 1999. The
increase in other income was primarily due to gain resulting from currency
exchange rate fluctuations.

Amortization of Goodwill. The Company's amortization of goodwill was $1.5
million in fiscal 2000, an increase of $0.8 million from $0.7 million in fiscal
1999. The increase was due to the acquisition of Corgi.

Provision For Income Taxes. The effective income tax rate for the Company
was 18.3% in fiscal 2000 and 9.6% in fiscal 1999. The increase is due to the
higher effective income tax rate of Corgi.

Minority Interests. The Company's minority interests were $0.3 million in
fiscal 2000 and $0.8 million in fiscal 1999.

Net Income. The Company's net income was $9.0 million in fiscal 2000, a
decrease of $3.2 million or 25.7% from $12.2 million in fiscal 1999. The
decrease is primarily due to the higher selling, general and administrative
expenses of Corgi and paper and packaging division and higher costs associated
with the Corgi's acquisition.

Year Ended March 31, 1999 and 1998

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

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

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

27
<PAGE> 28

selling, general and administrative expenses were $20.5 million for fiscal 1999,
an increase of $1.1 million, or 5.7% from $19.4 million in fiscal 1998 on a pro
forma basis.

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

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

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

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

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

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

Liquidity and Capital Resources

The Company has financed its operations through cash from operations. Cash
and bank deposits were $12.5 million at March 31, 2000. Cash generated from
operating activities was $17.6 million for fiscal 2000. Cash used in investing
activities for fiscal 2000 was $56.7 million, primarily as a result of (i)
acquisition of Corgi and (ii) capital expenditures of $7.3 million for the
acquisition of plant and equipment ($4.8 million for fiscal 1999 and $9.4
million for fiscal 1998). Cash generated from financing activities was $34.7
million for fiscal 2000, primarily from new bank loans and short-term bank
borrowing.

The Company has lines of credit with certain banks including: Standard
Chartered Bank, The Hong Kong and Shanghai Banking Corporation Limited, ABN AMRO
bank and KBC bank. As of March 31, 2000, the Company had banking facilities of
up to $53.2 million and unused facilities as of the same date amounted to $18.3
million.

Consistent with practice in industry, the Company offers accounts
receivable terms to its customers. This practice has created working capital
requirements that the Company generally has financed with net cash balances,
through internally generated cash flow and loans. The Company's accounts
receivable balance at March 31, 2000 was $27.0 million. As of March 31, 2000,
the Company had capital commitments amounting to approximately $20,000 relating
to purchase of machinery and tools. See "Risk Factors -- Risks Relating to the
Company -- Production Facilities; Capacity Limitations."

The Company's principal source of cash to fund its liquidity needs will be
net cash from operating activities. The Company believes that this source will
be adequate to meet the Company's anticipated future requirements for working
capital and capital expenditures. However, there can be no assurance that these

28
<PAGE> 29

resources will be adequate to meet the Company's needs. In the event that the
Company requires additional capital, it may be required to issue additional
equity securities, which could result in additional dilution to existing
stockholders, or to borrow such funds, which could adversely affect operating
results. No assurance can be given that such capital will be available. See
"Risk Factors -- Risks Relating to the Company -- Production Facilities;
Capacity Limitations".

In May 1999, the Company entered into a credit agreement with Intervisual
Books, Inc. ("IBI"). Under the terms of IBI agreement, the Company agreed to
provide a $2,300,000 revolving credit facility to IBI, due to mature in May 2000
and secured by certain assets of IBI. Pursuant to the IBI Agreement, IBI
extended the facility for an additional year and has issued warrants to the
Company to purchase 150,000 shares of common stock of IBI.

Exchange Rate Risk

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

The Year 2000 Implications

To date, the Company has not experienced any significant problems related
to Year 2000 issues associated with the computer systems, software, other
property and equipment we use. However, the Company cannot assure that the Year
2000 problem will not adversely affect its business, operating results or
financial condition at some point in the future.

ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

The Company's primary risk exposures arise from changes in interest rates
and foreign currency exchanges rates. The Company had $34.8 million in variable
rate debt outstanding at March 31, 2000. The Company does not currently hedge
its interest rate exposure. Based on its current level of variable rate debt,
the Company believes that its results from operations and cash flows would not
be adversely affected if the applicable interest rate were increased one
percent.

The Company is exposed to risk from changing foreign currency exchange
rates. The Company's sales are denominated either in U.S. dollars, GBP or H.K.
dollars. The majority of the Company's expenses are denominated in H.K. dollars,
followed by RMB, GBP and U.S. dollars. The Company is subject to a variety of
risks associated with changes among the relative values of the U.S. dollars, the
British pound, the H.K. dollars and the RMB. The Company does not currently
hedge its foreign exchange positions. Any material increase in the value of the
H.K. dollar or RMB relative to the U.S. dollar would increase the Company's
expenses and therefore would have a material adverse effect on the Company's
business, financial condition and results of operations. If exchange rates on
such currencies were to fluctuate 10%, the Company believes that its results
from operations and cash flows would not be adversely affected.

29
<PAGE> 30

ITEM 8 -- REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of Zindart Limited:

We have audited the accompanying consolidated balance sheets of Zindart
Limited (incorporated in Hong Kong; "the Company") and Subsidiaries ("the
Group") as of March 31, 1999 and 2000, and the related consolidated statements
of operations, cash flows and changes in shareholders' equity for the years
ended March 31, 1998, 1999 and 2000. The financial statements for the years
ended March 31, 1998 and 1999 give retroactive effect to the acquisition of Hua
Yang Holdings Company Limited as a reorganization of companies under common
control as described in Note 2 to the accompanying financial statements. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Zindart
Limited and Subsidiaries as of March 31, 1999 and 2000, and the results of their
operations and their cash flows for the years ended March 31, 1998, 1999 and
2000, after giving retroactive effect to the acquisition of Hua Yang Holdings
Company Limited as a reorganization of companies under common control as
described in Note 2 to the accompanying financial statements, in conformity with
generally accepted accounting principles in the United States of America.

ARTHUR ANDERSEN & CO
Certified Public Accountants
Hong Kong
Hong Kong,
June 6, 2000.

30
<PAGE> 31

ZINDART LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 1999 AND 2000
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

ASSETS

<TABLE>
<CAPTION>
NOTE 1999 2000
---- ------ -------
$'000 $'000
<S> <C> <C> <C>
Current assets:
Cash and bank deposits.................................... 17,061 12,488
Accounts receivable, net.................................. 5 18,871 27,015
Bills receivable.......................................... 256 140
Deposits and prepayments.................................. 6 1,379 4,843
Inventories, net.......................................... 7 11,078 14,824
------ -------
Total current assets.............................. 48,645 59,310
Property, machinery and equipment, net...................... 8 30,311 35,804
Loan receivable............................................. 9 -- 2,300
Goodwill, net............................................... 10 11,955 49,184
------ -------
Total assets...................................... 90,911 146,598
====== =======
LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank borrowings................................ 11 -- 5,933
Long-term bank loan, current portion...................... 12 -- 12,000
Capital lease obligations, current portion................ 13 -- 1,684
Convertible note, current portion......................... 14 -- 1,429
Accounts payable.......................................... 5,421 14,526
Receipts in advance....................................... 1,802 1,358
Accrued liabilities....................................... 15 12,557 10,062
Taxation payable.......................................... 16 1,436 2,237
------ -------
Total current liabilities......................... 21,216 49,229
Long-term bank loan, non-current portion.................... 12 -- 12,000
Capital lease obligations, non-current portion.............. 13 -- 3,160
Convertible note, non-current portion....................... 14 -- 3,332
Deferred taxation........................................... 16 971 967
------ -------
Total liabilities................................. 22,187 68,688
------ -------
Minority interests.......................................... 946 1,105
------ -------
Shareholders' equity:
Common stock, par value $0.0646 (equivalent of HK$0.5):
- authorized -- 15,000,000 shares as of March 31, 1999
and 2000.............................................
- outstanding and fully paid -- 8,146,958 shares as of
March 31, 1999 and 8,167,458 shares as of March 31,
2000................................................. 18 527 528
- reserved and to be issued -- 666,667 shares as of
March 31, 1999 and 2000.............................. 18 43 43
Additional paid-in capital................................ 38,497 38,634
Retained earnings......................................... 28,844 37,882
Cumulative translation adjustments........................ (133) (282)
------ -------
Total shareholders' equity........................ 67,778 76,805
------ -------
Total liabilities, minority interests and
shareholders' equity............................ 90,911 146,598
====== =======
</TABLE>

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

31
<PAGE> 32

ZINDART LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED MARCH 31, 1998, 1999 AND 2000
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
NOTE 1998 1999 2000
---- -------- -------- --------
$'000 $'000 $'000
<S> <C> <C> <C> <C>
Net sales........................................... 24.a 111,534 113,605 137,120
Cost of goods sold.................................. (77,422) (78,323) (91,845)
-------- -------- --------
Gross profit.............................. 34,112 35,282 45,275
Selling, general and administrative expenses........ (19,140) (20,479) (30,806)
Interest income..................................... 1,087 743 697
Interest expense.................................... (698) (708) (2,388)
Other (expenses) income, net........................ (229) 161 208
Amortization of goodwill............................ (85) (698) (1,542)
-------- -------- --------
Income before income taxes................ 15,047 14,301 11,444
Provision for income taxes.......................... 16 (1,419) (1,377) (2,099)
-------- -------- --------
Income before minority interests.......... 13,628 12,924 9,345
Minority interests.................................. (3,632) (757) (307)
-------- -------- --------
Net income................................ 9,996 12,167 9,038
======== ======== ========
Earnings per common share
-- Basic.......................................... $ 1.41 $ 1.38 $ 1.02
======== ======== ========
-- Diluted........................................ $ 1.40 $ 1.38 $ 1.02
======== ======== ========
</TABLE>

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

32
<PAGE> 33

ZINDART LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998, 1999 AND 2000
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
1998 1999 2000
------- ------- -------
$'000 $'000 $'000
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. 9,996 12,167 9,038
Adjustments to reconcile net income to net cash provided by
operating activities --
Amortization of goodwill.................................. 85 698 1,542
Amortization of loan arrangement fee...................... -- 1,185 233
Depreciation of property, machinery and equipment......... 3,331 4,237 6,274
Net gain/loss on disposals of property, machinery and
equipment............................................... (5) (21) 7
Minority interests........................................ 3,632 757 307
Deferred taxation......................................... 790 61 (4)
(Increase) Decrease in operating assets --
Accounts receivable, net.................................. (7,834) 6,189 (293)
Bills receivable.......................................... (55) (201) 116
Deposits and prepayments.................................. (233) 521 (1,084)
Inventories, net.......................................... (68) 2,872 510
Increase (Decrease) in operating liabilities --
Accounts payable.......................................... 1,845 (1,105) 5,334
Receipts in advance....................................... 1,481 (1,597) (444)
Accrued liabilities....................................... 3,898 (338) (3,156)
Taxation payable.......................................... (343) 1,072 (758)
------- ------- -------
Net cash provided by operating activities........... 16,520 26,497 17,622
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions, net of cash acquired.......................... (40,648) -- (47,126)
Increase in investment of subsidiaries...................... -- (1,663) --
Acquisition of property, machinery and equipment and
construction-in-progress.................................. (9,415) (4,840) (7,317)
Proceeds from disposals of property, machinery and
equipment................................................. 22 29 28
Increase in loan receivable................................. -- -- (2,300)
Addition to deferred expenditures........................... (254) -- --
Decrease in due from related companies...................... 166 -- --
------- ------- -------
Net cash used in investing activities............... (50,129) (6,474) (56,715)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock.................. 12,779 4,931 138
Decrease in bank overdrafts................................. (2,163) -- --
New short-term bank borrowings.............................. 2,151 -- 5,933
Repayment of short-term bank borrowings..................... (2,510) -- (3,984)
New long-term bank loan..................................... -- -- 30,000
Repayment of long-term bank loan............................ (305) -- (6,000)
Increase in capital lease obligations....................... -- -- 4,844
Repayment of capital element of capital lease obligations... (3,981) -- --
Issuance of convertible note................................ -- -- 4,761
Cash inflow from revolving credit facility.................. 30,000 -- --
Repayment of revolving credit facility...................... -- (30,000) --
Payment of loan arrangement fee............................. (931) -- (875)
Dividends paid by subsidiaries to their minority
shareholders.............................................. (358) (151) (148)
------- ------- -------
Net cash provided by (used in) financing
activities.......................................... 34,682 (25,220) 34,669
------- ------- -------
Effect of cumulative translation adjustments................ 14 (115) (149)
------- ------- -------
Net increase (decrease) in cash and bank deposits........... 1,087 (5,312) (4,573)
Cash and bank deposits, as of beginning of year............. 21,286 22,373 17,061
------- ------- -------
Cash and bank deposits, as of end of year................... 22,373 17,061 12,488
======= ======= =======
</TABLE>

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

33
<PAGE> 34

ZINDART LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1998, 1999 AND 2000
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS)

<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------- ACCUMULATED
RESERVED AND TO BE OTHER
ISSUED ISSUED COMPREHENSIVE
------------------ ------------------ ADDITIONAL INCOME --
NUMBER OF NUMBER OF PAID-IN RETAINED TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENTS
--------- ------ --------- ------ ---------- -------- -------------
'000 $'000 '000 $'000 $'000 $'000 $'000
<S> <C> <C> <C> <C> <C> <C> <C>
Balance as of March 31, 1997....... 6,500 420 280 18 15,794 23,604 --
Issuance of common stock........... 1,233 80 -- -- 14,993 -- --
Common stock issuance
expenditures..................... -- -- -- -- (2,294) -- --
Consideration for acquisition of
Hua Yang Holdings Company
Limited.......................... -- -- 387 25 5,100 -- --
Excess of purchase price over net
book value of business acquired
from affiliates.................. -- -- -- -- -- (14,824) --
Change in net asset value of Hua
Yang Holdings Company Limited by
redemption of preferred stock.... -- -- -- -- -- (2,099) --
Net income......................... -- -- -- -- -- 9,996 --
Translation adjustments............ -- -- -- -- -- -- 14
----- --- --- -- ------ ------- ----
Balance as of March 31, 1998....... 7,733 500 667 43 33,593 16,677 14
Issuance of common stock........... 414 27 -- -- 5,213 -- --
Common stock issuance
expenditures..................... -- -- -- -- (309) -- --
Net income......................... -- -- -- -- -- 12,167 --
Translation adjustments............ -- -- -- -- -- -- (147)
----- --- --- -- ------ ------- ----
Balance as of March 31, 1999....... 8,147 527 667 43 38,497 28,844 (133)
Issuance of common stock........... 20 1 -- -- 137 -- --
Net income......................... -- -- -- -- -- 9,038 --
Translation adjustments............ -- -- -- -- -- -- (149)
----- --- --- -- ------ ------- ----
Balance as of March 31, 2000....... 8,167 528 667 43 38,634 37,882 (282)
===== === === == ====== ======= ====
</TABLE>

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

34
<PAGE> 35

ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

1. ORGANIZATION AND PRINCIPAL ACTIVITIES

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

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

The Company maintains its head office in Hong Kong. The Company and its
subsidiaries ("the Group") are principally engaged in the manufacturing of
die-cast, injection-moulded plastic and paper products under Original Equipment
Manufacturing ("OEM") arrangements, and the design, marketing and distribution
of die-cast products under its proprietary brand name.

2. BASIS OF PRESENTATION

On February 13, 1998, the Company completed its acquisition of the entire
issued capital stock of Hua Yang Holdings Company Limited ("HYHCL"). The
acquisition of HYHCL is accounted for (i) as to the effective interest of
approximately 42% owned by the ChinaVest IV Funds as a reorganization of
companies under common control, similar to a pooling of interests, and (ii) as
to the remaining approximately 58% interest as an acquisition. The financial
information prior to February 13, 1998 has been presented to consolidate
retroactively an approximately 42% interest in HYHCL. Under such presentation,
net income and net asset value is reduced through minority interests for the
approximately 58% shareholdings in HYHCL not held under common control. The
excess of purchase price over fair values of the net assets acquired (i) for the
approximately 42% interest accounted for as a reorganization of companies under
common control of approximately $8,180,000 has been recorded as a dividend to
the then existing shareholders, and (ii) for the remaining approximately 58%
interest accounted for as an acquisition of approximately $11,981,000 has been
recorded as goodwill and amortized on a straight-line basis over 20 years.

35
<PAGE> 36
ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

3. SUBSIDIARIES

Details of the Company's subsidiaries as of March 31, 2000 were as follows:

<TABLE>
<CAPTION>
PERCENTAGE OF
PLACE OF EQUITY INTEREST
NAME INCORPORATION HELD PRINCIPAL ACTIVITIES
---- ------------------ --------------- -----------------------------
<S> <C> <C> <C>
Corgi Classics Limited United Kingdom 100% - Note a Design, marketing and
distribution of die-cast
products
Corgi Classics Holdings United Kingdom 100% - Note a Investment holding
Limited (formerly known as
Exitarena Limited)
Dongguan Xinda Giftware Mainland China 100% - Note b Manufacturing of die-cast and
Company Limited injection-moulded plastic
products
Guangzhou Jin Yi Advertising Mainland China 90% - Note c Inactive
Company Limited
Hua Yang Holdings Company Cayman Islands 100% Investment holding
Limited
Hua Yang Printing Holdings Hong Kong 100% Printing and assembly of
Company Limited books and specialty packaging
Luen Tat Model Design Company The British Virgin 51% Design and production of
Limited Islands moulds and tooling models
Luen Tat Mould Manufacturing The British Virgin 90% Provision of technical
Limited Islands support service on mould
production
Onchart Industrial Limited The British Virgin 55% Provision of technical
Islands support service on mould
production
Shenzhen Huaxuan Printing Mainland China 100% - Note d Printing and assembly of
Product Company Limited books and specialty packaging
Wealthy Holdings Limited The British Virgin 100% Inactive
Islands
</TABLE>

---------------
Notes --

a. On July 28, 1999, Corgi Classics Holdings Limited (formerly known as
Exitarena Limited, a company incorporated in the United Kingdom), a
wholly-owned subsidiary, acquired 100% equity interest in Corgi Classics
Limited (a company incorporated in the United Kingdom) for a consideration of
approximately $46,125,000 (equivalent of GBP29,000,000), including cash of
approximately $40,313,000 (equivalent of approximately GBP25,346,000), and
assumption of debt of approximately $5,812,000 (equivalent of approximately
GBP3,654,000). The acquisition was financed by a thirty-month installment
bank loan of $30,000,000 (see Note 12 and 22), and convertible note of
approximately $4,761,000 (equivalent of GBP3,000,000) (see Note 14).

The acquisition was recorded under the purchase method of accounting and,
therefore the purchase price has been allocated to the assets acquired and
liabilities assumed based on the estimated fair values as of the date of
acquisition while the balance of approximately $38,724,000 was recorded as
goodwill and was being amortized over 30 years on a straight-line basis. The
results of operations of Corgi Classics Limited were included in the
consolidated financial statements of the Company from the date of acquisition.

The following unaudited pro forma summary presents information as if Corgi
Classics Limited had been acquired at the beginning of financial years ended
March 31, 1999 and 2000. The pro forma information gives effect to actual
operating results prior to the acquisition, adjusted to include the pro forma
effect of interest expense and amortization of goodwill. These pro forma
amounts do not purport to be indicative of

36
<PAGE> 37
ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

the results that would have actually been obtained if the acquisition occurred
at the beginning of the periods presented or that may be obtained in the
future.

<TABLE>
<CAPTION>
1999 2000
-------- --------
$'000 $'000
<S> <C> <C>
Net sales...................................... 143,686 148,794
Net income..................................... 10,732 8,573
======== ========
Earnings per share
-- Basic..................................... $ 1.22 $ 0.97
-- Diluted................................... $ 1.22 $ 0.97
======== ========
</TABLE>

b. Dongguan Xinda Giftware Company Limited is a contractual joint venture
established in the open coastal area in Mainland China to be operated for 15
years until November 2009. Under the joint venture agreement and the
supplemental agreement thereto, the Group is entitled to 100% of the joint
venture's profit after paying its joint venture partner a pre-determined
annual fee (see Note 20.b). In view of the profit sharing arrangement, the
joint venture is regarded as 100% owned by the Company.

c. On April 25, 1996, the Group acquired a 90% interest in Guangzhou Jin Yi
Advertising Company Limited, a contractual joint venture established in
Mainland China, for approximately $323,000. During the year ended March 31,
1997, the Group recovered approximately $239,000 and recorded full provision
against the remaining balance of approximately $84,000. As of March 31, 2000,
the Group was in the process of dissolving this joint venture.

d. Shenzhen Huaxuan Printing Product Company Limited is a contractual joint
venture established in a special economic zone in Mainland China to be
operated for 15 years until October 2010. Under the joint venture agreement,
the Group has contributed 100% of the registered capital of the joint venture
and is entitled to 100% of the joint venture's profit after paying its joint
venture partner a pre-determined annual fee (see Note 20.b). In view of the
profit sharing arrangement, the joint venture is regarded as 100% owned by
the Company.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Basis of consolidation

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

b. Goodwill

Goodwill, being the excess of cost over the fair value of the Group's share
of net assets of subsidiaries acquired, is amortized on a straight-line basis
over the estimated economic lives as follows: Luen Tat Model Design Company
Limited and Luen Tat Mould Manufacturing Limited -- 10 years, Hua Yang Holdings
Company Limited -- 20 years and Corgi Classics Limited -- 30 years. Management
reviews and evaluates the recoverability of goodwill periodically as part of its
assessment of the recoverability of the Group's share of net assets of
subsidiaries to which it relates. The determinants used for this evaluation
include management's estimate of the underlying assets' ability to generate
positive income from operations and positive cash flow in future periods. In the
opinion of the management, no impairment exists as of March 31, 2000.

37
<PAGE> 38
ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

c. Contractual joint ventures

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

d. Inventories

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

e. Property, machinery and equipment

Property, machinery and equipment are recorded at cost. Gains or losses on
disposals are reflected in current operations. Major expenditures for
betterments and renewals are capitalized. All ordinary repair and maintenance
costs are expensed as incurred.

Depreciation for financial reporting purposes is provided using the
straight-line method over the estimated useful lives of the assets as follows:
land -- 50 years, buildings -- 25 to 50 years, machinery and tools -- 3 to 10
years, furniture and office equipment -- 5 to 8 years, and motor vehicles -- 3
to 4 years.

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

f. Sales

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

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

g. Advertising costs

Advertising costs are expensed in the period that the advertising first
takes place, except for direct-response advertising costs, consisting primarily
of catalog preparation, printing and postage expenditures, are capitalized and
amortized over the period which the benefits are expected.

h. Income taxes

The Group recognizes deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Deferred income taxes are provided using the
liability method. Under the liability method, deferred income taxes are
recognized for all temporary differences between the tax and financial statement
bases of assets and liabilities.

i. Foreign currency translation

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

38
<PAGE> 39
ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

dollars is performed for balance sheet accounts using the closing exchange rate
in effect at the balance sheet date and for revenue and expense accounts using
an average exchange rate during each reporting period. The gains or losses
resulting from translation are included in shareholders' equity separately as
cumulative translation adjustments. Aggregate losses from foreign currency
transactions included in the results of operations for the years ended March 31,
1998, 1999 and 2000 were approximately $48,000, $62,000 and $94,000,
respectively.

j. Comprehensive income

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

k. Earnings per common share

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

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

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

<TABLE>
<CAPTION>
1998 1999 2000
--------- --------- ---------
<S> <C> <C> <C>
Basic..................................... 7,109,000 8,804,000 8,822,000
Diluted................................... 7,155,000 8,827,000 8,874,000
</TABLE>

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

l. Stock-based compensation

The Company accounts for employee stock options in accordance with
Accounting Principles Board Opinion ("APB") No. 25. Pro forma disclosures were
made assuming hypothetical fair value method application as prescribed by SFAS
No. 123.

m. Use of estimates

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

39
<PAGE> 40
ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

n. Fair value of financial instruments

The following methods and assumptions are used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value. The carrying amounts for cash and bank deposits, bills and loan
receivables, and short-term borrowings approximate fair values because of the
short maturity of those instruments. The carrying amounts for long-term bank
loan, capital lease obligations and convertible note approximate their fair
values as of March 31, 2000, which were estimated based on the quoted market
prices for the same or similar issues.

5. ACCOUNTS RECEIVABLE

Accounts receivable consisted of:

<TABLE>
<CAPTION>
1999 2000
------ ------
$'000 $'000
<S> <C> <C>
Trade receivables.......................................... 20,920 30,934
Less: Allowance for doubtful accounts.................... (2,049) (3,919)
------ ------
Accounts receivable, net................................... 18,871 27,015
====== ======
</TABLE>

6. DEPOSITS AND PREPAYMENTS

Deposits and prepayments consisted of:

<TABLE>
<CAPTION>
1999 2000
----- -----
$'000 $'000
<S> <C> <C>
Deposits for acquisition of moulds.......................... 650 527
Rental and utility deposits................................. 122 99
Prepaid loan interest and related facility fee.............. -- 1,042
Prepaid advertising costs................................... -- 1,403
Other prepayments........................................... 457 1,621
Others...................................................... 150 151
----- -----
1,379 4,843
===== =====
</TABLE>

7. INVENTORIES

Inventories consisted of:

<TABLE>
<CAPTION>
1999 2000
------ ------
$'000 $'000
<S> <C> <C>
Raw materials.............................................. 6,641 6,444
Work-in-process............................................ 3,287 3,343
Finished goods............................................. 2,212 5,961
------ ------
12,140 15,748
Less: Allowance for slow-moving and obsolete inventories... (1,062) (924)
------ ------
Inventories, net........................................... 11,078 14,824
====== ======
</TABLE>

40
<PAGE> 41
ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

8. PROPERTY, MACHINERY AND EQUIPMENT

Property, machinery and equipment consisted of:

<TABLE>
<CAPTION>
1999 2000
------- -------
$'000 $'000
<S> <C> <C>
Property, machinery and equipment:
Land................................................... 2,456 2,456
Buildings.............................................. 14,255 14,261
Machinery and tools.................................... 22,871 32,677
Furniture and office equipment......................... 5,662 7,642
Motor vehicles......................................... 867 825
------- -------
Cost..................................................... 46,111 57,861
Less: Accumulated depreciation........................... (15,800) (22,057)
------- -------
Property, machinery and equipment, net................... 30,311 35,804
======= =======
</TABLE>

As of March 31, 1999 and 2000, land and buildings with net book value of
approximately $666,000 and $607,000, respectively, were situated in Hong Kong
and were held under leases expiring in 2047, and land and buildings with net
book value of approximately $14,054,000 and $13,503,000, respectively, were
situated in Mainland China and were held under land use rights of 50 years until
2044 and 2047.

As of March 31, 1999 and 2000, certain machinery and tools with net book
value of approximately Nil and $4,913,000, respectively, were held under capital
leases (see Note 13).

9. LOAN RECEIVABLE

During the year ended March 31, 2000, the Company entered into a credit
facility agreement with a third party customer ("the Borrower") for a line of
credit up to $2,300,000. The credit facility was collateralized by certain
assets of the Borrower and bore interest at LIBOR plus 5%. Under the terms of
the credit facility agreement, the Borrower has an option to extend the credit
facility for an additional year upon expiry of the facility on May 13, 2000. The
outstanding loan receivable as of March 31, 2000 amounted to $2,300,000, and the
Borrower has exercised its option to extend the credit facility to May 13, 2001.

10. GOODWILL

Goodwill consisted of:

<TABLE>
<CAPTION>
1999 2000
------ ------
$'000 $'000
<S> <C> <C>
Goodwill................................................... 12,768 51,539
Less: Accumulated amortization............................. (813) (2,355)
------ ------
Goodwill, net.............................................. 11,955 49,184
====== ======
</TABLE>

41
<PAGE> 42
ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

11. SHORT-TERM BANK BORROWINGS

Short-term bank borrowings consisted of:

<TABLE>
<CAPTION>
1999 2000
----- -----
$'000 $'000
<S> <C> <C>
Bank loans.................................................. -- 4,645
Bills payable............................................... -- 640
Import trust receipts loans................................. -- 648
--- -----
-- 5,933
=== =====
</TABLE>

All of the short-term borrowings were either denominated in Hong Kong or
United States dollars. Bills payable is a form of bank borrowings with payment
term up to 120 days and is non-interest bearing unless they become trust
receipts loans. As of March 31, 2000, the weighted-average interest rates on
bank loans and import trust receipts loans were approximately 8.49% per annum
and 9.08% per annum, respectively.

12. LONG-TERM BANK LOAN

Maturities of long-term bank loan were as follows:

<TABLE>
<CAPTION>
1999 2000
----- -------
$'000 $'000
<S> <C> <C>
Payable during the following period
- Within one year......................................... -- 12,000
- Over one year but not exceeding two years............... -- 12,000
--- -------
-- 24,000
Less: current portion....................................... -- (12,000)
--- -------
-- 12,000
=== =======
</TABLE>

The long-term bank loan was denominated in United States dollars and bore
interest at LIBOR plus 0.25% (equivalent to 6.54% per annum as of March 31,
2000). The loan was secured by charges over the Company's entire interest in
Corgi Classics Holdings Limited and Corgi Classics Limited.

13. CAPITAL LEASE OBLIGATIONS

Machinery and tools held under capital leases were:

<TABLE>
<CAPTION>
1999 2000
----- ------
$'000 $'000
<S> <C> <C>
Cost........................................................ -- 10,577
Less: Accumulated depreciation.............................. -- (5,664)
-- ------
-- 4,913
== ======
</TABLE>

42
<PAGE> 43
ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

Future minimum lease payments under capital leases, together with the
present value of the minimum lease payments, were:

<TABLE>
<CAPTION>
1999 2000
----- ------
$'000 $'000
<S> <C> <C>
Payable during the following period
- Within one year......................................... -- 2,090
- Over one year but not exceeding two years............... -- 2,090
- Over two years but not exceeding three years............ -- 1,264
- Over three years but not exceeding four years........... -- 98
-- ------
Total minimum lease payments................................ -- 5,542
Less: Amount representing interest element.................. -- (698)
-- ------
Present value of minimum lease payments..................... -- 4,844
Less: current portion....................................... -- (1,684)
-- ------
Non-current portion......................................... -- 3,160
== ======
</TABLE>

14. CONVERTIBLE NOTE

During the year ended March 31, 2000, in connection with the acquisition of
Corgi Classics Limited (see Note 3.a), the Company issued a convertible note of
approximately $4,761,000 (equivalent of GBP3,000,000), which is exchangeable for
the common stock of the Company. The convertible note is unsecured, bears
interest at 7% and matures at various dates within a three-year period to July
2002. The conversion right is exercisable upon the maturity dates, at a price
equal to 80% of the average market price of the common stock over a ten-day
period prior to the exercise, and subject to the condition that the average
market price exceeds $12 per share.

15. ACCRUED LIABILITIES

Accrued liabilities consisted of:

<TABLE>
<CAPTION>
1999 2000
------ ------
$'000 $'000
<S> <C> <C>
Accruals for operating expenses
- Workers' wages, salaries and bonus..................... 1,540 2,025
- Management bonus....................................... 890 614
- Rental expenses........................................ 13 246
- Freight charges and packing fee........................ 565 499
- Utility charges........................................ 271 287
- Others................................................. 1,132 1,816
Commission................................................. 414 456
Raw materials purchases.................................... 4,449 2,410
Factory consumables........................................ 472 388
Subcontracting charges..................................... 1,350 325
Others..................................................... 1,461 996
------ ------
12,557 10,062
====== ======
</TABLE>

43
<PAGE> 44
ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

16. INCOME TAXES

The Company and its subsidiaries are subject to income taxes on an entity
basis on income arising in or derived from the tax jurisdiction in which they
operate. The Company and the Hong Kong subsidiaries are subject to Hong Kong
profits tax at a rate of 16%. The United Kingdom subsidiaries are subject to
United Kingdom profits tax at a rate of 31%. The British Virgin Islands
subsidiaries are incorporated under the International Business Companies Act of
the British Virgin Islands and, accordingly, are exempted from payment of the
British Virgin Islands income taxes. The Cayman Islands subsidiary is
incorporated under the Companies Law of the Cayman Islands as a limited
liability exempted company and, accordingly, is exempted from payment of the
Cayman Islands income taxes until 2014. The joint venture established in the
open coastal area of Mainland China is subject to Mainland Chinese income taxes
at a rate of 27% (24% state income tax and 3% local income tax), while the joint
venture established in a special economic zone in Mainland China is subject to
Mainland Chinese income taxes at a rate of 15%. However, these joint venture
enterprises are exempted from state income tax and local income tax for two
years starting from the first year of profitable operations after offsetting
prior years' losses, followed by a 50% reduction in state income tax for the
next three years. The tax exemption period of Dongguan Xinda Giftware Company
Limited started on January 1, 1999. The tax exemption period of Shenzhen Huaxuan
Printing Product Company Limited expired on December 31, 1997 and it is subject
to Mainland Chinese state income tax at the rate of 7.5% for the years ended
March 31, 1999 and 2000.

If the tax holiday for the joint venture established in Mainland China did
not exist, the Group's income tax provisions would have been increased by
approximately $704,000, $120,000 and $90,000 for the years ended March 31, 1998,
1999 and 2000, respectively. Basic earnings per common share would have been
approximately $1.31, $1.37 and $1.01 for the years ended March 31, 1998, 1999
and 2000, respectively. Diluted earnings per common share would have been
approximately $1.30, $1.36 and $1.01 for the years ended March 31, 1998, 1999
and 2000, respectively.

Provision for income taxes consisted of:

<TABLE>
<CAPTION>
1998 1999 2000
----- ----- -----
$'000 $'000 $'000
<S> <C> <C> <C>
Current taxes
-- Hong Kong profits tax.......................... 744 1,332 1,413
-- United Kingdom profits tax..................... -- -- 594
-- Mainland Chinese income taxes.................. 39 94 96
-- Utilization of tax loss carried forward........ (154) (75) --
-- Special rebate by Hong Kong Government......... -- (35) --
Deferred taxes...................................... 790 61 (4)
----- ----- -----
1,419 1,377 2,099
===== ===== =====
</TABLE>

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

<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Hong Kong statutory tax rate......................... 16.5% 16.0% 16.0%
Effect of difference in income tax rate.............. (5.8)% (0.8)% 2.5%
Non-taxable income arising from activities which
qualified as offshore.............................. (3.7)% (6.3)% (6.6)%
Other non-deductible activities...................... 2.4% 0.7% 6.4%
---- ---- ----
Effective income tax rate............................ 9.4% 9.6% 18.3%
==== ==== ====
</TABLE>

44
<PAGE> 45
ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

Taxation payable consisted of:

<TABLE>
<CAPTION>
1999 2000
----- -----
$'000 $'000
<S> <C> <C>
Hong Kong profits tax....................................... 1,436 903
United Kingdom profits tax.................................. -- 1,334
----- -----
1,436 2,237
===== =====
</TABLE>

Deferred tax liabilities as of March 31, 1999 and 2000 represented the tax
impact of accumulated differences between depreciation expense for financial
reporting purpose and such amount as measured by tax laws.

17. COMPREHENSIVE INCOME

Comprehensive income and its components, net of tax, consisted of:

<TABLE>
<CAPTION>
1998 1999 2000
------ ------ -----
$'000 $'000 $'000
<S> <C> <C> <C>
Net income...................................... 9,996 12,167 9,038
Other comprehensive income, net of
tax -- Translation adjustments................ 14 (147) (149)
------ ------ -----
Comprehensive income............................ 10,010 12,020 8,889
====== ====== =====
</TABLE>

18. COMMON STOCK

As of April 1, 1997 (the earliest date covered by these financial
statements), the Company had 10,000,000 shares and 6,500,000 shares of common
stock, par value HK$0.50 each, authorized and outstanding.

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

In February 1998, the Company reserved to issue 666,667 shares of common
stock, par value HK$0.50 each, in connection with its acquisition of HYHCL. The
financial statements for the year ended March 31, 1999 has given retroactive
effect to the issuance of the 279,863 shares of common stock relating to the
acquisition of the effective interest of HYHCL owned by the ChinaVest IV Funds,
on the basis of reorganization of companies under common control, similar to a
pooling of interests (see Note 2).

In March 1998, the Company issued 1,000,000 shares of common stock, par
value HK$0.50 each, for cash consideration of $12.75 per share through a public
offering, and raised net proceeds of approximately $10,764,000. In April 1998,
the Company issued 403,333 shares of common stock, par value HK$0.50 each, for
cash consideration of $12.75 per share pursuant to options granted to
underwriters of the aforesaid public offering, and raised net proceeds of
approximately $4,834,000.

45
<PAGE> 46
ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

In July 1998, the Company issued 10,625 shares of common stock, par value
HK$0.50 per share, for cash consideration of $9.125 per share in respect of the
exercise of stock options granted under the Company's 1997 equity incentive
plan.

In November 1999, the Company issued 20,500 shares of common stock, par
value HK$0.50 per share, for cash consideration of $6.75 per share in respect of
the exercise of stock options granted under the Company's 1997 equity incentive
plan.

19. STOCK OPTIONS

The Company has stock-based compensation plan, under which non-qualified
stock options may be granted to certain employees and directors. Under the 1997
equity incentive plan, the Company may grant up to 1,320,000 shares of common
stock to its employees and directors. The options granted under the plan are to
purchase common stock of the Company at not less than fair market value at the
date of grant. Employees options are generally vested to the employees in equal
installments within a four-year period, and expire 10 years after issuance.

Changes in outstanding options under the plan during the years ended March
31, 1999 and 2000 are as follows:

<TABLE>
<CAPTION>
1999 2000
--------------------------- ---------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
------- ---------------- ------- ----------------
<S> <C> <C> <C> <C>
Outstanding, beginning
of year............... 188,000 9.13 749,500 6.75
Granted at market
price................. 595,500 6.75 166,500 6.88
Exercised............... (10,625) 9.13 (20,500) 6.75
Forfeited............... (23,375) 6.75 (69,500) 6.75
------- ----- ------- -----
Outstanding, end of
year*................. 749,500 6.75 826,000 6.78
======= ===== ======= =====
Exercisable, end of
year.................. 293,090 6.75 463,213 6.76
======= ===== ======= =====
</TABLE>

---------------
* On December 15, 1998, the exercise price of the options outstanding was
reduced to the fair market value of $6.75 on the same date.

As of March 31, 2000, all the options outstanding were in the price range
of $6.75 to $6.88 with a weighted-average unexpired option life of approximately
8.43 years. On the same date, all the options exercisable were in the price
range of $6.75 to $6.88 with a weighted-average unexpired option life of
approximately 8.30 years.

The Company accounts for stock-based compensation using the intrinsic value
method prescribed by APB No. 25, under which no compensation cost has been
recognized as all the stock options were granted at or above fair market value.
Had compensation expense for the Company's stock-based compensation plan been
recognized based on fair value on the grant date in accordance with SFAS No.
123, the Company's pro forma net income and earnings per common share would have
been as follows:

<TABLE>
<CAPTION>
1999 2000
------- ------
$'000 $'000
<S> <C> <C>
Pro forma net income...................................... 10,627 8,154
======= ======
Pro forma earnings per share
-- Basic................................................ $ 1.21 $ 0.92
-- Diluted.............................................. $ 1.20 $ 0.92
======= ======
</TABLE>

46
<PAGE> 47
ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

The pro forma effects of applying SFAS No. 123 may not be representative of
actual results had the Company accounted for stock option awards using the
fair-value-based method.

The weighted-average fair value of options granted during the years ended
March 31, 1999 and 2000 is estimated, using the Black-Scholes option-pricing
model, to be $5.82 and $4.96, respectively. The fair value is estimated on the
date of grant using the following assumptions:

<TABLE>
<CAPTION>
1999 2000
------- -------
<S> <C> <C>
Risk-free interest rate................................... 4.49% 5.46%
Expected dividend yield................................... -- --
Expected option life...................................... 5 years 5 years
Expected stock price volatility........................... 120.40% 88.82%
======= =======
</TABLE>

20. COMMITMENTS

a. Operating lease commitments

The Group has various operating lease agreements for factory premises,
staff quarters and other equipment which extend through April 2004. Rental
expenses for the years ended March 31, 1998, 1999 and 2000 were approximately
$1,329,000, $859,000 and $1,238,000, respectively. As of March 31, 2000, future
minimum payments under agreements classified as operating leases with
non-cancellable terms are analyzed as follows:

<TABLE>
<CAPTION>
2000
-----
$'000
<S> <C>
Payable during the following period
-- Within one year........................................ 1,263
-- Over one year but not exceeding two years.............. 527
-- Over two years but not exceeding three years........... 408
-- Over three years but not exceeding four years.......... 294
-- Over four years but not exceeding five years........... 197
-----
2,689
=====
</TABLE>

47
<PAGE> 48
ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

b. Commitment relating to contractual joint ventures

Under the supplementary joint venture agreement for the establishment of
Dongguan Xinda Giftware Company Limited and the joint venture agreement for the
establishment of Shenzhen Huaxuan Printing Product Company Limited, the Group
has committed to pay pre-determined annual fees to the third-party joint venture
partners for the period from November 1994 to October 2010. Pre-determined
annual fees paid to joint venture partners are charged to expense on the
straight-line basis over the period of the relevant agreements. As of March 31,
2000, future fees payable under the aforesaid agreements are analyzed as
follows:

<TABLE>
<CAPTION>
$'000
<S> <C>
Payable during the following period
-- Within one year........................................ 450
-- Over one year but not exceeding two years.............. 471
-- Over two years but not exceeding three years........... 493
-- Over three years but not exceeding four years.......... 516
-- Over four years but not exceeding five years........... 540
-- Thereafter............................................. 3,438
-----
5,908
=====
</TABLE>

21. RETIREMENT PLAN

The Group's employees in Hong Kong and the United Kingdom, after completing
a probation period, may join the Group's defined contribution provident fund
managed by independent trustees in Hong Kong and the United Kingdom. The Group
makes monthly contribution to the schemes ranging from of 5.0% to 11.0% of the
employees' basic salaries, and the employees makes monthly contribution ranging
from 2.5% to 5.0% of their basic salaries. The employees are entitled to receive
their entire contribution together with accrued interest thereon at any time
upon leaving the Group, and 100% of the employer's contribution and the accrued
interest thereon upon retirement or at a reduced scale of 30% to 100% of the
employer's contribution and the accrued interest thereon upon leaving the Group
depending on the number of years of service. Any forfeited contributions made by
the Group and the accrued interest thereon are used to reduce future employer's
contributions. The Group has no other post-retirement or post-employment benefit
plans.

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

The aggregate amount of the Group's employer contributions (net of
forfeited contributions) for the years ended March 31, 1998, 1999 and 2000 was
approximately $154,000, $299,000 and $425,000, respectively.

22. BANKING FACILITIES

As of March 31, 2000, the Group had banking facilities of approximately
$53,181,000 for overdrafts, leasing, loans and trade financing. Unused
facilities as of the same date amounted to approximately $18,335,000. The
banking facilities consist of $24,000,000 installment loan in relation to the
acquisition of Corgi Classics Limited (see Note 3.a). As collateral of the loan,
the Company pledges its entire interest in Corgi Classics Holdings Limited and
Corgi Classics Limited, and has to comply with certain restrictive

48
<PAGE> 49
ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

financial covenants. In addition, the capital lease obligations were secured by
certain machinery and tools with net book value amounted to approximately
$4,913,000 (see Note 13).

23. RELATED PARTY TRANSACTIONS

The Group entered into the following transactions with related parties:

<TABLE>
<CAPTION>
1998 1999 2000
------ ----- -----
$'000 $'000 $'000
<S> <C> <C> <C>
Sales to ERTL and ERTL's related company (Note
a)............................................... 13,528 -- --
Management fee paid to Advent Funds (Note b)....... 227 -- --
Management fee paid to the ChinaVest IV Funds (Note
c)............................................... -- 125 500
====== ===== =====
</TABLE>

Notes --

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

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

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

24. SEGMENT INFORMATION

The Group operates in three business segments: (i) manufacturing of
die-cast and injection-moulded plastic products under OEM arrangements, (ii)
manufacturing of paper products, under OEM arrangements, and (iii) marketing and
distribution of die-cast products under the proprietary brand name owned by
Corgi Classics Limited.

a. Net sales

Net sales consisted of:

<TABLE>
<CAPTION>
1998 1999 2000
------- ------- -------
$'000 $'000 $'000
<S> <C> <C> <C>
Unrelated customers
Manufacturing of die-cast and
injection-moulded plastic products.......... 57,997 86,789 78,051
Manufacturing of paper products............... 40,009 26,816 36,398
Marketing and distribution of die-cast
products under proprietary brand name....... -- -- 22,671
------- ------- -------
98,006 113,605 137,120
ERTL and ERTL's related company (see Note 23)
Manufacturing of die-cast and
injection-moulded plastic products.......... 13,528 -- --
------- ------- -------
111,534 113,605 137,120
======= ======= =======
</TABLE>

49
<PAGE> 50
ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

Geographical analysis of net sales was as follows:

<TABLE>
<CAPTION>
1998 1999 2000
------- ------- -------
$'000 $'000 $'000
<S> <C> <C> <C>
Manufacturing of die-cast and
injection-moulded plastic products
U.S.A......................................... 65,489 79,238 71,572
Europe........................................ 6,036 7,551 5,517
Others........................................ -- -- 962
------- ------- -------
Sub-total..................................... 71,525 86,789 78,051
------- ------- -------
Manufacturing of paper products
Hong Kong..................................... 5,085 5,474 9,279
U.S.A......................................... 22,539 13,108 16,862
Europe........................................ 8,390 6,274 9,715
Others........................................ 3,995 1,960 542
------- ------- -------
Sub-total..................................... 40,009 26,816 36,398
------- ------- -------
Marketing and distribution of die-cast
products under proprietary brand name
United Kingdom................................ -- -- 19,724
Other European countries...................... -- -- 1,360
Others........................................ -- -- 1,587
------- ------- -------
Sub-total..................................... -- -- 22,671
------- ------- -------
Total............................... 111,534 113,605 137,120
======= ======= =======
</TABLE>

b. Operating profit*

<TABLE>
<CAPTION>
1998 1999 2000
------ ------ ------
$'000 $'000 $'000
<S> <C> <C> <C>
Manufacturing of die-cast and injection-moulded
plastic products................................... 9,367 11,499 8,292
Manufacturing of paper products...................... 5,520 2,606 2,515
Marketing and distribution of die-cast products under
proprietary brand name............................. -- -- 2,120
------ ------ ------
Total...................................... 14,887 14,105 12,927
====== ====== ======
</TABLE>

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

50
<PAGE> 51
ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

c. Identifiable assets **, capital expenditures, depreciation and amortization

<TABLE>
<CAPTION>
1998 1999 2000
------ ------ ------
$'000 $'000 $'000
<S> <C> <C> <C>
Identifiable assets
Manufacturing of die-cast and injection-moulded
plastic products............................... 62,627 51,210 49,254
Manufacturing of paper products.................. 30,052 27,746 25,674
Marketing and distribution of die-cast products
under proprietary brand name................... -- -- 22,486
------ ------ ------
Total.................................. 92,679 78,956 97,414
====== ====== ======
Capital expenditures
Manufacturing of die-cast and injection-moulded
plastic products............................... 8,771 4,350 1,350
Manufacturing of paper products.................. 644 490 1,054
Marketing and distribution of die-cast products
under proprietary brand name................... -- -- 4,913
------ ------ ------
Total.................................. 9,415 4,840 7,317
====== ====== ======
Depreciation and amortization
Manufacturing of die-cast and injection-moulded
plastic products............................... 2,162 3,648 4,072
Manufacturing of paper products.................. 1,254 1,287 1,305
Marketing and distribution of die-cast products
under proprietary brand name................... -- -- 2,439
------ ------ ------
Total.................................. 3,416 4,935 7,816
====== ====== ======
</TABLE>

---------------
** Identifiable assets represent total assets less goodwill and other intangible
assets.

d. Long-lived assets

Geographic analysis of long-lived assets was as follows:

<TABLE>
<CAPTION>
1998 1999 2000
------ ------ ------
$'000 $'000 $'000
<S> <C> <C> <C>
Hong Kong and Mainland China..................... 29,177 30,311 35,020
United Kingdom................................... -- -- 784
------ ------ ------
Total.................................. 29,177 30,311 35,804
====== ====== ======
</TABLE>

e. Major customers

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

<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Mattel Toys (HK) Limited/Mattel Vendor Operations Asia
Limited.............................................. 24.1% 26.1% 21.1%
ERTL and ERTL's related company (see Note 23).......... 12.1% 17.1% 5.9%
Hallmark Cards (HK) Limited (a subsidiary of Hallmark
Cards, Inc.)......................................... 15.4% 15.2% 8.5%
Premium Manufacturing Services Limited................. -- -- 5.2%
==== ==== ====
</TABLE>

51
<PAGE> 52
ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

25. OPERATING RISK

a. Country risk

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

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

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

b. Dependence on strategic relationship

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

c. Concentration of credit risk

Concentration of accounts receivable as of March 31, 1999 and 2000 is as
follows:

<TABLE>
<CAPTION>
1999 2000
---- ----
<S> <C> <C>
Five largest accounts receivable............................ 59% 37%
== ==
</TABLE>

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

d. Dependence on a limited number of suppliers

The Group purchases raw materials from a limited number of suppliers.
Concentration on the Group's suppliers for the years ended March 31, 1998, 1999
and 2000 is as follows:

<TABLE>
<CAPTION>
1998 1999 2000
---- ---- ----
<S> <C> <C> <C>
Purchases from five largest suppliers................... 22% 32% 24%
== == ==
</TABLE>

52
<PAGE> 53
ZINDART LIMITED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(AMOUNTS EXPRESSED IN UNITED STATES DOLLARS UNLESS OTHERWISE STATED)

26. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

During the year, the Group acquired the entire issued capital stock of
Corgi Classics Holdings Limited. Details of the fair value of the assets
acquired and liabilities assumed for the acquisitions were as follows:

<TABLE>
<CAPTION>
$'000
------
<S> <C>
Cash and bank deposits...................................... 959
Accounts receivable......................................... 7,851
Deposits and prepayments.................................... 1,785
Inventories................................................. 4,256
Machinery and equipment..................................... 4,485
Short-term borrowings....................................... (3,984)
Accounts payable............................................ (3,771)
Accrued liabilities......................................... (661)
Taxation payable............................................ (1,559)
------
Net assets acquired......................................... 9,361
Goodwill on acquisition..................................... 38,724
------
Consideration settled by cash and assumption of debt........ 48,085
Less: Cash and bank deposits acquired....................... (959)
------
Net cash outflow for acquisition of a subsidiary............ 47,126
======
</TABLE>

Cash paid for interest and income taxes is as follows:

<TABLE>
<CAPTION>
1998 1999 2000
----- ----- -----
$'000 $'000 $'000
<S> <C> <C> <C>
Interest.............................................. 698 708 2,388
=== === =====
Income taxes.......................................... 938 680 2,861
=== === =====
</TABLE>

27. OTHER SUPPLEMENTAL INFORMATION

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

<TABLE>
<CAPTION>
1998 1999 2000
------ ----- -----
$'000 $'000 $'000
<S> <C> <C> <C>
Depreciation of property, machinery and equipment
-- owned assets.................................. 2,725 4,237 6,274
-- assets held under capital leases.............. 606 -- --
Provision for/Write-off of doubtful accounts....... 938 590 1,684
Provision for/Write-off (write-back) of slow-moving
and obsolete inventories......................... 618 474 (192)
Interest expense for
-- short-term borrowings......................... 17 3 395
-- term loan..................................... 325 705 1,986
-- capital lease obligations..................... 356 -- 7
------ ----- -----
698 708 2,388
Repairs and maintenance expenses................... 516 875 688
Advertising expenses............................... -- -- 2,310
Interest income from bank deposits................. (1,087) (743) (697)
====== ===== =====
</TABLE>

53
<PAGE> 54

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

None.

54
<PAGE> 55

PART III

ITEM 10 -- DIRECTORS, EXECUTIVE OFFICERS AND CERTAIN KEY EMPLOYEES

The following table sets forth certain information with respect to the
directors, executive officers and certain key employees of the Company and their
ages as of March 31, 2000

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert A. Theleen(1)(2) 54 Chairman of the Board
Alexander M.K. Ngan 49 President, Chief Executive Officer and Director
Feather S.Y. Fok 38 Chief Financial Officer and Director
Christopher Guest 53 Chief Executive Officer of Corgi and Director
Tony D.H. Lai 58 Senior Vice President of Production
Kevin Murphy 41 Vice President of Operations
Trevor Dyer 56 Operations Director
George Chen 49 Director
Peter A.J. Gardiner(2) 64 Director
James E. Gilleran(2) 67 Director
Leo Paul Koulos(1) 66 Director
Gordon L.M. Seow 67 Director
Victor Yang(1)(2) 54 Director
</TABLE>

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

(2) Member of Audit Committee

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

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

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

Christopher Guest joined the board as a director in June 1999. Mr. Guest
joined Corgi in 1984 as sales and marketing director. He was appointed Managing
Director of Corgi in 1988, and was responsible for the integration of Corgi with
Mattel in connection with Mattel's acquisition of Corgi. He left Corgi in
January 1995 after completion of the integration. Later the same year, he led
Corgi's management in a leveraged buyout of the company from Mattel. His
previous marketing experience includes seven years with Unilever PLC and eight
years with Mars Inc. Mr. Guest received a Bachelor of Arts degree in English and
Economics from the University of York.

55
<PAGE> 56

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

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

Trevor Dyer joined Corgi as the production control manager for Mettoy's
die-cast factory in 1970. He became the factory manager of Corgi following the
management buyout in 1984. In 1990, he moved to Hong Kong as operations director
for Corgi and implemented the movement of the tooling and the product sourcing
programme to Hong Kong.

George Chen has served as a director since January 2000. Mr. Chen is the
Chief Executive Officer of Tait Asia Limited, a food and beverage distribution
company in China. He is also a director of Tait Asia Ltd., South Pacific Sea Lan
Air Ltd., Sea Star Fishing Co. Ltd., Pacific Genesis Ltd., China Food and
Beverage.com, Ltd., Tonga Petroleum & Gas Ltd. and China National Advertising
Co. Mr. Chen is a graduate of Boston University and has a bachelor's degree in
business administration.

Peter A.J. Gardiner joined the Board in January 2000. Mr. Gardiner is
presently a U.S. delegate to the Trans Atlantic Business Dialogue ("TABD"), a
forum of American and European business leaders that develops joint policy
recommendations to improve trade and investment conditions at both the
trans-Atlantic and global levels. Previously, Mr. Gardiner had been Chairman,
Chief Executive Officer and a major shareholder of Veriflo Corporation, a
leading manufacturer of semiconductor components. Mr. Gardiner received a
bachelor's degree in brewing and industrial fermentation from Heriot-Watt
University in Edinburgh, United Kingdom.

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

Leo Paul Koulos joined the Board in March 1997. Mr. Koulos is Chairman of
the Board of National Coupon Redemption Service, Inc., a national clearinghouse
for manufacturers' cents-off coupons. Mr. Koulos is also Chairman of the Board
of Coupon Processing Associates, Inc. and Chairman of the Advisory Board of
International Data, LLC. Mr. Koulos received a B.A. degree from the University
of San Francisco.

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

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

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<PAGE> 57

ITEM 11 -- EXECUTIVE COMPENSATION

The information required by this item is incorporated by reference from the
section captioned "Executive Compensation" contained in the Company's 2000 Proxy
Statement (the "Proxy Statement") .

ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is incorporated by reference from the
section captioned "Security Ownership of Certain Beneficial Owners and
Management" contained in the Proxy Statement.

ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is incorporated by reference from the
section captioned "Certain Transactions" contained in the 2000 Proxy Statement.

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<PAGE> 58

PART IV

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

(a) FINANCIAL STATEMENTS

The consolidated financial statements and related notes, together with the
report thereon of Arthur Andersen & Co, certified public accountants in Hong
Kong, are included in this Annual Report on Form 10-K.

(b) REPORTS ON FORM 8-K

The Company filed no reports on Form 8-K during the fiscal quarter ended
March 31, 2000.

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<C> <S>
2.1(3) Exchange Agreement among Zindart Limited, Hua Yang Holdings
Co., Ltd., Hua Yang Printing Holdings Co., Limited, the
shareholders of Hua Yang Holdings Co., Ltd. and certain
beneficial owners of such shareholders.
3.1(1) Amended and Restated Memorandum of Association of the
Company.
3.2(3) Amended and Restated Articles of Association of the Company.
4.1(1) Deposit Agreement by and among Zindart Limited, The Bank of
New York and Owners and Holders of American Depositary
Receipts, dated as of December , 1996.
4.2(2) 1997 Equity Incentive Plan of the Company.
10.1(a)(1) Sino-Foreign Co-Operation Contract, Zindart Toys (Dongguan)
Company Limited, between Dongguan Hengli Trading General
Company and Zindart Industrial Company Limited, dated
September 8, 1994.
10.1(b)(1) Sino-Foreign Co-Operation Contract, Zindart Toys (Dongguan)
Company Limited, Supplemental Contract, between Dongguan
Hengli Trading General Company and Zindart Industrial
Company Limited, dated December 5, 1995.
10.1(c)(1) Land Use Certificate for State-Owned Land, Dongguan
Government State-Owned (1993) No. 49.
10.1(d)(1) Land Use Certificate for State-Owned Land, Dongguan
Government State-Owned (1994) No. 664.
10.1(e)(1) Land Use Certificate for State-Owned Land, Dongguan
Government State-Owned (1994) No. 665.
10.1(f)(1) Land Use Certificate for State-Owned Land, Dongguan
Government State-Owned (1994) No. 666.
10.2(3) Processing Agreement between Zindart Limited and Dongguan
Hengli Industry Development Company, dated August 18, 1997.
10.3(3) Sino-Foreign Cooperation Contract between Shenzhen City Boan
District Xixian Town Gushu Economic Development Company
Limited and Hua Yang Printing Holdings Co. Limited, dated
May 28, 1995.
10.4 Standard Chartered Bank, Banking Facilities: Hua Yang, dated
March 22, 2000.
10.5 Standard Chartered Bank, Banking Facilities: Zindart, Ltd.,
dated March 22, 2000.
10.6 Hong Kong Bank, Banking Facilities, dated April 25, 2000.
10.7 Form of Management Services Agreement.
10.13(3) Agreement of Utilization of Factory, Warehouse and
Dormitory, dated January 24, 1995.
10.14(3) Tenancy Agreement for the Nan Yang factory between Bo An
Area Xi Heung Zhen Goo Yung Cheun Committee and Hua Yang,
dated April 1, 1997.
10.15(3) Tenancy Agreement for Dong Sand Factory, dated December 22,
1995.
10.16(3) Tenancy Agreement of Dormitory between Goo Yung Economics
Development Co. and Hua Yang, dated August 1997.
21.1 Subsidiaries of the Registrant.
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<PAGE> 59
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<C> <S>
23.1 Consent of Arthur Andersen & Co, Independent Auditors.
24.1 Power of Attorney (See signature page).
</TABLE>

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

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

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

(d) FINANCIAL STATEMENT SCHEDULES

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

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
28th day of June, 2000.

ZINDART LIMITED

By: /s/ ALEXANDER M.K. NGAN
------------------------------------
Alexander M.K. Ngan
Chief Executive Officer
(Principal Executive Officer)

By: /s/ FEATHER S.Y. FOK
------------------------------------
Feather S.Y. Fok
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)

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

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

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/s/ FEATHER S.Y. FOK Chief Financial Officer and Director Date: June 28, 2000
------------------------------------
Feather S.Y. Fok

/s/ JAMES E. GILLERAN Director Date: June 28, 2000
------------------------------------
James E. Gilleran

/s/ LEO PAUL KOULOS Director Date: June 28, 2000
------------------------------------
Leo Paul Koulos

/s/ GEORGE CHEN Director Date: June 28, 2000
------------------------------------
George Chen

/s/ ALEXANDER M.K. NGAN President, Chief Executive Officer Date: June 28, 2000
------------------------------------ and Director
Alexander M.K. Ngan

/s/ GORDON L.M. SEOW Director Date: June 28, 2000
------------------------------------
Gordon L.M. Seow
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<C> <C> <S>
/s/ PETER A.J. GARDINER Director Date: June 28, 2000
------------------------------------
Peter A.J. Gardiner

/s/ CHRISTOPHER GUEST Director Date: June 28, 2000
------------------------------------
Christopher Guest

/s/ VICTOR YANG Director Date: June 28, 2000
------------------------------------
Victor Yang
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