THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in Dream International Limited, you should at once hand this circular to the purchaser or transferee or to the bank, stockbroker or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this circular, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

==> picture [108 x 58] intentionally omitted <==

DREAM INTERNATIONAL LIMITED 德林國際有限公司

(Incorporated in Hong Kong with limited liability) (Stock Code: 1126)

VERY SUBSTANTIAL DISPOSAL OF PRC PROPERTY

A letter from the board of directors of Dream International Limited is set out on pages 4 to 8 of this circular.

A notice convening the extraordinary general meeting of Dream International Limited to be held at Imperial Room III, Tower Wing, Mezzanine Floor, The Royal Pacific Hotel and Towers Hong Kong, 33 Canton Road, China Hong Kong City, Tsimshatsui, Kowloon, Hong Kong on 29 May 2009 at 11:00 a.m. (or immediately after the conclusion or adjournment of the annual general meeting of the Company to be held on the same day, if later), is set out on pages 112 to 113 of this circular. If you are unable to attend the extraordinary general meeting in person, you are requested to complete and return the accompanying form of proxy in accordance with the instructions printed thereon. In order to be valid, the proxy form must be deposited by hand or post to the Company’s Hong Kong branch share registrar, Tricor Abacus Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong, not less than 48 hours before the time appointed for holding the extraordinary general meeting or adjourned meeting or not less than 24 hours before the time appointed for taking the poll subsequent to the date of the extraordinary general meeting or adjourned meeting thereof (as the case may be). If the proxy form is signed by a person under a power of attorney or other authority, a notarially certified copy of that power of attorney or authority shall be deposited at the same time as mentioned in the proxy form. Completion and return of the proxy form will not preclude you from subsequently attending and voting at the extraordinary general meeting or any adjournment thereof should you so wish.

12 March 2009

	Pages
Definitions......................................................................................................................................	1
Letter from the Board..................................................................................................................	4
Appendix I — Financial Information of the Group.........................................................	9
Appendix II — Valuation Report.........................................................................................	97
Appendix III — General Information...................................................................................	104
Notice of Extraordinary General Meeting................................................................................	112

– i –

DEFINITIONS

In this circular, unless the context otherwise requires, the following words and expressions have the following meanings:

“Announcement”

the announcement relating to the Disposal dated 12 January 2009 issued by the Company;

“Board” the board of Directors;
“Company” Dream International Limited, a company incorporated in Hong Kong with limited liability, the issued shares of which are listed on the main board of the Stock Exchange;
“Conditions Precedent” the conditions precedent to the completion of the Disposal Agreement;
“Consideration” the total consideration for the sale and purchase of the PRC Property in the sum of RMB53,000,000 (approximately HK$59.36 million)
“Director” a director of the Company and “Directors” include all directors of the Company;
“Disposal” the disposal of the PRC Property by the Vendor in accordance with the terms of the Disposal Agreement;
“Disposal Agreement” the agreement dated 9 January 2009 entered into between the Vendor and the Purchaser relating to the sale and purchase of the PRC Property;
“EGM” an extraordinary general meeting of the Company to be convened for approving the Disposal Agreement and the transactions contemplated thereunder;
“Group” the Company and its subsidiaries;

– 1 –

DEFINITIONS

“Hong Kong”	the Hong Kong Special Administrative Region of the PRC;
“HK$”	Hong Kong dollars, the lawful currency of Hong Kong;
“Independent Third Party”	a third party who is, and whose ultimate beneficial owners are,
	independent of the Company and connected persons (as defined
	in the Listing Rules) of the Company;
“Latest Practicable Date”	9 March 2009 being the latest practicable date prior to the
	printing of this circular for ascertaining certain information
	contained in this circular;
“Listing Rules”	the Rules Governing the Listing of Securities on the Stock
	Exchange;
“PRC Property”	the property comprising a land of approximately 48,000 square
	meters and certain buildings with total area of approximately
	43,600 square meters situated at Liutai Lukou, Banmao Road,
	Banqiao Jiedaoban, Taicang City, Jiangsu Province, PRC owned
	by the Vendor;
“PRC”	the People’s Republic of China and for the purpose of this
	circular, excludes Hong Kong, the Macau Special Administrative
	Region of the PRC and Taiwan;
“Purchaser”	江蘇省太倉經濟開發區管理委員會, a local authority of the
	PRC government in Jiangsu province, the purchaser of the PRC
	Property;
“RMB”	renminbi yuan, the lawful currency of the PRC;
“SFO”	the Securities and Futures Ordinance, Chapter 571 of the laws
	of Hong Kong;

– 2 –

DEFINITIONS

“Shareholders”	holders of Shares;
“Shares”	ordinary share(s) of USD0.01 each in the share capital of the
	Company;
“Stock Exchange”	The Stock Exchange of Hong Kong Limited;
“US$”	United States Dollars, the lawful currency of the United States
	of America; and
“Vendor”	C&H Toys (Suzhou) Co., Ltd. (希安琦玩具(蘇州)有限公司),
	a wholly foreign owned enterprise established in the PRC,
	wholly owned by the Company.

The exchange rate adopted in this circular for reference only is RMB1.0 to HK$1.12.

– 3 –

LETTER FROM THE BOARD

==> picture [108 x 58] intentionally omitted <==

DREAM INTERNATIONAL LIMITED 德林國際有限公司

(Incorporated in Hong Kong with limited liability) (Stock Code: 1126)

Executive directors:

Mr. Kyoo Yoon Choi (Chairman) Mr. Young M. Lee Mr. James Wang Mr. Hyun Ho Kim

Registered office: 8th Floor, Tower 5 China Hong Kong City 33 Canton Road, Tsimshatsui Kowloon, Hong Kong

Mr. Sang Hee Jung

Independent non-executive directors: Professor Cheong Heon Yi Professor Byong Hun Ahn Mr. Oliver, Shing Kay Wong

12 March 2009

To the Shareholders

Dear Sir or Madam,

VERY SUBSTANTIAL DISPOSAL OF PRC PROPERTY

INTRODUCTION

In the Announcement, the Board announced that:

(1) the Vendor, a wholly owned subsidiary of the Company, entered into the Disposal Agreement with the Purchaser on 9 January 2009 after trading hours. Pursuant to the Disposal Agreement, the Vendor has agreed to sell and the Purchaser has agreed to purchase the PRC Property, subject to fulfillment of the Conditions Precedent.

– 4 –

LETTER FROM THE BOARD

(2) As the transactions under the Disposal Agreement constituted a very substantial disposal of the Company under the Listing Rules, the Disposal Agreement and the transactions contemplated thereunder are subject to the approval of the Shareholders in the EGM.

The purpose of this circular is to provide you with further details of the Disposal Agreement and the transactions contemplated thereunder and other information in compliance with the requirements of the Listing Rules.

THE DISPOSAL AGREEMENT

Date : 9 January 2009

Parties to the Disposal Agreement

(i) C&H Toys (Suzhou) Co., Ltd. (希安琦玩具(蘇州)有限公司), a wholly-owned subsidiary of the Company, as the vendor; and
(ii) 江蘇省太倉經濟開發區管理委員會, a local authority of the PRC government in Jiangsu province, as the purchaser.

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, the Purchaser is government entity belonging to the PRC government responsible for the local management of the economic development zone of Taicang City, Jiangsu province and an Independent Third Party and does not hold any Shares.

The Group is principally engaged in business of manufacture and trading of toy products.

Disposal of PRC Property

Pursuant to the Disposal Agreement, the Vendor has agreed to sell and the Purchaser has agreed to purchase, subject to fulfillment of the Conditions Precedent, the PRC Property.

Consideration

The consideration of the sale and purchase of the PRC Property is RMB53,000,000 (approximately HK$59.36 million).

Pursuant to the Disposal Agreement, the Consideration is payable by cash as follows:—

RMB15,000,000 (approximately HK$16.8 million) by 30 January 2009 (which sum has been paid);

– 5 –

LETTER FROM THE BOARD

as to the balance of the Consideration by monthly instalment of RMB5,000,000 (approximately HK$5.6 million) until full payment from February to September 2009 where the September instalment will be RMB3,000,000 (approximately HK$3.92 million).

The Consideration was determined after arm’s length negotiations between the parties to the Disposal Agreement after taking into consideration the fair market value of the PRC Property based on the valuation of RMB50,330,000 (approximately HK$56,369,600), in aggregate, made by a PRC valuer, which is an Independent Third Party, in early December 2008.

Conditions Precedent

Completion of the sale and purchase of the PRC Property is conditional upon the approval of the Disposal Agreement and the transactions contemplated hereunder by the Shareholders in accordance with the Listing Rules.

Completion

Subject to fulfilment of the Conditions Precedent, completion of the Disposal Agreement shall take place upon full payment of the Consideration which is expected to be around September 2009.

INFORMATION ON THE PRC PROPERTY

The PRC Property comprising a land of approximately 48,000 square meters and certain buildings with total area of approximately 43,600 square meters is situated at Liutai Lukou, Banmao Road, Banqiao Jiedaoban, Taicang City, Jiangsu Province, PRC and is owned by the Vendor. It used to be one of the Group’s factories for manufacturing plush fabrics and plush stuffed toys. Since December 2008, it has ceased production which has been relocated to another new factory in inland China.

FINANCIAL EFFECTS OF THE DISPOSAL

Upon completion of the Disposal, there will be a gain to the Group and an increase in net asset value of the Group of approximately HK$19,210,000. On the other hand, there will be no effect on the liabilities of the Group.

– 6 –

LETTER FROM THE BOARD

VALUATION OF THE PRC PROPERTY

Greater China Appraisal Limited, an independent property valuer, has valued the Company’s property interests, including land use rights, as of 31 December 2008 at approximately RMB52 millions. The text of its letter and valuation certificates are set out in “Valuation Report” in Appendix II to this Circular.

A reconciliation of the net book value of the relevant property interests, including land use rights, as of 30 June 2008 to their fair value as of 31 December 2008 as stated in Appendix II to this Circular is as follows:

	RMB
Net book value as of 30 June 2008	37,241,176
Less: Depreciation	1,397,017
Net book value as of 31 December 2008	35,844,159
Market value as of 31 December 2008
of properties covered in the Valuation Report	52,000,000

REASONS FOR AND BENEFITS OF THE DISPOSAL

As mentioned in the annual report of the Company for the financial year ended 31 December 2007, in an attempt to control production cost, the Group shifted a larger portion of its production from those in coastal areas to inland China where labour costs are relatively lower. The Disposal is in line with the Group’s direction while allowing the Group an opportunity to realize some assets to enhance its cashflow position for further development.

The Directors, including the independent non-executive Directors, consider that the terms of the Disposal Agreement are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

As at 31 December 2008, the value of the PRC Property based on its net book value was approximately RMB35,844,159 (approximately HK$40.15 million). The land comprised in the PRC Property is recorded as leasehold land and land use rights and the buildings are recorded as property, plant and equipment in the financial statement of the Group. Based on the difference between gross proceeds and carrying value of the PRC Property being RMB35,844,159 (approximately HK$40.15 million), the gain which is expected to accrue to the Group due to the Disposal is estimated to be approximately HK$19 million.

The proceeds of RMB53,000,000 (HK$59.36 million) from the Disposal will be used for general working capital of the Group.

– 7 –

LETTER FROM THE BOARD

THE EGM

As the transactions under the Disposal Agreement constitute a very substantial disposal of the Company under the Listing Rules, the Disposal Agreement and the transactions contemplated thereunder are subject to the approval of the Shareholders in the EGM. A notice of the EGM to be convened and held at Imperial Room III, Tower Wing, Mezzanine Floor, The Royal Pacific Hotel and Towers Hong Kong, 33 Canton Road, China Hong Kong City, Tsimshatsui, Kowloon, Hong Kong. Hong Kong on 29 May 2009 at 11:00 a.m. (or immediately after the conclusion or adjournment of the annual general meeting of the Company to be held on the same day, if later) for the purpose of considering the Disposal Agreement is set out on pages 112 to 113 of this circular.

Pursuant to the amendments to the Listing Rules which became effective on 1st January 2009, any vote of shareholders at a general meeting must be taken by poll and accordingly, the ordinary resolution in relation to the Disposal Agreement will be put to vote by way of poll at the EGM. To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, no Shareholder has a material interest in the Disposal Agreement and the transactions contemplated thereunder and therefore no Shareholder is required to abstain from voting at the EGM.

If you are unable to attend the EGM in person, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon. In order to be valid, the proxy form must be deposited by hand or post to the Company’s Hong Kong branch share registrar, Tricor Abacus Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong, not less than 48 hours before the time for holding the EGM or adjourned meeting or not less than 24 hours before the time appointed for taking the poll subsequent to the date of the EGM or adjourned meeting thereof (as the case may be). If the proxy form is signed by a person under a power of attorney or other authority, a notarially certified copy of that power of attorney or authority shall be deposited at the same time as mentioned in the proxy form. Completion and return of the proxy form will not preclude you from subsequently attending and voting at the EGM.

RECOMMENDATION

Having taken into account of the information set out above, the Board considers that the terms of the Disposal Agreement and the transactions contemplated thereunder are fair and reasonable, on normal commercial terms and in the interests of the Company and the Shareholders as a whole and so recommends the Shareholders to vote in favour of the resolutions relating to the aforesaid matters at the EGM.

For and on behalf of the Board

Dream International Limited Young M. Lee

Executive Managing Director

– 8 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

1. FINANCIAL SUMMARY

Set out below is a summary of the consolidated results and assets and liabilities of the Group for the six months ended 30 June 2008 and the three years ended 31 December 2007 as extracted from the 2008 interim report and the annual reports of the corresponding years.

Turnover
Cost of sales
Gross profit
Loss for the period/year
attributable to equity holders
Loss per Share basic
Non-current assets
Current assets
Current liabilities
Net current assets
Total assets less current liabilities
Capital and reserves
Share capital
Reserves
Minority interests
Non-current liabilities

For the
Six months
Ended
30 June
For the year ended 31 December
2008
2007
2006
2005
HK$’000
HK$’000
HK$’000
HK$’000
(Unaudited)
(Audited)
(Audited)
(Audited)
340,002
946,328
1,084,357
1,040,444
(296,536)
(798,360)
(924,319)
(853,523)
43,466
147,968
160,038
186,921
51,034
4,831
129,671
36,348
HK7.6 cents
HK0.7 cents HK19.4 cents
HK5.4 cents
As at
30 June
As at 31 December
2008
2007
2006
2005
HK$’000
HK$’000
HK$’000
HK$’000
(Unaudited)
(Audited)
(Audited)
(Audited)
303,993
295,281
308,846
351,631
408,592
432,843
453,493
440,151
300,516
266,196
300,519
222,274
108,076
166,647
152,974
217,877
412,069
461,928
461,820
569,508
52,019
52,019
52,019
52,019
340,564
379,972
369,618
490,930
392,583
431,991
421,637
542,949
8,701
18,220
20,474
14,998
10,785
11,717
19,709
11,561
412,069
461,928
461,820
569,508

– 9 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

2. UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2008

Set out below are the unaudited consolidated financial statements of the Group together with the accompanying notes as extracted from the interim report of Dream International Limited for the six months ended 30 June 2008.

CONSOLIDATED INCOME STATEMENT — UNAUDITED

For the six months ended 30 June 2008

Note
Turnover
3
Cost of sales
Gross profit
Other revenue
4
Selling and distribution expenses
Administrative expenses
Impairment losses on fixed
and intangible assets
Other net gain/(loss)
5
Operating loss
Interest expenses
Share of losses of associates
Loss before taxation
6
Income tax (expense)/credit
7
(Loss)/profit for the period
Attributable to:
— equity holders of the Company
— minority interests
Dividend
8
(Loss)/earnings per share
9
— Basic
— Diluted

Six months ended 30 June
2008
2007
HK$’000
HK$’000
340,002
415,071
(296,536)
(341,555)
43,466
73,516
8,436
4,990
(22,151)
(14,343)
(74,777)
(64,074)
(6,000)
—
3,603
(6,995)
(47,423)
(6,906)
(3,812)
(3,875)
(164)
(22)
(51,399)
(10,803)
(5,218)
13,090
(56,617)
2,287
(51,034)
3,161
(5,583)
(874)
(56,617)
2,287
—
—
(HK7.6 cents)
HK0.5 cents
(HK7.6 cents)
HK0.5 cents

– 10 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET — UNAUDITED

As at 30 June 2008

Note Non-current assets Fixed assets - Leasehold land and land use rights 10 - Property, plant and equipment 10 Intangible assets 10 Investments in associates Deferred tax assets Other financial assets Current assets Inventories 11 Trade and other receivables 12 Tax recoverable Cash and cash equivalents Current liabilities Trade and other payables 13 Bank loans Current tax liabilities Net current assets Total assets less current liabilities	At 30 June 2008 HK$’000 15,635 194,161 15,045 1,308 235 77,609 303,993 ---------------- 212,801 130,257 524 65,010 408,592 ---------------- 172,437 126,404 1,675 300,516 ---------------- 108,076 ---------------- 412,069 ----------------	At 31 December 2007 HK$’000 15,153 182,022 16,623 1,373 3,826 76,284
		295,281 ---------------- 156,637 168,393 591 107,222
		432,843 ---------------- 149,845 113,884 2,467
		266,196 ----------------
		166,647 ----------------
		461,928 ----------------

– 11 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET — UNAUDITED (Continued)

As at 30 June 2008

Note Non-current liabilities Bank loans Deferred tax liabilities Retirement benefit obligations NET ASSETS CAPITAL AND RESERVES Share capital Reserves Total equity attributable to equity shareholders of the Company Minority interests TOTAL EQUITY	At 30 June 2008 HK$’000 — 96 10,689 10,785 ---------------- 401,284 52,019 340,564 392,583 8,701 401,284	At 31 December 2007 HK$’000 780 248 10,689
		11,717 ----------------
		450,211

		52,019 379,972
		431,991 18,220
		450,211

– 12 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY — UNAUDITED

For the six months ended 30 June 2008

	Attributable to equity holder of the Company	Attributable to equity holder of the Company	Attributable to equity holder of the Company	Attributable to equity holder of the Company	Attributable to equity holder of the Company	Total equity $’000 442,111 -------- 10,489 2,287
Share capital $’000 52,019 -------- — — — -------- 52,019 52,019 -------- — — — — -------- 52,019			Reserves		Retained profits $’000 154,959 -------- — 3,161 3,161 -------- 158,120 146,746 -------- — 2,876 (51,034) (48,158) -------- 98,588
	Share premium $’000 176,893 -------- — — — -------- 176,893 176,893 -------- — — — — -------- 176,893	Capital reserve $’000 6,829 -------- — — — -------- 6,829 6,829 -------- — (2,876) — (2,876) -------- 3,953	General reserve fund $’000 15,045 -------- — — — -------- 15,045 18,427 -------- — — — — -------- 18,427	Exchange reserve $’000 15,892 -------- 9,891 — 9,891 -------- 25,783 31,077 -------- 11,626 — — 11,626 -------- 42,703
						12,776 --------
						454,887

						450,211 -------- 7,690 — (56,617)
						(48,927) --------
						401,284

– 13 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT — UNAUDITED

For the six months ended 30 June 2008

Net cash (used in)/generated from operating activities Net cash used in investing activities Net cash generated from/(used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at 1 January Effect of foreign exchange rate changes Cash and cash equivalents at 30 June	Six months ended 30 June 2008 2007 HK$’000 HK$’000 (36,159) 18,716 (13,095) (5,880) 6,198 (31,831) (43,056) (18,995) 107,222 82,798 844 2,748 65,010 66,551

– 14 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION

1 GENERAL INFORMATION

The principal activities of Dream International Limited (the “Company”) and its subsidiaries (collectively the “Group”) are design, development, manufacturing and sale of plush stuffed toys and steel and plastic toys.

The Company is a limited liability company incorporated in Hong Kong. The address of its registered office is 8th Floor, Tower 5, China Hong Kong City, 33 Canton Road, Tsimshatsui, Kowloon, Hong Kong.

The Company is listed on the Main Board of The Stock Exchange of Hong Kong Limited.

2 BASIS OF PREPARATION

The interim financial report has been prepared in accordance with the applicable requirements of The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, including compliance with Hong Kong Accounting Standard 34 “Interim financial reporting” (“HKAS 34”) issued by the Hong Kong Institute of Certified Public Accountants (“HKICPA”). It was authorised for issuance on 24 September 2008.

The accounting policies and methods of computation adopted in the 2007 annual financial statements have been applied consistently to this interim financial report.

The HKICPA has issued a number of new and revised Hong Kong Financial Reporting Standards (“HKFRSs”), which collective term includes all applicable individual Hong Kong Financial Reporting Standards, Hong Kong Accounting Standards (“HKASs”) and Interpretations issued by the HKICPA) that are first effective or available for early adoption for accounting periods beginning on or after 1 January 2008. The Board of Directors has determined the accounting policies expected to be adopted in the preparation of the Group’s annual financial statements for the year ending 31 December 2008, on the basis of HKFRSs currently in use. The adoption of these new and revised HKFRSs did not result in significant changes to the Group’s accounting policies applied in these financial statements for the periods presented.

– 15 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

2 BASIS OF PREPARATION (Continued)

The HKFRSs that will be effective or are available for voluntary early adoption in the annual financial statements for the year ending 31 December 2008 may be affected by the issue of additional interpretation(s) or other changes announced by the HKICPA subsequent to the date of issuance of this interim report. Therefore the accounting policies that will be applied in the Group’s financial statements for that period cannot be determined with certainty at the date of issuance of this interim financial report.

The preparation of an interim financial report in conformity with HKAS 34 requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses as well as the related disclosures. Actual results may differ from these estimates.

In preparing this interim financial report, the Group reviews its property, plant and equipment and intangible assets for indications of impairment according to the relevant accounting policies. In assessing potential impairment identified, the Group uses projections of future cash flow generated from these assets based on management’s assignment of a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to these assets. In addition to the estimation involved in assessing the impairment losses of the above mentioned assets, other significant judgements made by management in applying the Group’s accounting policies and key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as at and for the year ended 31 December 2007.

This interim financial report contains consolidated financial statements and selected explanatory notes. The notes include an explanation of events and transactions that are significant to an understanding of the changes in financial position and performance of the Group since the 2007 annual financial statements. The condensed consolidated interim financial statements and notes thereto do not include all of the information required for a full set of financial statements prepared in accordance with the HKFRSs.

The financial information relating to the year ended 31 December 2007 that are included in the interim financial report does not constitute the Company’s statutory financial statements for that financial year but is derived from those financial statements. Statutory financial statements for the year ended 31 December 2007 are available from the Company’s registered office.

– 16 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

3 SEGMENT INFORMATION

Segment information is presented in respect of the Group’s business and geographical segments. Business segment information is chosen as the primary reporting format because this is more relevant to the Group’s internal financial reporting. The Group is principally engaged in design, development, manufacturing and sale of plush stuffed toys and steel and plastic toys.

(a) Primary reporting format — business segments

The Group is organised into two main business segments:

Manufacture and sale of

plush stuffed toys; and
steel and plastic toys.

Turnover Segment results Interest expenses Share of losses of associates Loss before taxation Income tax (expense)/credit (Loss)/profit for the period Capital expenditure Impairment losses on — property, plant and equipment — intangible assets Depreciation of property, plant and equipment Amortisation of — leasehold land and land use rights — intangible assets	Plush stuffed toys Six months ended 30 June 2008 2007 HK$’000 HK$’000 272,842 345,382 (25,936) (5,271) (164) (22) 24,818 4,891 — — — — 10,988 12,451 134 196 — —	Steel and plastic toys Six months ended 30 June 2008 2007 HK$’000 HK$’000 67,160 69,689 (21,487) (1,635) — — 1,318 3,459 5,837 — 163 — 3,645 3,364 50 84 343 343	Total Six months ended 30 June 2008 2007 HK$’000 HK$’000 340,002 415,071 (47,423) (6,906) (3,812) (3,875) (164) (22) (51,399) (10,803) (5,218) 13,090 (56,617) 2,287 26,136 8,350 5,837 — 163 — 14,633 15,815 184 280 343 343

– 17 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

3 SEGMENT INFORMATION (Continued)

(a) Primary reporting format — business segments (Continued)

Plush stuffed toys Steel and plastic toys As at As at As at As at 30 June 31 December 30 June 31 December 2008 2007 2008 2007 HK$’000 HK$’000 HK$’000 HK$’000 Segment assets 486,899 497,640 146,534 148,410 Investments in associates 1,308 1,373 — — Unallocated assets Total assets Segment liabilities 128,510 105,222 54,616 55,312 Unallocated liabilities Total liabilities	Total As at As at 30 June 31 December 2008 2007 HK$’000 HK$’000 633,433 646,050 1,308 1,373 77,844 80,701 712,585 728,124 183,126 160,534 128,175 117,379 311,301 277,913	Total As at As at 30 June 31 December 2008 2007 HK$’000 HK$’000 633,433 646,050 1,308 1,373 77,844 80,701 712,585 728,124 183,126 160,534 128,175 117,379 311,301 277,913
		728,124

		160,534 117,379
		277,913

(b) Secondary reporting format — geographical segments

The Group participates in several principal economic environments as set out below.

In presenting information on the basis of geographical segments, segment turnover is based on the geographical destination of delivery of goods.

North America Japan Europe South Korea Others	Six months ended 30 June 2008 2007 HK$’000 HK$’000 152,881 172,982 101,726 126,943 70,735 84,525 431 3,686 14,229 26,935 340,002 415,071	Six months ended 30 June 2008 2007 HK$’000 HK$’000 152,881 172,982 101,726 126,943 70,735 84,525 431 3,686 14,229 26,935 340,002 415,071
		415,071

There is no major disparity in the ratios between sales and profit in relation to the above geographical locations, hence no analysis is given of the profit contributions from the above geographical locations.

– 18 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

4 OTHER REVENUE

Interest income from bank deposits Interest income on long term structured deposits Sundry income 5 OTHER NET GAIN/(LOSS) Gain/(loss) on valuation of long term structured deposits Gain/(loss) on foreign exchange, net Loss on disposal of fixed assets Sundry loss 6 LOSS BEFORE TAXATION Loss before taxation is arrived at after charging/(crediting):	Six months ended 30 June 2008 2007 HK$’000 HK$’000 1,736 1,114 2,306 774 4,394 3,102 8,436 4,990 Six months ended 30 June 2008 2007 HK$’000 HK$’000 1,338 (3,633) 3,014 (2,993) (699) (204) (50) (165) 3,603 (6,995)

(a)
Staff costs
Contributions to defined contribution plan
Expenses recognised in respect of defined benefit plan
Salaries, wages and other benefits
(b)
Other items
Cost of inventories#
Amortisation of intangible assets
Amortisation of leasehold land and land use right
Depreciation of property, plant and equipment
Operating leases charges in respect of land and buildings
Provision for/(write-back of) obsolete inventories
Raw materials and consumables used

Six months ended 30 June
2008
2007
HK$’000
HK$’000
4,343
2,112
3,030
2,782
96,815
104,173
104,188
109,067
288,038
342,786
343
343
184
280
14,633
15,815
11,397
12,047
6,498
(1,231)
151,350
170,540

Cost of inventories includes $89,552,000 (six months ended 30 June 2007: $97,161,000) relating to staff costs, depreciation and amortisation expenses and operating lease charges, which amount is also included in the respectively total amounts disclosed separately above or in note 6(a) for each of these types of expenses.

– 19 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

7 INCOME TAX (EXPENSE)/CREDIT

Current income tax — Hong Kong profits tax — The People’s Republic of China (“PRC”) and overseas taxation — (Under)/over-provision of Hong Kong profits tax in the prior years_(Note)_ Deferred tax assets written off	Six months ended 30 June 2008 2007 HK$’000 HK$’000 (503) (565) (1,091) (261) (67) 12,942 (3,557) 974 (5,218) 13,090

Note: The Company’s long-standing tax dispute with the Hong Kong Inland Revenue Department (“IRD”) has been settled in 2007. In April 2007, the Company reached an agreement with the IRD on the tax filing basis of the Company’s offshore claim for the years of assessment 1998/99 to 2005/06. Under this settlement basis, the IRD agreed that 75% of the offshore profit (which was originally claimed as 100% offshore) were not subject to Hong Kong profits tax, which resulted in a tax refund of approximately $10 millions and an over-provision of tax from prior years of approximately $13 millions.

Hong Kong profits tax has been provided at the rate of 16.5% (six months ended 30 June 2007: 17.5%) on the estimated assessable profit for the period.

On 16 March 2007, the Fifth Plenary Session of the Tenth National People’s Congress passed the Corporate Income Tax (“CIT”) Law of the PRC (“new tax law”) which has taken effect on 1 January 2008. Generally, all PRC companies will be subject to CIT at the statutory rate of 25% under the new tax law, unless they are entitled to any preferential tax treatments.

The State Council of the PRC promulgated a grandfathering rule on 26 December 2007, which sets out the details of how certain preferential tax treatments under the Foreign Enterprise Income Tax (“FEIT”) Law (effective prior to 1 January 2008) would be grandfathered under the new tax law. According to the grandfathering rule, certain PRC subsidiaries of the Group which have unutilised “2-year FEIT exemption, 3-year 50% FEIT rate reduction” holiday (“Tax Holiday”) by 31 December 2007, will continue to enjoy the remaining Tax Holiday. For certain PRC subsidiaries which have not yet kicked off the Tax Holiday by 31 December 2007 (due to the tax losses arising in prior years), under the grandfathering rule, the Tax Holiday is deemed to commence from 1 January 2008 and end at 31 December 2012.

– 20 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

7 INCOME TAX (EXPENSE)/CREDIT (Continued)

Under the new tax law, dividends received by foreign investors from its investment in foreign-invested enterprises in the PRC are subject to withholding tax at a rate of 10% unless reduced by treaty. Pursuant to a tax treaty between the PRC and Hong Kong, investment holding companies established in Hong Kong are subject to a reduced withholding tax rate of 5% on dividends they receive from their PRC subsidiaries. Pursuant to the grandfathering treatments of the new tax law, dividends receivable by the Group from its PRC subsidiaries in respect of its undistributed profits prior to 31 December 2007 are exempted from the withholding tax. Dividends receivable by the Group from its PRC subsidiaries in respect of its profits earned since 1 January 2008 will be subject to the withholding tax.

Taxation on profit from other overseas subsidiaries has been calculated on the estimated assessable profit for the period at the rates of taxation prevailing in the countries in which the Group operates.

8 DIVIDEND

No dividend was paid or declared by the Company during the six months ended 30 June 2008 (six months ended 30 June 2007: Nil).

9 (LOSS)/EARNINGS PER SHARE

(a) Basic

Basic (loss)/earnings per share is calculated by dividing the loss attributable to equity holders of HK$51,034,000 (six months ended 30 June 2007: profit of HK$3,161,000) by the weighted average number of ordinary shares in issue of 668,529,000 shares (six months ended 30 June 2007: 668,529,000 shares) during the period.

(b) Diluted

Diluted (loss)/earnings per share for the six months ended 30 June 2008 and 2007 is the same as the basic (loss)/earnings per share as the potential ordinary shares outstanding during the periods were anti-dilutive.

– 21 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

10 CAPITAL EXPENDITURE

Six months ended 30 June 2007 Opening net book value as at 1 January 2007 Additions Disposals Depreciation and amortisation Exchange difference Closing net book value as at 30 June 2007 Six months ended 30 June 2008 Opening net book value as at 1 January 2008 Additions Disposals Depreciation and amortisation Impairment losses (Note) Exchange difference Closing net book value as at 30 June 2008	Leasehold land and land use rights HK$’000 16,168 — — (280) 345 16,233 15,153 — — (184) — 666 15,635	Property, plant and equipment HK$’000 199,878 7,608 (786) (15,815) 4,598 195,483 182,022 26,136 (2,098) (14,633) (5,837) 8,571 194,161	Intangible assets HK$’000 17,268 742 — (343) (482) 17,185 16,623 — — (343) (163) (1,072) 15,045	Total HK$’000 233,314 8,350 (786) (16,438) 4,461 228,901 213,798 26,136 (2,098) (15,160) (6,000) 8,165 224,841

Note: Management has assessed that there is an unfavourable change in the market and economic environment in which the steel and plastic toys segment operates. Management has considered that the fixed and intangible assets for this segment, as a cash generating unit, has been impaired as at 30 June 2008. Accordingly, the carrying amount of related assets has been reduced to its recoverable amount, with reference to the estimated discounted future cash flows generated from these assets.

– 22 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

11 COST OF INVENTORIES SOLD

Carrying amount of inventories sold Write-down of inventories Reversal of write-down of inventories	Six months ended 30 June 2008 2007 HK$’000 HK$’000 290,038 342,786 8,772 10 (2,274) (1,241) 296,536 341,555

The reversal of write-down of inventories made in prior years arose due to a portion of the aged raw materials used for production during the six months ended 30 June 2008.

12 TRADE AND OTHER RECEIVABLES

Trade receivables Less: Allowance for doubtful debts Deposits, prepayments and other receivables Amount due from ultimate holding company Amounts due from fellow subsidiaries Amounts due from associates Amounts due from related companies Loan to a fellow subsidiary	As at 30 June 2008 HK$’000 84,982 (9,737) 75,245 47,485 7,397 — 130 — — 130,257	As at 31 December 2007 HK$’000 111,422 (2,955) 108,467 42,402 8,194 419 283 328 8,300 168,393

Loan to a fellow subsidiary at 31 December 2007 was unsecured, bore interest at 7.5% per annum and was fully repaid during the six months ended 30 June 2008.

– 23 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

12 TRADE AND OTHER RECEIVABLES (Continued)

(a) Ageing analysis

As at 30 June 2008 and 31 December 2007, the ageing analysis of the trade receivables (net of provision for impairment) is as follows:

Current Less than 3 months past due More than 3 months but less than 1 year past due More than 1 year past due	As at 30 June 2008 HK$’000 48,138 20,714 5,297 1,096 75,245	As at 31 December 2007 HK$’000 85,718 16,239 5,711 799
		108,467

The Group generally grants a credit period of 30 days to 60 days to its customers.

(b) Impairment of trade debtors

Impairment losses in respect of trade debtors is recorded using an allowance account unless the Group is satisfied that recovery of the amount is remote, in which case the impairment loss is written off against trade debtors directly.

The movement in the allowance for doubtful debts during the period is as follows:

At 1 January Impairment loss recognised Uncollectible amounts written off Write back of impairment loss Exchange difference At 30 June 2008/31 December 2007	As at 30 June 2008 HK$’000 2,955 6,782 (168) (3) 171 9,737	As at 31 December 2007 HK$’000 7,353 3,163 (7,210) (462) 111
		2,955

At 30 June 2008, the Group’s trade debtors of $6,782,000 (2007: $3,163,000) were individually determined to be impaired. The individually impaired receivables related to customers that were in financial difficulties and management assessed that the recoverability of those trade debtors was in doubt. Consequently, specific allowance for doubtful debts of $6,782,000 (six months ended 30 June 2007: $3,149,000) was recognised.

– 24 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

13 TRADE AND OTHER PAYABLES

Trade payables Accrued charges and other payables Amounts due to fellow subsidiaries	As at 30 June 2008 HK$’000 90,233 77,837 4,367 172,437	As at 31 December 2007 HK$’000 70,276 76,934 2,635
		149,845

As at 30 June 2008 and 31 December 2007, the ageing analysis of the trade payables is as follows:

Within 1 month After 1 month but within 3 months After 3 months but within 6 months After 6 months but within 1 year Over 1 year	As at 30 June 2008 HK$’000 43,092 39,802 5,473 469 1,397 90,233	As at 31 December 2007 HK$’000 42,216 17,726 8,718 713 903
		70,276

14 COMMITMENTS

(a) Capital Commitments

Capital commitments outstanding as at 30 June 2008 not provided for in the Group’s interim financial information:

	As at	As at
	30 June	31 December
	2008	2007
	HK$’000	HK$’000
Contracted but not provided for	10,390	13,863

(b) Other Commitments

During the six months ended 30 June 2008, the Group entered into a licensing agreement with Disney Consumer Products, Inc. (“Disney”) to produce and distribute Disney products for the period from 6 May 2008 to 31 December 2010. The agreement includes a minimum license fee payable for each of the financial year of 2008, 2009 and 2010. The license fees commitment for 2008 has been fulfilled during the six months ended 30 June 2008. Pursuant to the above agreement, the Group has committed the minimum license fees for the years 2009 and 2010 amounted to US$3,000,000 (equivalent HK$23,403,000) and US$4,000,000 (equivalent HK$31,204,000) respectively.

– 25 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

15 RELATED PARTY TRANSACTIONS

During the period, the Group entered into the following transactions with its related parties:

(i) Sales of goods to_(note 1): Fellow subsidiaries An associated company A related company (ii) Purchases of goods from(note 2): A fellow subsidiary (iii) Sales commission received from(note 2)_: A fellow subsidiary (iv) Rentals paid/payable to: Ultimate holding company (v) Processing fee paid/payable to: An associated company (vi) Key management compensation: Salaries and other short-term benefits Share-based payments	Six months ended 30 June 2008 2007 HK$’000 HK$’000 — 526 50 590 — 1,057 50 2,173 — 8,978 1,542 — 1,160 1,678 5,631 5,894 4,388 5,306 — 230 4,388 5,536	Six months ended 30 June 2008 2007 HK$’000 HK$’000 — 526 50 590 — 1,057 50 2,173 — 8,978 1,542 — 1,160 1,678 5,631 5,894 4,388 5,306 — 230 4,388 5,536

		2,173

		8,978

		—

		1,678

		5,894

		5,306 230
		5,536

(vii) Included in bank loans is an amount of HK$62,403,000 (2007: HK$39,000,000) pledged with bank deposits of US$8,200,000 (equivalent to HK$63,982,000) (2007: US$5,200,000, equivalent to HK$40,570,000) hold by a director of the Company.

Note:

These related companies have changed their principal activities and reduced purchases of goods from the Group during the six months ended 30 June 2008.
The Group assists one of its customers to source raw materials from a fellow subsidiary. During the six months ended 30 June 2007, the transactions were initiated through the purchase and re-sale of goods. During the six months ended 30 June 2008, the Group acted as a sales agent and received commission income.

– 26 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

16 CONTINGENT LIABILITIES

During the six months ended 30 June 2008, a United States company commenced a lawsuit in the State of Texas against the Company on the grounds that the Company infringed their patent by selling, offering for sale, distributing and importing infringing goods (the “Litigation”). The plaintiff seeks an award of damages, no less than a reasonable royalty, attorney’s fee, costs and expenses incurred in the Litigation.

Having considered the Litigation with the Company’s various legal counsels, the management and the board of directors believe that the Company’s opposition to the plaintiffs’ complaint, as well as the Company’s defences and appeal rights, continue to be meritorious. As such, the Company intends to continue to vigorously defend the Litigation. In accordance with paragraph 92 of Hong Kong Accounting Standard 37 (“HKAS 37”), Provisions, Contingent Liabilities and Contingent Assets, it would be against the interests of the Company to make further disclosure of the information required by HKAS 37.

– 27 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

3. FINANCIAL STATEMENTS FOR THE TWO YEARS ENDED 31 DECEMBER 2007

Set out below are the consolidated financial statements of the Group together with accompanying notes as extracted from the audited annual report of Dream International Limited for the year ended 31 December 2007. No qualified opinions have been expressed on the financial statements containing the financial information set out below.

CONSOLIDATED BALANCE SHEET

As at 31 December 2007

Notes ASSETS Non-current assets Leasehold land and land use rights 6 Property, plant and equipment 7 Intangible assets 8 Investments in associates 10 Deferred income tax assets 20 Other financial assets 12 Current assets Inventories 13 Trade and other receivables 14 Tax recoverable Cash and cash equivalents 15 Total assets EQUITY Capital and reserves attributable to the Company’s equity holders Share capital 16 Reserves 17 Minority interests Total equity	2007 HK$’000 15,153 182,022 16,623 1,373 3,826 76,284 295,281 ---------------- 156,637 168,393 591 107,222 432,843 ---------------- 728,124 52,019 379,972 431,991 18,220 450,211	2006 HK$’000 16,168 199,878 17,268 1,298 3,180 71,054
		308,846 ---------------- 166,123 204,572 — 82,798
		453,493 ----------------
		762,339

		52,019 369,618
		421,637 20,474
		442,111

– 28 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED BALANCE SHEET (Continued)

As at 31 December 2007

Notes LIABILITIES Non-current liabilities Borrowings 19 Deferred income tax liabilities 20 Retirement benefit obligations 21 Current liabilities Trade and other payables 18 Current income tax liabilities Borrowings 19 Total liabilities Total equity and liabilities Net current assets Total assets less current liabilities	2007 HK$’000 780 248 10,689 11,717 ---------------- 149,845 2,467 113,884 266,196 ---------------- 277,913 728,124 166,647 461,928	2006 HK$’000 8,684 322 10,703
		19,709 ---------------- 157,515 12,214 130,790
		300,519 ----------------
		320,228

		762,339

		152,974

		461,820

– 29 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

BALANCE SHEET

As at 31 December 2007

Notes ASSETS Non-current assets Property, plant and equipment 7 Intangible assets 8 Investments in subsidiaries 9 Investments in associates 10 Other financial assets 12 Current assets Inventories 13 Trade and other receivables 14 Tax recoverable Cash and cash equivalents Total assets EQUITY Capital and reserves attributable to the Company’s equity holders Share capital 16 Reserves 17 Total equity	2007 HK$’000 12,974 315 226,734 1,248 75,373 316,644 ---------------- 39,648 143,202 524 15 34,061 217,435 ---------------- 534,079 52,019 316,503 368,522	2006 HK$’000 18,211 308 236,775 1,248 69,231
		325,773 ---------------- 51,129 145,559 — 11,769
		208,457 ----------------
		534,230
		52,019 291,041
		343,060

– 30 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

BALANCE SHEET (Continued)

As at 31 December 2007 Notes LIABILITIES Non-current liabilities Borrowings 19 Deferred income tax liabilities 20 Retirement benefit obligations 21 Current liabilities Trade and other payables 18 Current income tax liabilities Borrowings 19 Total liabilities Total equity and liabilities Net current assets Total assets less current liabilities	2007 HK$’000 — 248 9,073 9,321 ---------------- 96,832 — 59,404 156,236 ---------------- 165,557 534,079 61,199 377,843	2006 HK$’000 4,800 322 6,537
		11,659 ---------------- 127,309 7,877 44,325
		179,511 ----------------
		191,170

		534,230

		28,946

		354,719

– 31 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED INCOME STATEMENT

For the year ended 31 December 2007

Note Turnover 5 Cost of sales 24 Gross profit Other income 23 Selling and distribution expenses 24 Administrative expenses 24 Goodwill impairment losses 8 Other gains/(losses) — net 22 Operating loss Finance costs — net 26 Share of loss of associates Loss before income tax Income tax credit/(expense) 27 Loss for the year Attributable to: Equity holders of the Company Minority interests Loss per share(expressed in HK$ per share) — basic and diluted 29 Dividend 30	2007 HK$’000 946,328 (798,360) 147,968 6,357 (37,444) (134,459) — 2,395 (15,183) (5,016) (16) (20,215) 11,986 (8,229) (4,831) (3,398) (8,229) (0.007) —	2006 HK$’000 1,084,357 (924,319) 160,038 4,025 (38,310) (137,218) (100,194) (6,073) (117,732) (4,842) (237) (122,811) (8,673) (131,484) (129,671) (1,813) (131,484) (0.194) —

– 32 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2007

Balance at 1 January 2006 Currency translation differences Loss for the year Equity settled share-based transactions Capital contributions received from minority shareholders Balance at 31 December 2006 Balance at 1 January 2007 Currency translation differences Loss for the year Balance at 31 December 2007	Attributable to equity holders of the Company Share capital Reserves Total HK$’000 HK$’000 HK$’000 52,019 490,930 542,949 — 7,499 7,499 — (129,671) (129,671) — 860 860 — — — 52,019 369,618 421,637 52,019 369,618 421,637 — 15,185 15,185 — (4,831) (4,831) 52,019 379,972 431,991	Attributable to equity holders of the Company Share capital Reserves Total HK$’000 HK$’000 HK$’000 52,019 490,930 542,949 — 7,499 7,499 — (129,671) (129,671) — 860 860 — — — 52,019 369,618 421,637 52,019 369,618 421,637 — 15,185 15,185 — (4,831) (4,831) 52,019 379,972 431,991	Minority interests HK$’000 14,998 269 (1,813) — 7,020 20,474 20,474 1,144 (3,398) 18,220	Total equity HK$’000 557,947 7,768 (131,484) 860 7,020 442,111 442,111 16,329 (8,229) 450,211
	Share capital HK$’000 52,019 — — — — 52,019 52,019 — — 52,019	Reserves HK$’000 490,930 7,499 (129,671) 860 — 369,618 369,618 15,185 (4,831) 379,972

– 33 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

CONSOLIDATED CASH FLOW STATEMENT

For the year ended 31 December 2007

Notes Cash flows from operating activities Cash generated from operations 31 Net income tax refunded/(paid) Interest received from other financial assets Net cash generated from operating activities Cash flows from investing activities Purchase of property, plant and equipment 7 Proceeds from sale of property, plant and equipment 31 Proceeds from sale of club membership Purchase of club memberships and patent 8 Loan granted to a fellow subsidiary Prepaid operating lease payments for leasehold land and land use right 6 Bank interest received Net cash used in investing activities Cash flows from financing activities Interest paid Proceeds from borrowings Repayments of borrowings Capital contributions from minority shareholders Net cash (used in)/generated from financing activities Net increase/(decrease) in cash, cash equivalents and bank overdrafts Cash, cash equivalents and bank overdrafts at beginning of year Effect of foreign exchange rate change Cash, cash equivalents and bank overdrafts at end of year 15	2007 HK$’000 42,254 1,127 1,659 45,040 (14,528) 12,654 1,260 (753) (8,300) — 3,116 (6,551) (8,132) 100,162 (101,043) — (9,013) 29,476 74,836 2,910 107,222	2006 HK$’000 39,210 (583) 2,561 41,188 (75,366) 3,315 — (5,384) — (4,841) 2,842 (79,434) (7,684) 91,594 (76,312) 7,020 14,618 (23,628) 95,973 2,491 74,836

– 34 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 December 2007

1 GENERAL INFORMATION

The principal activities of Dream International Limited (the “Company”) and its subsidiaries (together, the “Group”) are the design, development, manufacturing and sale of plush stuffed and steel and plastic toys.

The Company is a limited liability company incorporated in Hong Kong. The address of its registered office is 8/F, Tower 5, China Hong Kong City, 33 Canton Road, Tsimshatsui, Kowloon, Hong Kong.

The Company has its primary listing on the Main Board of The Stock Exchange of Hong Kong Limited (the “SEHK”).

These consolidated financial statements are presented in thousands of units of Hong Kong dollar (HK$’000), unless otherwise stated. These consolidated financial statements have been approved for issue by the Board of Directors on 18 April 2008.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

2.1 Basis of preparation

The consolidated financial statements of Dream International Limited have been prepared in accordance with Hong Kong Financial Reporting Standards (“HKFRS”). The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of available-for-sale financial assets, financial assets and financial liabilities (including derivative financial instruments) at fair value through income statement, which are carried at fair value.

The preparation of financial statements in conformity with HKFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies.

– 35 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2.1 Basis of preparation (Continued)
- (a) New standards, amendments to standards and interpretations effective in 2007

The following new standards, amendments to standards and interpretations are effective for the year ended 31 December 2007:

HKAS 1 (Amendment) Presentation of Financial Statements — Capital Disclosures HKFRS 7 Financial Instruments: Disclosures HK(IFRIC)-Int 7 Applying the Restatement Approach under HKAS 29 Financial Reporting in Hyperinflationary Economies HK(IFRIC)-Int 8 Scope of HKFRS 2 HK(IFRIC)-Int 9 Reassessment of Embedded Derivatives HK(IFRIC)-Int 10 Interim Financial Reporting and Impairment

The adoption of the above standards, amendments to standards and interpretations did not have significant impact to the Group’s accounting policy except that there were additional disclosures required by HKAS 1 (Amendment) and HKFRS 7.

(b) New/revised standards and interpretations that are not yet effective and have not been early adopted by the Group.

The following new/revised standards and interpretations are not yet effective and have not been early adopted by the Group:

HKAS 1 (Revised) Presentation of Financial Statements HKAS 23 (Revised) Borrowing Costs HKAS 27 (Revised) Consolidated and Separate Financial Statements HKFRS 2 (Amendment) Share-based Payment HKFRS 3 (Revised) Business Combination HKFRS 8 Operating Segments HK(IFRIC)-Int 11 HKFRS 2 — Group and Treasury Share Transactions HK(IFRIC)-Int 12 Service Concession Arrangements HK(IFRIC)-Int 13 Customer Loyalty Programmes HK(IFRIC)-Int 14 HKAS 19 — The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

– 36 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.2 Consolidation

The consolidated financial statements include the financial statements of the Company and all of its subsidiaries made up to 31 December.

(a) Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

In the Company’s balance sheet the investments in subsidiaries are stated at cost less provision for impairment losses (Note 2.8). The results of subsidiaries are accounted by the Company on the basis of dividend received and receivable.

– 37 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.2 Consolidation (Continued)

(b) Transactions with minority interests

The Group applies a policy of treating transactions with minority interests as transactions with parties external to the Group. Disposals to minority interests result in gains and losses for the Group that are recorded in the consolidated income statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary.

(c) Associates

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognised at cost.

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

In the Company’s balance sheet the investments in associates are stated at cost less provision for impairment losses (Note 2.8). The results of associated companies are accounted for by the Company on the basis of dividend received and receivable.

2.3 Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic environments.

– 38 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.4 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Hong Kong dollar, which is different from the Company’s functional currency of United States dollar (“US dollar”). The Company has used Hong Kong dollar as its presentation currency in view of the fact that the Company’s shares are listed on the SEHK.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in the amortised cost are recognised in income statement, and other changes in the carrying amount are recognised in equity.

Translation differences on non-monetary financial assets and liabilities are reported as part of the fair value gain or loss. Translation difference on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in income statement as part of the fair value gain or loss. Translation differences on non-monetary financial assets such as equities classified as available for sale are included in the availablefor-sale reserve in equity.

(c) Group companies

The results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

– 39 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.4 Foreign currency translation (Continued)

(c) Group companies (Continued)
income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in equity are recognised in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

2.5 Leasehold land and land use rights

Leasehold land and land use rights are stated at cost less accumulated amortisation and accumulated impairment losses. Cost mainly represents consideration paid for the rights to use the land from the date the respective rights was granted. Amortisation of leasehold land and land use rights is calculated on a straight-line basis over the period of the rights.

2.6 Property, plant and equipment

All property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

– 40 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
2.6 Property, plant and equipment (Continued)

Depreciation is calculated using the straight-line method to allocate their costs to their residual values over their estimated useful lives, as follows:

Freehold land is not depreciated.
Buildings situated on freehold land are depreciated over their estimated useful lives, being no more than 20 years after the date of completion.
Buildings situated on leasehold land are depreciated over the shorter of the unexpired term of lease and their estimated useful lives, being no more than 20 years after the date of completion.
Leasehold improvements Over the period of the lease
— Plant and machinery 5 — 10 years
— Office equipment, furniture and fixtures 5 — 10 years
— Motor vehicles 3 — 10 years

Construction in progress is stated at cost capitalised, which includes construction costs and other direct costs, less any identified impairment loss. No depreciation is provided until the construction is completed and the assets are ready for intended use. Cost of completed construction work is transferred to the appropriate category of property, plant and equipment.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2.8).

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within other gains/(losses) — net, in the income statement.

2.7 Intangible assets

(a) Patents

Acquired patents are shown at historical cost. Patents have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of patents over their estimated useful lives (5 years).

(b) Club memberships

Club memberships with indefinite useful lives are stated in the balance sheet at cost less accumulated impairment losses, and are tested annually for impairment (Note 2.8).

– 41 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.8 Impairment of investments in subsidiaries, associates and non-financial assets

Assets that have an indefinite useful life or have not yet available for use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at each reporting date.

2.9 Financial assets

The Group classifies its financial assets in the following categories: loans and receivable and available-for-sale. The classification depends on the purposes for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition.

(a) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date which are classified as noncurrent assets. Loans and receivables are classified as “trade and other receivables” and “cash and cash equivalents” in the balance sheet (Note 2.12 and Note 2.13).

(b) Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

All financial assets are initially recognised at fair value plus transaction costs. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method.

When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the income statement as gains and losses from investment securities.

– 42 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.9 Financial assets (Continued)

(b) Available-for-sale financial assets (Continued)

Interest on available-for-sale securities calculated using the effective interest method is recognised in the income statement as part of other income. Dividends on available-for-sale equity instruments are recognised in the income statement as part of other income when the Group’s right to receive payments is established.

The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include the use of recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis and option pricing models, making maximum use of market inputs and relying as little as possible on entity-specific inputs.

The Group assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss — measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss — is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. Impairment testing of trade receivables is described in Note 2.12.

2.10 Derivatives financial instruments

The Group has no derivative financial instrument designated as a hedging instrument. Derivative financial instruments are initially recognised at fair value and are subsequently remeasured at their fair value. Changes in the fair value are recognised immediately in the income statement within other gains/(losses) — net.

2.11 Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted average costing method. The cost of finished goods and work in progress comprises design costs, raw materials, direct labour, other direct costs and related production overheads (based on normal operating capacity). It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

– 43 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.12 Trade and other receivables

Trade and other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade and other receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the assets is reduced through the use of an allowance account, and the amount of the loss is recognised in the income statement within selling and distribution expenses. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against selling and distribution expenses in the income statement.

2.13 Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

2.14 Share capital

Ordinary shares are classified as equity.

2.15 Trade payables

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

2.16 Borrowings

Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

– 44 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.17 Current and deferred income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

2.18 Employee benefits

(a) Pension obligations

The Group participates in various pension schemes, including defined benefit and defined contribution plans.

A defined contribution plan is a pension plan under which a company pays fixed contributions into separately administered funds. A company has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all qualified employees the benefits relating to employee service in the current and prior periods. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

– 45 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.18 Employee benefits (Continued)

(a) Pension obligations (Continued)

A defined benefit plan is a pension plan that is not a defined contribution plan. Typically, defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds or treasury bond that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligation are charged to or credited against the income statement over the employees’ expected average remaining working lives.

Past-service costs are recognised immediately in the income statement, unless the changes to the pension plan are conditional on the employees remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortised on a straight-line basis over the vesting period.

(b) Share-based compensation

The Group operates a number of equity-settled, share-based compensation plans. The fair value of the employee services received in exchange for the grant of the options is recognised as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to vest. At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest. At each balance sheet date, the entity revises its estimates of the number of options that are expected to vest. It recognises the impact of the revision of original estimates, if any, in the income statement, with a corresponding adjustment to equity.

– 46 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.18 Employee benefits (Continued)

(b) Share-based compensation (Continued)

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

(c) Termination benefits

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after balance sheet date are discounted to present value.

2.19 Provisions

Provisions are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

2.20 Revenue recognition

Revenue comprises the fair value of the consideration received or receivable for the sale of goods and services in the ordinary course of the Group’s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group.

– 47 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

2.20 Revenue recognition (Continued)

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

(a) Sale of goods

Revenue from the sale of goods is recognised upon shipment when significant risks and rewards of ownership of the goods are transferred to the buyer and collectibility of related receivables is reasonably assured.

(b) Commission income

Commission income on sales referred to manufacturers is recognised when the goods are delivered by the manufacturers to the ultimate customers.

(c) Interest income

Interest income is recognised on a time-proportion basis using the effective interest method.

2.21 Leases (as the lessee for operating leases)

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

2.22 Borrowing costs

Borrowing costs incurred for the construction of any qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed.

2.23 Dividend distribution

Dividend distribution to the Company’s shareholders is recognised as a liability in the Group’s financial statements in the period in which the dividends are approved by the Company’s shareholders or directors, where appropriate.

– 48 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

3 FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including foreign exchange risk, cash flow and fair value interest risk), credit risk and liquidity risk. The Group’s overall risk management focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance.

(a) Market risk

(i) Foreign exchange risk

The Group mainly operates in the Mainland China and Hong Kong with most of the transactions settled in US dollar and Renminbi (“RMB”). The Group’s assets and liabilities, and transactions arising from its operations that are exposed to foreign exchange risks are primarily with respect to US dollar. The Group has not used any forward contracts to hedge its exposure.

At 31 December 2007, if US dollar had strengthened/weakened by 10% against Hong Kong dollar with all other variables held constant, post-tax loss for the year would have been HK$5,250,000 (2006: HK$7,230,000) lower/higher.

(ii) Cash flow and fair value interest rate risk

The Group is subject to interest rate risk in relation to derivatives financial instrument, loan to a fellow subsidiary, borrowings and bank balances. Derivatives financial instrument, borrowings and bank balances carried at floating rates expose the Group to cash flow interest rate risk whereas those carried at fixed rates expose the Group to fair value interest rate risk. The Group has not entered into any interest rate swaps to hedge its exposure to interest rate risks.

If the market interest rates had been 100 basis points higher/lower at 31 December 2007, post-tax loss would have been approximately HK$701,000 (2006: HK$991,000) lower/higher.

(b) Credit risk

Credit risk is managed on a group basis. Credit risk arises from cash and cash equivalents, and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables. For banks and financial institutions, deposits are only placed with reputable banks. For credit exposures to customers, Group management assesses the credit quality of the customer, taking into account its financial position, past experience and other factors.

As at 31 December 2006 and 2007, no customers were rated independently.

– 49 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

3 FINANCIAL RISK MANAGEMENT (Continued)

3.1 Financial risk factors (Continued)

(c) Liquidity risk

Prudent liquidity risk management includes maintaining sufficient cash and the availability of funding from an adequate amount of committed credit facilities and the ability to close out market positions.

The Group maintains its liquidity mainly through funding generated from its daily operations.

Liquidity risk is the risk that funds will not be available to meet liabilities as they fall due, and it results from amount and maturity mismatches of assets and liabilities. Prudent liquidity risk management includes maintaining sufficient cash, the availability of funding from an adequate amount of committed credit facilities and the ability to close out market positions.

Banking facilities have been put in place for contingency purposes. As at 31 December 2007, the Group’s total available banking facilities amounted to HK$393,323,000 (2006: HK$224,188,000).

The table below analyses the Group’s financial liabilities that will be settled on a net basis into relevant maturity groupings based on the remaining period at the balance sheet to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

– 50 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

3 FINANCIAL RISK MANAGEMENT (Continued)
3.1 Financial risk factors (Continued)
- (c) Liquidity risk (Continued)

	Less than	Between 1 and
	1 year	2 years
	HK$’000	HK$’000
Group
At 31 December 2007
Borrowings	113,884	780
Trade and other payables	148,945	—
At 31 December 2006
Borrowings	130,790	8,684
Trade and other payables	157,515	—
Company
At 31 December 2007
Borrowings	59,404	—
Trade and other payables	96,832	—
At 31 December 2006
Borrowings	44,325	4,800
Trade and other payables	127,309	—

3.2 Capital risk management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for equity holders and to reduce the cost of capital.

The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as total borrowings divided by total equity

The gearing ratios at 31 December 2007 and 2006 were as follows:

	2007	2006
	HK$’000	HK$’000
Total borrowings (Note 19)	114,664	139,474
Total equity	450,211	442,111
Gearing ratio	25%	32%

– 51 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

3 FINANCIAL RISK MANAGEMENT (Continued)

3.3 Fair value estimation

The carrying value less impairment provision of other financial assets, trade receivables and payables are a reasonable approximation of their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Income taxes

The Group is subject to income taxes in various jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

(b) Impairment of trade and other receivables

Provision for impairment of trade and other receivables is determined based on the evaluation of collectability of trade and other receivables. A considerable amount of judgment is required in assessing the ultimate realisation of these receivables, including the current market condition.

(c) Net realisable value of inventories

Net realisable value of inventories is the estimated selling price in the ordinary course of business, less estimated costs of completion and selling expenses. These estimates are based on the current market condition and the historical experience of manufacturing and selling products of similar nature.

– 52 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (Continued)

(d) Fair value of other financial assets

The fair value of other financial assets that are not traded in an active market is determined by using valuation techniques. The Group uses its judgement to select a variety of methods and make assumptions that are mainly based on market conditions existing at each balance sheet date. The Group uses discounted cash flow analysis for various available-for-sale financial assets that were not traded in active markets.

(e) Defined benefit obligations

The costs, assets and liabilities of defined benefit obligations are determined using actuarial valuation prepared by an independent firm of actuaries. Details of the key assumptions are disclosed in Note 21. Due to the long term nature of this plan, such estimates are subject to significant uncertainty. The assumptions and the resulting estimates are reviewed annually and, when appropriate, changes are made which affect the actuarial valuation and, hence, the amount of retirement benefit expense recognised in the income statement.

5 SEGMENT INFORMATION

(a) Primary reporting format — business segments

The Group comprises two main business segments:

plush stuffed toys
steel and plastic toys

Sales to external customers Other income Total Segment result Goodwill impairment losses Operating loss Finance costs — net Share of loss of associates Loss before income tax Income tax credit/(expense) Loss for the year	Plush stuffed toys 2007 2006 HK$’000 HK$’000 801,339 903,920 3,681 1,434 805,020 905,354 (7,571) (13,359) — (99,532)	Steel and plastic toys 2007 2006 HK$’000 HK$’000 144,989 180,437 1,017 30 146,006 180,467 (7,612) (4,179) — (662)	Unallocated 2007 2006 HK$’000 HK$’000 — — 1,659 2,561 1,659 2,561 — — — —	Total 2007 2006 HK$’000 HK$’000 946,328 1,084,357 6,357 4,025 952,685 1,088,382 (15,183) (17,538) — (100,194) (15,183) (117,732) (5,016) (4,842) (16) (237) (20,215) (122,811) 11,986 (8,673) (8,229) (131,484)	Total 2007 2006 HK$’000 HK$’000 946,328 1,084,357 6,357 4,025 952,685 1,088,382 (15,183) (17,538) — (100,194) (15,183) (117,732) (5,016) (4,842) (16) (237) (20,215) (122,811) 11,986 (8,673) (8,229) (131,484)
					1,088,382

					(17,538) (100,194)
					(117,732) (4,842) (237)
					(122,811) (8,673)
					(131,484)

– 53 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

5 SEGMENT INFORMATION (Continued)

(a) Primary reporting format — business segments (Continued)

Plush stuffed toys 2007 2006 HK$’000 HK$’000 Segment assets 497,640 548,417 Investments in associates 1,373 1,298 Unallocated assets Total assets Segment liabilities 105,222 126,440 Unallocated liabilities Total liabilities Capital expenditure 11,536 19,769 Depreciation of property, plant and equipment 23,398 21,943 Amortisation of leasehold land and land use rights and patent 337 217	Steel and plastic toys 2007 2006 HK$’000 HK$’000 148,410 138,390 — — 55,312 41,778 2,992 60,438 6,707 4,127 779 756	Total 2007 2006 HK$’000 HK$’000 646,050 686,807 1,373 1,298 80,701 74,234 728,124 762,339 160,534 168,218 117,379 152,010 277,913 320,228 14,528 80,207 30,105 26,070 1,116 973	Total 2007 2006 HK$’000 HK$’000 646,050 686,807 1,373 1,298 80,701 74,234 728,124 762,339 160,534 168,218 117,379 152,010 277,913 320,228 14,528 80,207 30,105 26,070 1,116 973
			762,339

			168,218 152,010
			320,228

			80,207

			26,070

			973

Segment assets consist primarily of property, plant and equipment, intangible assets, inventories, trade and other receivables, and cash and cash equivalents. Unallocated assets comprise deferred income tax assets, other financial assets and tax recoverable.

Segment liabilities comprise operating liabilities. Unallocated liabilities comprises items such as borrowings, deferred income tax liabilities and current income tax liabilities.

Capital expenditure comprises additions to leasehold land and land use rights and property, plant and equipment.

– 54 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

5 SEGMENT INFORMATION (Continued)

(b) Secondary reporting format — geographical segments

North America Japan Europe South Korea PRC and Hong Kong Vietnam Others	Turnover 2007 2006 HK$’000 HK$’000 419,357 534,694 283,074 271,226 170,576 187,552 5,272 14,350 65,363 67,200 185 539 2,501 8,796 946,328 1,084,357	Segment assets 2007 2006 HK$’000 HK$’000 1,743 2,016 4,182 4,297 — — 70,219 91,267 507,258 538,328 62,648 50,899 — — 646,050 686,807	Capital expenditure 2007 2006 HK$’000 HK$’000 65 137 — — — — 630 140 11,996 70,738 1,837 9,192 — — 14,528 80,207	Capital expenditure 2007 2006 HK$’000 HK$’000 65 137 — — — — 630 140 11,996 70,738 1,837 9,192 — — 14,528 80,207
				80,207

The analysis of turnover by geographical segment is based on the destination of shipments of goods. No analysis of the contribution by geographical segment has been presented as the ratios of profit to turnover achieved for the above geographical segments are not substantially out of line with the Group’s overall ratio of profit to turnover.

6 LEASEHOLD LAND AND LAND USE RIGHTS

The Group’s interests in leasehold land and land use rights represent prepaid operating lease payments and their net book values are analysed as follows:

	Group
	2007	2006
	HK$’000	HK$’000
Outside Hong Kong held on:
Leases of between 10 to 50 years	15,153	16,168

Bank borrowings are secured on leasehold land and land use rights for the carrying amount of HK$14,581,000 (2006: HK$15,622,000) (Note 19).

– 55 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

6 LEASEHOLD LAND AND LAND USE RIGHTS (Continued)

Opening net book amount Additions Disposals Amortisation of prepaid operating lease payments_(Note 24)_ Exchange differences Closing net book amount	Group 2007 2006 HK$’000 HK$’000 16,168 11,269 — 4,841 (1,278) — (440) (297) 703 355 15,153 16,168

7 PROPERTY, PLANT AND EQUIPMENT

		Group
Freehold land and Leasehold buildings improvements HK$’000 HK$’000 66,012 22,411 (9,819) (17,506) 56,193 4,905 56,193 4,905 2,226 82 11,104 1,351 (1,983) — (2,947) (1,913) 26,221 — 90,814 4,425 103,985 23,960 (13,171) (19,535) 90,814 4,425	Plant and machinery HK$’000 124,030 (59,729) 64,301 64,301 2,332 33,324 (18) (16,557) 5,855 89,237 166,756 (77,519) 89,237	Office equipment, furniture and fixtures HK$’000 25,464 (16,896) 8,568 8,568 488 2,278 (51) (3,074) 1,100 9,309 28,954 (19,645) 9,309	Construction Motor in vehicles progress HK$’000 HK$’000 12,906 8,501 (8,284) — 4,622 8,501 4,622 8,501 (17) 711 2,685 24,624 (278) — (1,579) — — (33,176) 5,433 660 12,576 660 (7,143) — 5,433 660	Total HK$’000 259,324 (112,234)
				147,090

				147,090 5,822 75,366 (2,330) (26,070) —
				199,878

				336,891 (137,013)
				199,878

– 56 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

7 PROPERTY, PLANT AND EQUIPMENT (Continued)

		Group
Freehold land and Leasehold buildings improvements HK$’000 HK$’000 90,814 4,425 4,683 201 1,220 1,516 (5,365) (131) (4,914) (2,130) — 1,552 86,438 5,433 105,327 16,926 (18,889) (11,493) 86,438 5,433	Plant and machinery HK$’000 89,237 4,346 7,113 (4,749) (17,728) — 78,219 164,899 (86,680) 78,219	Office equipment, furniture and fixtures HK$’000 9,309 391 1,051 (225) (3,285) — 7,241 28,111 (20,870) 7,241	Construction Motor in vehicles progress HK$’000 HK$’000 5,433 660 246 39 2,274 1,354 (1,715) — (2,048) — — (1,552) 4,190 501 9,420 501 (5,230) — 4,190 501	Total HK$’000 199,878 9,906 14,528 (12,185) (30,105) —
				182,022

				325,184 (143,162)
				182,022

Bank borrowings are secured on buildings and plant and machinery for the carrying amount of HK$83,345,000 (2006: HK$93,232,000) (Note 19).

– 57 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

7 PROPERTY, PLANT AND EQUIPMENT (Continued)

	Company	Company
Freehold land and Leasehold buildings improvements HK$’000 HK$’000 4,603 17,019 (191) (13,897) 4,412 3,122 4,412 3,122 — 74 — — (115) (1,129) 4,297 2,067 4,603 17,093 (306) (15,026) 4,297 2,067 4,297 2,067 — 1,025 — (175) (115) (1,139) 4,182 1,778 4,603 8,088 (421) (6,310) 4,182 1,778	Plant and machinery HK$’000 34,457 (20,556) 13,901 13,901 — (16) (4,016) 9,869 34,407 (24,538) 9,869 9,869 190 (284) (3,976) 5,799 29,787 (23,988) 5,799	Office equipment, furniture and fixtures HK$’000 12,555 (10,214) 2,341 2,341 98 — (832) 1,607 12,615 (11,008) 1,607 1,607 183 — (744) 1,046 11,341 (10,295) 1,046	Motor vehicles HK$’000 3,612 (3,247) 365 365 240 — (234) 371 1,540 (1,169) 371 371 — — (202) 169 1,407 (1,238) 169	Total HK$’000 72,246 (48,105) 24,141 24,141 412 (16) (6,326) 18,211 70,258 (52,047) 18,211 18,211 1,398 (459) (6,176) 12,974 55,226 (42,252) 12,974

The freehold land is located outside Hong Kong.

– 58 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

8 INTANGIBLE ASSETS

At 1 January 2006 Cost Accumulated amortisation and impairment Net book amount Year ended 31 December 2006 Opening net book amount Exchange differences Additions Disposals Impairment charge Amortisation charge Closing net book amount At 31 December 2006 Cost Accumulated amortisation and impairment Net book amount Year ended 31 December 2007 Opening net book amount Exchange differences Additions Disposals Impairment charge Amortisation charge Closing net book amount At 31 December 2007 Cost Accumulated amortisation and impairment Net book amount		Group	Group	Total HK$’000 121,974 (9,315) 112,659 112,659 486 5,424 (431) (100,194) (676) 17,268 17,944 (676) 17,268 17,268 580 753 (1,292) (10) (676) 16,623 19,571 (2,948) 16,623
	Goodwill HK$’000 109,469 (9,315) 100,154 100,154 — 40 — (100,194) — — — — — — — — — — — — — — —	Club memberships HK$’000 12,505 — 12,505 12,505 486 2,002 (431) — — 14,562 14,562 — 14,562 14,562 580 753 (1,292) (10) — 14,593 16,189 (1,596) 14,593	Patent HK$’000 — — — — — 3,382 — — (676) 2,706 3,382 (676) 2,706 2,706 — — — — (676) 2,030 3,382 (1,352) 2,030

– 59 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

8 INTANGIBLE ASSETS (Continued)

At 1 January Cost Accumulated amortisation Net book amount Year ended 31 December Opening net book amount Additions Exchange differences Closing net book amount At 31 December Cost Accumulated amortisation Net book amount	Company Club memberships 2007 2006 HK$’000 HK$’000 308 — — — 308 — 308 — — 308 7 — 315 308 315 308 — — 315 308

9 INVESTMENTS IN SUBSIDIARIES

Unlisted shares, at cost Less: provision for impairment loss Loans to subsidiaries Less: provision for impairment loss	Company 2007 2006 HK$’000 HK$’000 198,766 192,914 (57,956) (10,030) 140,810 182,884 ---------------- ---------------- 175,924 143,891 (90,000) (90,000) 85,924 53,891 ---------------- ---------------- 226,734 236,775

The maximum exposure to credit risk at the reporting date is the fair value of the loans to subsidiaries mentioned above.

– 60 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

9 INVESTMENTS IN SUBSIDIARIES (Continued)

Loans to subsidiaries are unsecured, interest-free and have no fixed repayable terms except for a term loan to a subsidiary of HK$24,186,000 (2006: nil) which is unsecured, interest-bearing at LIBOR plus 0.5% per annum and will be fully repaid on 25 September 2008.

The following is a list of the principal subsidiaries at 31 December 2007:

Particulars Country/place of of issued incorporation/ share capital/ establishment Principal registered Company name and operation activities capital Dream International USA, Inc. United States of Trading of plush stuffed toys US$1,000,000 America J.Y. Toys Co., Limited Hong Kong Trading and Manufacture of US$1,500,000 steel and plastic toys J.Y. International Company Hong Kong Trading of plush stuffed toys US$500,000 Limited and investment holding #Jung Yoon Toys (Shanghai) PRC Manufacture of plush stuffed toys US$420,000 Co., Limited #C & H Toys (Suzhou) PRC Manufacture of plush fabrics US$9,200,000 Co., Ltd. and plush stuffed toys Dream Inko Co., Ltd South Korea Design, development and KRW100,000,000 trading of plush stuffed toys Dream Vina Co., Ltd Vietnam Manufacture of plush stuffed toys US$4,300,000 Dream Vina II Co., Ltd Vietnam Manufacture of plush stuffed toys US$277,835 Dream Vina Textile., Ltd Vietnam Manufacture of fabrics and dyeing US$450,000 #C & H Toys (Shuyang) PRC Manufacture of plush stuffed toys US$1,200,000 Co., Ltd C & H HK Corp., Ltd Hong Kong Trading of steel and plastic toys US$8,500,000 and investment holding #J.Y. Plasteel (Suzhou) Co., Ltd PRC Manufacture of bicycles and US$7,500,000 steel and plastic toys #Guangxi Beiliu Zhengrun PRC Manufacture of plush stuffed toys HK$1,670,000 Toys Co., Ltd #C & H Toys (Mingguang) PRC Manufacture of plush stuffed toys US$1,000,000 Co., Ltd * #C & H Toys (Chaohu) Co., Ltd PRC Manufacture of plush stuffed toys US$2,000,000	Percentage of equity shares held
	by the by the Company Group 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% — 100% 100% 100% — 100% — 100% 100% 100% 66.47% 66.47% — 66.47% 100% 100% 100% 100% — 100%

Particulars
Country/place of
of issued
incorporation/
share capital/
establishment
Principal
registered
Company name
and operation
activities
capital
Dream International USA, Inc.
United States of
Trading of plush stuffed toys
US$1,000,000
America
J.Y. Toys Co., Limited
Hong Kong
Trading and Manufacture of
US$1,500,000
steel and plastic toys
J.Y. International Company
Hong Kong
Trading of plush stuffed toys
US$500,000
Limited
and investment holding
#Jung Yoon Toys (Shanghai)
PRC
Manufacture of plush stuffed toys
US$420,000
Co., Limited
#C & H Toys (Suzhou)
PRC
Manufacture of plush fabrics
US$9,200,000
Co., Ltd.
and plush stuffed toys
Dream Inko Co., Ltd
South Korea
Design, development and
KRW100,000,000
trading of plush stuffed toys
Dream Vina Co., Ltd
Vietnam
Manufacture of plush stuffed toys
US$4,300,000
Dream Vina II Co., Ltd
Vietnam
Manufacture of plush stuffed toys
US$277,835
Dream Vina Textile., Ltd
Vietnam
Manufacture of fabrics and dyeing
US$450,000
#C & H Toys (Shuyang)
PRC
Manufacture of plush stuffed toys
US$1,200,000
Co., Ltd
C & H HK Corp., Ltd
Hong Kong
Trading of steel and plastic toys
US$8,500,000
and investment holding
#J.Y. Plasteel (Suzhou) Co., Ltd
PRC
Manufacture of bicycles and
US$7,500,000
steel and plastic toys
#Guangxi Beiliu Zhengrun
PRC
Manufacture of plush stuffed toys
HK$1,670,000
Toys Co., Ltd
#C & H Toys (Mingguang)
PRC
Manufacture of plush stuffed toys
US$1,000,000
Co., Ltd
* #C & H Toys (Chaohu) Co., Ltd
PRC
Manufacture of plush stuffed toys
US$2,000,000

Percentage of equity
shares held

by the
by the
Company
Group
100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
—
100%
100%
100%
—
100%
—
100%
100%
100%
66.47%
66.47%
—
66.47%
100%
100%
100%
100%
—
100%

The statutory financial statements of these subsidiaries were audited by other auditors in accordance with the relevant accounting principles and financial regulations applicable to these subsidiaries in respective regions.
These are wholly-owned foreign investment enterprises registered under the laws of the PRC.

– 61 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

10 INVESTMENTS IN ASSOCIATES

Unlisted shares, at cost Share of net assets	Group 2007 2006 HK$’000 HK$’000 — — 1,373 1,298 1,373 1,298	Company 2007 2006 HK$’000 HK$’000 1,248 1,248 — — 1,248 1,248	Company 2007 2006 HK$’000 HK$’000 1,248 1,248 — — 1,248 1,248
			1,248

The Group’s interests in its principal associates, all of which are unlisted, were as follows:

2007 100 per cent Group’s effective interest 2006 100 per cent Group’s effective interest	Assets HK$’000 31,625 6,325 17,215 3,443	Liabilities HK$’000 (24,759) (4,952) (10,723) (2,145)	Equity HK$’000 6,866 1,373 6,492 1,298	Revenues HK$’000 49,077 9,815 40,503 8,101	Profit/(loss) HK$’000 (79) (16)

					(1,185) (237)

Details of the associates are as follows:

Particulars of Country/place of issued and incorporation/ Principal paid up capital/ Company name establishment activities registered capital Kedington Enterprises Inc. British Virgin Islands Investment holding US$800,000 Yuan Lin Toys (Suzhou) PRC Manufacture of plush US$1,000,000 Co., Ltd stuffed toys	Percentage of interest in ownership held
	by the by the Company Group 20% 20% — 20%

– 62 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

11 FINANCIAL INSTRUMENTS BY CATEGORY

Loans and receivables HK$’000 Assets as per consolidated balance sheet 31 December 2007 Other financial assets_(Note 12) — Trade and other receivables (Note 14) 168,393 Cash and cash equivalents (Note 15) 107,222 Total 275,615 31 December 2006 Other financial assets(Note 12) — Trade and other receivables (Note 14) 204,572 Cash and cash equivalents (Note 15) 82,798 Total 287,370 Liabilities as per consolidated balance sheet 31 December 2007 Trade and other payables(Note 18) Borrowings(Note 19) Total 31 December 2006 Trade and other payables(Note 18) Borrowings(Note 19)_ Total	Group Available- Derivatives for-sale financial financial instruments assets HK$’000 HK$’000 75,373 911 — — — — 75,373 911 69,231 1,823 — — — — 69,231 1,823	Total HK$’000 76,284 168,393 107,222
		351,899

		71,054 204,572 82,798
		358,424

		Financial liabilities HK$’000 148,945 114,664
		263,609

		157,515 139,474
		296,989

– 63 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

11 FINANCIAL INSTRUMENTS BY CATEGORY (Continued)

	Company
Loans and receivables HK$’000 — 143,202 34,061 177,263 — 145,559 11,769 157,328	Derivatives financial instruments HK$’000 75,373 — — 75,373 69,231 — — 69,231	Total HK$’000 75,373 143,202 34,061
		252,636

		69,231 145,559 11,769
		226,559

		Financial liabilities HK$’000 96,832 59,404
		156,236

		127,309 49,125
		176,434

– 64 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

12 OTHER FINANCIAL ASSETS

Long-term structured deposit (Note (i)) Unlisted equity securities (Note (ii))	Group 2007 2006 HK$’000 HK$’000 75,373 69,231 911 1,823 76,284 71,054	Company 2007 2006 HK$’000 HK$’000 75,373 69,231 — — 75,373 69,231	Company 2007 2006 HK$’000 HK$’000 75,373 69,231 — — 75,373 69,231
			69,231

Note (i) The Group entered into the contract with a bank in 2005. The contract will mature in 2017 and the principal amount is US$12,000,000 (equivalent to HK$93,300,000. Interest payable quarterly in the first year at 6.5% per annum and in subsequent years at rates based on the spread between the 30 year and 10 year United States dollar swap rates. The bank may elect to early terminate the contract on any interest payment date before the maturity date by repaying the full principal amount plus accrued interest up to the termination date.

The long-term structured deposit is a hybrid instrument that includes a non-derivatives host contract and an embedded derivative. Upon inception this financial instrument was designated as derivative financial instrument with changes in fair value recognised in the income statement.

As at 31 December 2007, the effective interest rate of the long-term structured deposit is 4.2% (2006: 1.3%).

Note (ii) These unlisted equity securities are categorised as available-for-sale financial assets. The fair value of the unlisted equity investments cannot be measured reliably because they are not traded in the open market and there were no transactions for the investments during the year. The unlisted investments are stated at cost less accumulated impairment losses. An impairment loss of HK$912,000 was recognised during the year (2006: nil).

All other financial assets are denominated in US dollar.

The maximum exposure to credit risk of other financial assets at the reporting date is their carrying values.

13 INVENTORIES

Raw materials Work in progress Finished goods	Group 2007 2006 HK$’000 HK$’000 71,116 83,982 35,504 38,292 50,017 43,849 156,637 166,123	Company 2007 2006 HK$’000 HK$’000 19,155 24,783 4,261 7,753 16,232 18,593 39,648 51,129	Company 2007 2006 HK$’000 HK$’000 19,155 24,783 4,261 7,753 16,232 18,593 39,648 51,129
			51,129

During the year, the Group recognised a provision for raw materials of HK$3,523,000 (2006: HK$3,225,000) and reversed a provision for finished goods of HK$2,392,000 (2006: provision made of HK$234,000).

– 65 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

14 TRADE AND OTHER RECEIVABLES

Trade receivables Less: provision for impairment of receivables Trade receivables, net Prepayments and other receivables Amount due from ultimate holding company Amount due from a related company Amounts due from fellow subsidiaries Amounts due from associates Amounts due from subsidiaries Loan to a fellow subsidiary	Group 2007 2006 HK$’000 HK$’000 111,422 147,121 (2,955) (7,353) 108,467 139,768 42,402 46,616 8,194 13,961 328 — 419 4,014 283 213 — — 8,300 — 168,393 204,572	Company 2007 2006 HK$’000 HK$’000 66,445 91,152 — — 66,445 91,152 8,413 8,630 8 — — — 227 — — — 68,109 45,777 — — 143,202 145,559	Company 2007 2006 HK$’000 HK$’000 66,445 91,152 — — 66,445 91,152 8,413 8,630 8 — — — 227 — — — 68,109 45,777 — — 143,202 145,559
			91,152 8,630 — — — — 45,777 —
			145,559

The fair values of trade and other receivables approximate their carrying values.

Amounts due from ultimate holding company, a related company, fellow subsidiaries, associates and subsidiaries are unsecured, interest-free and repayable on demand.

Loan to a fellow subsidiary is unsecured, interest-bearing at 7.5% per annum and repayable on 31 May 2008.

At 31 December 2007 and 2006, the aging analysis of the trade receivables was (net of provision for impairment) as follows:

Current 1 to 3 months More than 3 months but less than 1 year Over 1 year	Group 2007 2006 HK$’000 HK$’000 85,718 102,395 16,239 17,470 5,711 19,125 799 778 108,467 139,768	Company 2007 2006 HK$’000 HK$’000 58,914 73,879 6,291 10,550 951 6,574 289 149 66,445 91,152	Company 2007 2006 HK$’000 HK$’000 58,914 73,879 6,291 10,550 951 6,574 289 149 66,445 91,152
			91,152

– 66 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

14 TRADE AND OTHER RECEIVABLES (Continued)

The credit quality of trade receivables that are neither past due nor impaired can be assessed by reference to historical information about counterparty default rates:

Counterparties without external credit rating Group 1 Group 2	Group 2007 2006 HK$’000 HK$’000 — — 90,183 112,157 90,183 112,157	Company 2007 2006 HK$’000 HK$’000 — — 62,060 82,560 62,060 82,560	Company 2007 2006 HK$’000 HK$’000 — — 62,060 82,560 62,060 82,560
			82,560

Group 1 — new customers (less than 6 months).

Group 2 — existing customers (more than 6 months) with no defaults in the past.

As of 31 December 2007, the Group’s trade receivables of HK$18,284,000 (2006: HK$27,612,000) were past due but not impaired. These relate to a number of independent customers for whom there is no recent history of default. The aging analysis of these trade receivables is as follows:

Overdue less than and up to 3 months Overdue by 3 months to 1 year Overdue by more than 1 year	Group 2007 2006 HK$’000 HK$’000 11,774 8,467 5,711 18,367 799 778 18,284 27,612	Company 2007 2006 HK$’000 HK$’000 3,145 1,869 951 6,574 289 149 4,385 8,592	Company 2007 2006 HK$’000 HK$’000 3,145 1,869 951 6,574 289 149 4,385 8,592
			8,592

– 67 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

14 TRADE AND OTHER RECEIVABLES (Continued)

The carrying amounts of these trade receivables were denominated in the following currencies:

HK dollar US dollar Renminbi Other currencies	Group 2007 2006 HK$’000 HK$’000 1,516 2,450 98,737 120,816 8,214 10,367 — 6,135 108,467 139,768	Company 2007 2006 HK$’000 HK$’000 — — 66,445 85,017 — — — 6,135 66,445 91,152	Company 2007 2006 HK$’000 HK$’000 — — 66,445 85,017 — — — 6,135 66,445 91,152
			91,152

Movements on the provision for impairment of trade receivables were as follows:

At 1 January Provision for impairment Receivables written off Write back of provision Exchange differences At 31 December	Group 2007 2006 HK$’000 HK$’000 7,353 42,512 3,163 — (7,210) (33,633) (462) (1,526) 111 — 2,955 7,353	Company 2007 2006 HK$’000 HK$’000 — 21,157 — — — (17,814) — (3,343) — — — —	Company 2007 2006 HK$’000 HK$’000 — 21,157 — — — (17,814) — (3,343) — — — —
			—

The provision and reversal for impaired receivables have been included in administrative expenses in income statement (Note 24). The Group does not hold any collateral as security.

The other classes within trade and other receivables do not contain impaired assets.

The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable mentioned above. The Group does not hold any collateral as security.

– 68 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

15 CASH AND CASH EQUIVALENTS

Cash at bank and in hand Short-term bank deposits Maximum exposure to credit risk	Group 2007 2006 HK$’000 HK$’000 79,316 80,545 27,906 2,253 107,222 82,798 106,205 81,709	Company 2007 2006 HK$’000 HK$’000 16,899 11,769 17,162 — 34,061 11,769 33,726 11,607	Company 2007 2006 HK$’000 HK$’000 16,899 11,769 17,162 — 34,061 11,769 33,726 11,607
			11,769
			11,607

The effective interest rate on short-term bank deposits was 3.2% (2006: 4.7%); these deposits have an average maturity of 5 days (2006: 4 days).

Included in the balances of approximately HK$14,422,000 (2006: HK$10,734,000) represented Renminbi deposits placed with banks in the PRC by the Group. The remittance of these funds out of the PRC is subject to the exchange control restrictions imposed by the PRC government.

Cash, cash equivalents and bank overdrafts include the following for the purposes of the cash flow statement:

Cash and cash equivalents Bank overdrafts (Note 19)	Group 2007 2006 HK$’000 HK$’000 107,222 82,798 — (7,962) 107,222 74,836	Group 2007 2006 HK$’000 HK$’000 107,222 82,798 — (7,962) 107,222 74,836
		74,836

– 69 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

16 SHARE CAPITAL

Authorised: Ordinary shares of US$0.01 each At 31 December 2007 and 2006 Issued and fully paid: Ordinary shares of US$0.01 each At 31 December 2007 and 2006	Company Number Ordinary of shares shares (in thousands) HK$’000 5,000,000 390,000 668,529 52,019	Company Number Ordinary of shares shares (in thousands) HK$’000 5,000,000 390,000 668,529 52,019

		52,019

Share options

The Company has a share option scheme which was adopted on 22 January 2002 whereby the directors of the Company are authorised, at their discretion, to invite employees of the Group, including directors of any company in the Group, to take up options to subscribe for shares of the Company. The exercise price of the options is the highest of (i) the nominal value of the shares, (ii) the closing price of the shares on the SEHK on the date of grant and (iii) the average closing price of the shares on the SEHK for the five business days immediately preceding the date of grant. The options are exercisable progressively after one to three years from the date of grant and are exercisable for a period to be notified by the directors to each option holder upon the grant of option. Such period will not exceed ten years from the date on which the option is granted.

– 70 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

16 SHARE CAPITAL (Continued)

Share options (Continued)

Share options outstanding at the end of the year have the following terms:

Exercise price Exercisable period per share Directors: 7 February 2003 to 7 February 2012 HK$1.18 15 April 2004 to 15 April 2013 HK$1.43 2 January 2005 to 2 January 2014 HK$1.87 Employees: 7 February 2003 to 7 February 2012 HK$1.18 15 April 2004 to 15 April 2013 HK$1.43 2 January 2005 to 2 January 2014 HK$1.87	Number of options 2007 2006 (in thousands) (in thousands) 2,400 1,880 — 1,365 3,500 3,500 5,900 6,745 3,641 4,681 455 455 4,350 5,350 14,346 17,231	Number of options 2007 2006 (in thousands) (in thousands) 2,400 1,880 — 1,365 3,500 3,500 5,900 6,745 3,641 4,681 455 455 4,350 5,350 14,346 17,231
		6,745 4,681 455 5,350
		17,231

In respect of the options granted, the maximum percentage of the share options which may be exercised is determined in stages as follows:

On or after 1st year anniversary 30% On or after 2nd year anniversary another 30% On or after 3rd year anniversary another 40% Movements in the number of share options outstanding during the year are as follows: 2007 2006 Weighted Weighted average average exercise Number of exercise Number of price per options price per options share (in thousands) share (in thousands) At 1 January HK$1.56 17,231 HK$1.56 22,631 Lapsed HK$1.54 (2,885) HK$1.54 (5,400) At 31 December HK$1.57 14,346 HK$1.56 17,231	On or after 1st year anniversary 30% On or after 2nd year anniversary another 30% On or after 3rd year anniversary another 40% Movements in the number of share options outstanding during the year are as follows: 2007 2006 Weighted Weighted average average exercise Number of exercise Number of price per options price per options share (in thousands) share (in thousands) At 1 January HK$1.56 17,231 HK$1.56 22,631 Lapsed HK$1.54 (2,885) HK$1.54 (5,400) At 31 December HK$1.57 14,346 HK$1.56 17,231	On or after 1st year anniversary 30% On or after 2nd year anniversary another 30% On or after 3rd year anniversary another 40% Movements in the number of share options outstanding during the year are as follows: 2007 2006 Weighted Weighted average average exercise Number of exercise Number of price per options price per options share (in thousands) share (in thousands) At 1 January HK$1.56 17,231 HK$1.56 22,631 Lapsed HK$1.54 (2,885) HK$1.54 (5,400) At 31 December HK$1.57 14,346 HK$1.56 17,231
	Weighted average exercise price per share HK$1.56 HK$1.54 HK$1.56
		17,231

– 71 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

17 RESERVES

Balance at 1 January 2006 Currency translation differences Loss for the year Equity settled share-based transactions Balance at 31 December 2006 Balance at 1 January 2007 Currency translation differences Loss for the year Appropriation to general reserve fund Balance at 31 December 2007			Group	Group
	Share premium HK$’000 176,893 — — — 176,893 176,893 — — — 176,893	Capital reserve HK$’000 5,969 — — 860 6,829 6,829 — — — 6,829	General reserve fund HK$’000 15,045 — — — 15,045 15,045 — — 3,382 18,427	Exchange reserve HK$’000 8,393 7,499 — — 15,892 15,892 15,185 — — 31,077	Retained profits HK$’000 284,630 — (129,671) — 154,959 154,959 — (4,831) (3,382) 146,746	Total HK$’000 490,930 7,499 (129,671) 860 369,618 369,618 15,185 (4,831) — 379,972

– 72 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

17 RESERVES (Continued)

Balance at 1 January 2006 Loss for the year Equity settled share-based transactions Balance at 31 December 2006 Balance at 1 January 2007 Profit for the year Balance at 31 December 2007	Share premium HK$’000 176,893 — — 176,893 176,893 — 176,893	Company Capital Retained reserve profits HK$’000 HK$’000 5,969 210,411 — (103,092) 860 — 6,829 107,319 6,829 107,319 — 25,462 6,829 132,781	Total HK$’000 393,273 (103,092) 860 291,041 291,041 25,462 316,503

(i) Share premium

The application of the share premium account is governed by Sections 48B of the Hong Kong Companies Ordinance.

(ii) Capital reserve

The capital reserve comprises the fair value of the actual or estimated number of unexercised share options granted to directors and employees of the Group recognised in accordance with the accounting policy adopted for share-based payments in Note 2.18(b).

(iii) General reserve fund

According to the PRC laws applicable to wholly-owned foreign investment enterprises, the PRC subsidiaries of the Company are required to set up a general reserve fund and appropriate at least 10% of their annual net profits after taxation, as determined under PRC accounting regulations, to the general reserve fund until the balance of the fund equals to 50% of the respective enterprise’s registered capital. This fund can be used to make good losses and to convert into paid-up capital. Appropriations to the general reserve fund are at the discretion of the respective board of directors of the subsidiaries.

(iv) Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. The reserve is dealt with in accordance with the accounting policies set out in Note 2.4.

– 73 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

18 TRADE AND OTHER PAYABLES

Trade payables and accrued charges Amount due to ultimate holding company Amounts due to fellow subsidiaries Amounts due to associates Amounts due to subsidiaries	Group 2007 2006 HK$’000 HK$’000 146,310 153,011 — 36 2,635 4,425 — 43 — — 148,945 157,515	Company 2007 2006 HK$’000 HK$’000 23,754 24,729 — — — — — — 73,078 102,580 96,832 127,309	Company 2007 2006 HK$’000 HK$’000 23,754 24,729 — — — — — — 73,078 102,580 96,832 127,309
			127,309

Amount due to ultimate holding company, fellow subsidiaries, associates and subsidiaries are unsecured, interest free and repayable on demand.

The fair values of trade and other payables approximate their carrying values.

At 31 December 2007 and 2006, the aging analysis of the trade payables was as follows:

Within 1 month After 1 month but within 3 months After 3 month but within 6 months After 6 month but within 1 year Over 1 year	Group 2007 2006 HK$’000 HK$’000 42,216 51,357 17,726 23,897 8,718 5,641 713 2,988 903 1,164 70,276 85,047	Company 2007 2006 HK$’000 HK$’000 4,373 5,289 700 1,554 10 1,181 — 2,018 — 223 5,083 10,265	Company 2007 2006 HK$’000 HK$’000 4,373 5,289 700 1,554 10 1,181 — 2,018 — 223 5,083 10,265
			10,265

– 74 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

18 TRADE AND OTHER PAYABLES (Continued)

The carrying amounts of trade payables are denominated in the following currencies:

HK dollar US dollar Renminbi Other currencies	Group 2007 2006 HK$’000 HK$’000 6,547 10,425 7,121 8,859 55,537 63,109 1,071 2,654 70,276 85,047	Company 2007 2006 HK$’000 HK$’000 4,122 7,870 961 2,395 — — — — 5,083 10,265	Company 2007 2006 HK$’000 HK$’000 4,122 7,870 961 2,395 — — — — 5,083 10,265
			10,265

19 BORROWINGS

Non-current — Bank borrowings, secured — Loan from a third party Current — Bank overdrafts — Bills payables — Bank borrowings, secured — Bank borrowings, unsecured	Group 2007 2006 HK$’000 HK$’000 780 4,800 — 3,884 780 8,684 -------------------- -------------------- — 7,962 — 18,393 109,084 78,635 4,800 25,800 113,884 130,790 -------------------- -------------------- 114,664 139,474	Company 2007 2006 HK$’000 HK$’000 — 4,800 — — — 4,800 -------------------- -------------------- — — — — 54,604 18,525 4,800 25,800 59,404 44,325 -------------------- -------------------- 59,404 49,125	Company 2007 2006 HK$’000 HK$’000 — 4,800 — — — 4,800 -------------------- -------------------- — — — — 54,604 18,525 4,800 25,800 59,404 44,325 -------------------- -------------------- 59,404 49,125
			4,800 -------------------- — — 18,525 25,800
			44,325 --------------------
			49,125

– 75 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

19 BORROWINGS (Continued)

At 31 December 2007, the borrowings were repayable as follows:

Within 1 year Between 1 and 2 years	Group 2007 2006 HK$’000 HK$’000 113,884 130,790 780 8,684 114,664 139,474	Company 2007 2006 HK$’000 HK$’000 59,404 44,325 — 4,800 59,404 49,125	Company 2007 2006 HK$’000 HK$’000 59,404 44,325 — 4,800 59,404 49,125
			49,125

The effective interest rates at the balance sheet date were as follows:

	Group		Company
	2007	2006	2007	2006
Bank overdrafts	N/A	7.50%	N/A	N/A
Bills payables	N/A	4.50%	N/A	N/A
Bank borrowings	5.66%	5.75%	4.61%	5.07%
Loan from a third party	N/A	7.83%	N/A	N/A

The fair values of borrowings approximate their carrying values.

The carrying amounts of the borrowings are denominated in the following currencies:

HK dollar US dollar Renminbi Korean Won	Group 2007 2006 HK$’000 HK$’000 43,800 29,684 38,764 47,436 32,100 54,393 — 7,961 114,664 139,474	Company 2007 2006 HK$’000 HK$’000 43,800 25,800 15,604 23,325 — — — — 59,404 49,125	Company 2007 2006 HK$’000 HK$’000 43,800 25,800 15,604 23,325 — — — — 59,404 49,125
			49,125

– 76 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

20 DEFERRED INCOME TAX

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The offset amounts are as follows:

Deferred income tax asset to be recovered after more than 12 months Deferred income tax liabilities to be settled after more than 12 months	Group 2007 2006 HK$’000 HK$’000 (3,826) (3,180) 248 322 (3,578) (2,858)	Company 2007 2006 HK$’000 HK$’000 — — 248 322 248 322	Company 2007 2006 HK$’000 HK$’000 — — 248 322 248 322
			322

The gross movement on the deferred income tax account is as follows:

Balance at 1 January Exchange differences Recognised in the income statement Balance at 31 December	Group 2007 2006 HK$’000 HK$’000 (2,858) (6,719) (199) (76) (521) 3,937 (3,578) (2,858)	Company 2007 2006 HK$’000 HK$’000 322 741 — — (74) (419) 248 322	Company 2007 2006 HK$’000 HK$’000 322 741 — — (74) (419) 248 322
			322

– 77 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

20 DEFERRED INCOME TAX (Continued)

The movement in deferred income tax assets and liabilities during the year, without taking into consideration the offsetting of balances within the same tax jurisdiction, is as follows:

				Group
Accelerated Defined tax benefit depreciation Tax losses liability HK$’000 HK$’000 HK$’000 937 (5,198) (782) (10) (13) (23) (191) 4,521 283 736 (690) (522) 736 (690) (522) (53) — (29) (755) (43) 824 (72) (733) 273 Company Accelerated tax allowance Tax losses HK$’000 HK$’000 1,031 — (19) (690) 1,012 (690) 1,012 (690) (31) (43) 981 (733)		Tax losses HK$’000 (5,198) (13) 4,521 (690) (690) — (43) (733)		Defined benefit liability HK$’000 (782) (23) 283 (522) (522) (29) 824 273 Company	Others HK$’000 (1,676) (30) (676) (2,382) (2,382) (117) (547) (3,046)






	Accelerated tax allowance HK$’000 1,031 (19) 1,012 1,012 (31) 981		Tax losses HK$’000 — (690) (690) (690) (43) (733)		Others HK$’000 (290) 290 — — — —

Deferred income tax assets are recognised for tax loss carry-forwards to the extent that the realisation of the related tax benefit through the future taxable profits is probable. The Group did not recognise deferred income tax assets of HK$29,870,000 (2006: HK$16,731,000) in respect of losses amounting to HK$115,867,000 (2006: HK$68,199,000) that can be carried forward against future taxable income. Approximately HK$4,687,000 (2006: HK$4,690,000) of the unrecognised tax losses have no expiry date and the remaining balance will expire at various dates up to and including 2012 (2006: 2011).

– 78 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

21 RETIREMENT BENEFIT OBLIGATIONS

The Group participates in a defined benefit retirement plan which covers the Group’s Korean employees.

(i) The amounts recognised in the balance sheet are determined as below:

Present value of the defined benefit obligations Fair value of plan assets Unrecognised actuarial loss	Group 2007 2006 19,536 17,903 (6,282) (6,608) 13,254 11,295 (2,565) (592) 10,689 10,703	Company 2007 2006 9,073 6,537 — — 9,073 6,537 — — 9,073 6,537	Company 2007 2006 9,073 6,537 — — 9,073 6,537 — — 9,073 6,537
			6,537 —
			6,537

(ii) Reconciliation of the present value of defined benefit obligations is as follows:

At 1 January Current services cost Interest cost Benefits paid Actuarial losses Exchange differences At 31 December	Group 2007 2006 HK$’000 HK$’000 17,903 15,081 3,200 3,167 902 819 (5,144) (4,047) 2,016 2,295 659 588 19,536 17,903	Group 2007 2006 HK$’000 HK$’000 17,903 15,081 3,200 3,167 902 819 (5,144) (4,047) 2,016 2,295 659 588 19,536 17,903
		17,903

– 79 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

21 RETIREMENT BENEFIT OBLIGATIONS (Continued)

(iii) Reconciliation of the fair value of plan asset is as follows:

At 1 January Employer contributions Expected return on plan assets Benefits paid Actuarial gains Exchange differences At 31 December	Group 2007 2006 HK$’000 HK$’000 6,608 5,907 1,428 2,048 159 184 (2,227) (1,778) 60 17 254 230 6,282 6,608	Group 2007 2006 HK$’000 HK$’000 6,608 5,907 1,428 2,048 159 184 (2,227) (1,778) 60 17 254 230 6,282 6,608
		6,608

As at 31 December 2007 and 2006, the Group’s liability under this plan is covered by deposits with several insurance companies. There is no plan asset invested in the Company’s own financial instruments or any property occupied or other assets used by the Group.

(iv) The amounts recognised in the income statement are as follows:

Current service cost Interest cost Expected return on plan assets Net actuarial gains recognised during the year Expenses recognised in the income statement	Group 2007 2006 HK$’000 HK$’000 3,200 3,167 902 819 (159) (184) — (24) 3,943 3,778	Group 2007 2006 HK$’000 HK$’000 3,200 3,167 902 819 (159) (184) — (24) 3,943 3,778
		3,778

The principal actuarial assumptions used were as follows:

	2007	2006
Discount rate	7.0%	5.5%
Expected return on plan assets	3.5%	3.5%
Future salary increases	5.0%	4.0%

– 80 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

22 OTHER GAINS/(LOSSES) — NET Net gain on sale of property, plant and equipment Other financial assets_(Note 12): — fair value gains/(losses) Net foreign exchange losses Others 23 OTHER INCOME Interest income from other financial assets(Note 12)_ Reversal of trade and other payables Interest income from tax certificates Commission income Sales of scrap materials Sundry income 24 EXPENSES BY NATURE Changes in inventories of finished goods and work in progress Raw materials and consumables used Water and electricity Freight and transportation Depreciation Amortisation of prepaid operating lease payments Operating lease payments Auditors’ remuneration Commission charges Provision for inventories Provision/(write back) for trade receivables Telephone and communications Postage and courier charges Employee benefit expenses Others Total cost of sales, selling and distribution expenses and administrative expenses	2007 HK$’000 469 5,947 (3,982) (39) 2,395 2007 HK$’000 1,659 1,065 846 341 163 2,283 6,357 2007 HK$’000 1,332 515,021 16,834 21,809 30,105 440 22,684 3,922 9,572 1,132 2,701 5,748 3,749 229,699 105,515 970,263	2006 HK$’000 985 (616) (5,907) (535) (6,073) 2006 HK$’000 2,561 — — — — 1,464 4,025 2006 HK$’000 (6,728) 640,040 17,743 20,169 26,070 297 27,363 3,823 10,946 3,459 (1,526) 6,049 5,206 249,206 97,730 1,099,847

– 81 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

25 EMPLOYEE BENEFIT EXPENSE

Wages and salaries, including other termination benefits HK$504,000 (2006: HK$976,000) Share options granted to directors and employees Pension costs — defined contribution plans Pension costs — defined benefit plans_(Note 21)_	2007 HK$’000 220,552 — 5,204 3,943 229,699	2006 HK$’000 240,344 860 4,224 3,778
		249,206

(a) Directors’ and senior management’s emoluments

The remuneration of every director for the year ended 31 December 2007 is set out below:

Directors’ fees HK$’000 Chairman and executive director Kyoo Yoon Choi 240 Executive director Young M Lee — James Wang — Jung Kuk Lee (appointed on 31 May 2007) — Hyun Ho Kim (appointed on 31 May 2007) — Shin Hee Cha (resigned on 31 May 2007) — Tae Sub Choi (resigned on 31 May 2007) — Independent non-executive directors Valiant, Kin Piu Cheung 140 Cheong Heon Yi 127 Chan Yoo 126 633	Salaries, allowances and benefits in kind HK$’000 1,123 1,507 856 479 497 693 454 — — — 5,609	Share-based Payments HK$’000 — — — — — — — — — — —	Total HK$’000 1,363 1,507 856 479 497 693 454 140 127 126
			6,242

– 82 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

25 EMPLOYEE BENEFIT EXPENSE (Continued)

(a) Directors’ and senior management’s emoluments (Continued)

The remuneration of every director for the year ended 31 December 2006 is set out below:

Chairman and executive director Kyoo Yoon Choi Executive director Shin Hee Cha Tae Sub Choi Young M Lee James Wang Independent non-executive directors Valiant, Kin Piu Cheung Cheong Heon Yi Chan Yoo	Directors’ fees HK$’000 240 — — — — 139 126 120 625	Salaries, allowances and benefits in kind HK$’000 4,359 1,536 1,081 1,580 1,118 — — — 9,674	Share-based Payments HK$’000 — 247 — — — — — — 247	Total HK$’000 4,599 1,783 1,081 1,580 1,118 139 126 120
				10,546

Mr. Kyoo Yoon Choi, Mrs. Shin Hee Cha and Mr. Tae Sub Choi together waived their entitlements of retirement benefits amounted to HK$1,851,528 (2006: HK$1,763,360) with effect from 1 January 2004.

– 83 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

25 EMPLOYEE BENEFIT EXPENSE (Continued)

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year include two (2006: three) directors whose emoluments are reflected in the analysis presented above. The emoluments payable to the remaining three (2006: two) individuals during the year are as follows:

Basic salaries, housing allowances, share options, other allowances and benefits in kind The emoluments fell within the following bands: Emolument bands (in HK dollar) HK$1,000,001 — HK$1,500,000 HK$1,500,001 — HK$2,000,000 FINANCE COSTS — NET Finance income: Bank interest income Finance cost: Interest expense on bank borrowings wholly repayable within five years	2007 HK$’000 4,172 2007 No. of employee 1 2 2007 HK$’000 3,116 (8,132) (5,016)	2006 HK$’000 2,484 2006 No. of employee 2 — 2006 HK$’000 2,842 (7,684) (4,842)

26 FINANCE COSTS — NET

– 84 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

27 INCOME TAX CREDIT/(EXPENSE)

Hong Kong profits tax has been provided at the rate of 17.5% (2006: 17.5%) on the estimated assessable profit for the year.

Taxation on PRC and overseas profits has been calculated on the estimated assessable profit for the year at the rates of taxation prevailing in the PRC and other countries in which the Group operates.

Current income tax — Hong Kong profits tax — PRC and overseas taxation — Over-provision of Hong Kong profits tax in the prior years Deferred income tax credit/(charge)(Note 20)	2007 HK$’000 (1,140) (337) 12,942 521 11,986	2006 HK$’000 (1,056) (3,680) — (3,937) (8,673)

On 16 March 2007, the National People’s Congress approved the Corporate Income Tax Law of the People’s Republic of China (the “new CIT Law”). The new CIT Law standardises the corporate income tax rate to 25% with effect from 1 January 2008.

The tax on the Group’s loss before income tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the consolidated entities as follows:

Loss before income tax Tax calculated at domestic tax rates applicable to profits in the respective countries Income not subject to tax Expenses not deductible for tax purposes Utilisation of previously unrecognised tax losses Tax losses for which no deferred income tax asset was recognised Over-provision in prior years Income tax (credit)/expense	2007 HK$’000 (20,215) (5,709) (3,199) 6,016 (584) 6,176 (14,686) (11,986)	2006 HK$’000 (122,811) (22,946) (3,421) 24,379 (162) 10,844 (21) 8,673

– 85 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

27 INCOME TAX CREDIT/(EXPENSE) (Continued)

The change in weighted average applicable tax rate is caused by a change in the profitability of the Group’s subsidiaries in the respective countries.

Note a: The Company’s long-standing tax dispute with the Hong Kong Inland Revenue Department (“IRD”) has been settled in current year. In April 2007, the Company reached an agreement with the IRD on the tax filling basis of the Company’s offshore claims for the years of assessment 1998/99 to 2005/06. Under this settlement basis, the IRD agreed that 75% of the offshore profits (which was originally claimed as 100% offshore) are not subject to Hong Kong profits tax, which resulted in a tax refund of around HK$10 million and an overprovision of tax from prior years for around HK$13 million.

28 PROFIT ATTRIBUTABLE TO EQUITY HOLDERS OF THE COMPANY

The profit attributable to equity holders of the Company is dealt with in the financial statements of the Company to the extent of HK$25,462,000 (2006: loss of HK$103,092,000).

29 LOSS PER SHARE

(a) Basic

Basic loss per share is calculated by dividing the loss attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year.

Loss attributable to equity holders of the Company_(HK$’000) Weighted average number of ordinary shares in issue(thousands) Basic loss per share(HK$ per share)_	2007 (4,831) 668,529 (0.007)	2006 (129,671) 668,529 (0.194)

(b) Diluted

Diluted loss per share for the years ended 31 December 2007 and 2006 is the same as the basic loss per share as the potential ordinary shares outstanding during the years were anti-dilutive.

– 86 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

30 DIVIDEND

The Board of Directors do not declare or propose any dividend for the years ended 31 December 2007 and 2006.

31 CASH GENERATED FROM OPERATIONS

Loss before income tax Adjustments for: — Depreciation_(Note 7) — Amortisation of prepaid operating lease payment(Note 6) — Disposal of leasehold land and land use rights — Disposal of club memberships — Amortisation of intangible assets(Note 8) — Impairment of intangible assets(Note 8) — Goodwill on increase in shareholdings in a subsidiary — Goodwill impairment charge — Profit on disposal of property, plant and equipment — Share-based payment and increase in retirement benefit obligations — Fair value (gains)/losses on other financial assets(Note 22) — Interest income from other financial assets(Note 23) — Finance costs — net(Note 26)_ — Share of loss of associates — Foreign exchange losses/(gains) on operating activities Changes in working capital: — Inventories — Trade and other receivables — Trade and other payables — Bills payables Defined benefit obligations Cash generated from operations	2007 HK$’000 (20,215) 30,105 440 1,278 32 676 10 — — (469) — (5,947) (1,659) 5,016 16 5,083 9,486 44,479 (7,670) (18,393) (14) 42,254	2006 HK$’000 (122,811) 26,070 297 — 431 676 — (40) 100,194 (985) 860 616 (2,561) 4,842 237 (2,015) (5,641) (28,031) 48,795 18,393 (117) 39,210

– 87 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

31 CASH GENERATED FROM OPERATIONS (Continued)

In the cash flow statement, proceeds from sale of property, plant and equipment comprise:

Net book amount_(Note 7) Net gain on sale of property, plant and equipment(Note 22)_ Proceeds from sale of property, plant and equipment	2007 HK$’000 12,185 469 12,654	2006 HK$’000 2,330 985
		3,315

32 COMMITMENTS

(a) Capital commitments

Capital expenditure at the balance sheet date but not yet incurred is as follows:

	2007	2006
	HK$’000	HK$’000
Contracted but not provided for	13,863	310

(b) Operating lease commitments

The Group leases various properties under non-cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights.

The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

No later than 1 year Later than 1 year and no later than 5 years	2007 HK$’000 15,329 11,212 26,541	2006 HK$’000 22,192 13,945
		36,137

– 88 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

33 RELATED-PARTY TRANSACTIONS

(a) During the year, the Group entered into the following transactions with its related parties:
(i) Sales of goods and services

— ultimate holding company — a fellow subsidiary — an associate — a related company *(ii)* *Purchase of goods* — ultimate holding company — a fellow subsidiary — an associate *(iii)* *Commission received/receivable from:* — a fellow subsidiary *(iv)* *Interest received/receivable from:* — a fellow subsidiary	2007 HK$’000 72 505 732 1,824 2007 HK$’000 — 8,965 6,861 2007 HK$’000 341 2007 HK$’000 369	2006 HK$’000 615 1,095 975 —

		2006 HK$’000 36 — 4,033

		2006 HK$’000 —

		2006 HK$’000 —

– 89 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

33 RELATED-PARTY TRANSACTIONS (Continued)
(a) During the year, the Group entered into the following transactions with its related parties: (Continued)

(v) Rental paid/payable to:

		2007	2006
		HK$’000	HK$’000
	— ultimate holding company	3,146	5,079

*(vi)*	*Processing fees received/receivable from:*
		2007	2006
		HK$’000	HK$’000
	— a fellow subsidiary	646	—

*(vii)*	*Processing fees paid/payable to:*
		2007	2006
		HK$’000	HK$’000
	— an associate	7,345	—

*(viii)*	*Sales of leasehold land and land use right and property, plant and equipment to:*
		2007	2006
		HK$’000	HK$’000
	— ultimate holding company	262	—
	— a fellow subsidiary	9,126	—

Note:

The above transactions were conducted in accordance with the terms of respective contracts.

– 90 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

NOTES TO THE FINANCIAL STATEMENTS (Continued)

33 RELATED-PARTY TRANSACTIONS (Continued)

(b) Year-end balances arising from sales/purchases of goods/services and funding

Receivables from related parties_(Note 14): — ultimate holding company — fellow subsidiaries — an associate — a related company Loan to a fellow subsidiary(Note 14): Payables to related parties(Note 18)_: — ultimate holding company — fellow subsidiaries — an associate (c) Key management compensation Salaries and other short-term employee benefits Share-based payments	2007 HK$’000 8,194 419 283 328 9,224 8,300 — 2,635 — 2,635 2007 HK$’000 10,626 — 10,626	2006 HK$’000 13,961 4,014 213 —
		18,188

		—

		36 4,425 43
		4,504

		2006 HK$’000 13,669 247
		13,916

34 COMPARATIVE FIGURES

Certain comparative figures have been reclassified to conform to current year’s presentation.

– 91 –

FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

MANAGEMENT DISCUSSION & ANALYSIS

Financial Review

In the first half of 2008, manufacturers, particularly those with production facilities in China faced possibly the most severe cost pressure ever. Inevitably, the performance of Dream International Limited (the “Company”) and its subsidiaries (collectively the “Group”) was affected.

For the six months ended 30 June 2008, turnover of the Group dropped to HK$340,002,000 (2007: HK$415,071,000), mainly because the Group shifted its focus on to higher margin products and stopped taking small quantity orders. During the period, cost of sales increased substantially as a result of continuous appreciation of the Renminbi (“RMB”), rising labour cost partly caused by the new labour law taking effect and climbing material costs alongside rising oil price. Thus, the gross profit of the Group saw a drop to HK$43,466,000 (2007: HK$73,516,000). Selling and distribution expenses and administrative expenses were also amplified by appreciation of the RMB and the Group also had to pay one-off compensations to workers affected by it closing some production facilities. The Group recorded loss attributable to equity holders of HK$51,034,000 for the period, against a profit of HK$3,161,000 in the last corresponding period in which a HK$12.9 million write-back of over-provision for tax was booked.

Contingent liabilities

During the period ended 30 June 2008, a company in the United States commenced a lawsuit in the State of Texas against the Company on 3 April 2008 on the grounds that the Company infringed their patent by selling, offering for sale, distributing and importing infringing goods (the “Litigation”). The plaintiff sought an award of damages but on 25 September 2008 the court of the State of Texas ruled in favour of the Company. The Group had no material contingent liabilities as at 31 January 2009.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Business Review

Product Analysis

During the period, sales of plush stuffed toys amounted to HK$272.8 million, accounting for 80.2% of the Group’s total turnover. Original Equipment Manufacturing (“OEM”) business remained the core business of the Group, contributing 83.8% of the sales of the plush stuffed toy segment. With a strong track record as a preferred manufacturing partner of character owners and licensors, in 2008, the Group secured a new customer which is a renowned entertainment company and started manufacturing plush stuffed toys for the customer’s North American markets.

Original Design Manufacturing (“ODM”) business accounted for 16.2% of the sales of the plush stuffed toy segment. Focusing on higher margins products, the Group expanded business with a US retailer and provided more interactive educational electronic plush stuffed toys under the “CALTOY” brand to the retailer. The toys have been well-received in the market since they were launched in 2006. In addition, the Group also started business with another US retailer and will manufacture plush stuffed toy also under the “CALTOY” brand for the customer. The Group will maintain relationship with existing profitable customers and seek to secure more orders from them in the future.

In the first half of 2008, the Group signed a licence agreement with Disney, which it saw as a significant business achievement. The Group is licensed to design and manufacture plush and soft toys of various popular Disney characters, such as Mickey Mouse, Winnie the Pooh, Sleeping Beauty, Peter Pan, as well as characters in the film properties, etc. of the entertainment giant. The Group can also sell the finished products to mass retail chains such as Kmart, Target and Wal-Mart, and specialty toy stores, book chains, drug stores, grocery stores and wholesale club stores in the US. This licence has given the Group flexibility to decide the different aspects of a product from the drawing board to the shelf in the store, allowing it to realize the full potential of the products. The steel and plastic toy segment recorded sales of HK$67.2 million, accounting for 19.8% of the Group’s total turnover, a bigger share than in the same period last year. During the period, the Group secured additional orders from a marketing company that distributes toys to major US retailers. Apart from scooters, tricycles and other ride-on toys, this customer placed new orders for a high-end tricycle with electronic sound mechanism on the handle bar. The Group also strengthened presence in the China market thanks to another character licence from Disney for manufacturing scooters and ride-on products and the expanded sales network for scooters and inline skates under its own “Great” and “Far Great” brands.

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

Market Analysis

For the six months ended 30 June 2008, North America remained the Group’s largest market. Benefited from the increasing orders for steel and plastic toys from a new customer secured in the second half of 2007, contribution from this market rose to 45.0% of the Group’s total turnover. Japan was the second largest market and its turnover contribution maintained at 29.9% of the total turnover, while another major market, Europe, accounted for 20.8%. During the period, contribution from the China market represented 0.6% of the Group’s total turnover.

Operational Analysis

As at 30 June 2008, the Group operated 12 plants in total, of which nine were in China and three in Vietnam, running at an average utilization rate of 86.4%. During the period, the Group continued to restructure its production regime to improve production efficiency and cost-effectiveness. To alleviate pressure from rising labour cost in coastal areas in China, the Group reduced production of a plant near Shanghai and another in Shenzhen and concentrated on production activities in inland China. Furthermore, the Group expanded the production base in Vietnam to enjoy the lower labour cost in the country. Preparatory work on two new plants started in the first half of 2008 and around US$2 million had been invested in the new facilities.

Prospects

The effects of rapid appreciation of the RMB, surging labour cost and raw material cost combined had led to the setback of the Group’s results in the first half of 2008. These challenges together with the global economic downturn have sped up consolidation of the toy industry ousting many smaller players. However, for market leaders like Dream International Limited, who have scalable production capacity and capable of delivering quality products, they enjoy growing power on price determination of their products in the consolidating market. In addition, seeing signs of certain macroeconomic factors improving, such as appreciation of the RMB slowing down and oil price becoming stable, the Group remains cautiously optimistic about the market environment in the second half of 2008.

The Group will continue to restructure production with lowering in manufacturing costs as the goal. The complete closure of the two plants near Shanghai and in Shenzhen by the end of the year will result in significant saving in labour and administrative costs, and stepping up production in inland China will help to enhance facility utilization and production efficiency of the plants there. By expanding the production base in Vietnam to be funded by internal financial resources of the Group, the Group has alleviated part of the cost pressure stemming from the new labour law in China taking effect during the review period. With a new fabric factory and a plush toy plant equipped with 1,000 sewing machines scheduled to commence operation in the fourth quarter of the year, the Group will enjoy better economies of scale and higher operational efficiency in Vietnam.

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APPENDIX I

FINANCIAL INFORMATION ON THE GROUP

Furthermore, the Group expects licensed production to become a growth driver of its business in the future. Given flexibility to design and manufacture Disney products, the Group can provide products with higher profit margins and play a more active role in capturing opportunities in the market to enhance profitability and broaden its revenue stream. To make sure it is equipped for tapping the lucrative market, the Group will inject more resources into research and development of more innovative and high quality products that can meet the ever-changing demands of consumers.

Given the ongoing global financial crisis and credit crunch which are affecting the global economies, the Directors believe the toy industry consolidation will be accelerated, which enable the Group more power on price determination. Besides, the effect of rapid appreciation of RMB, surging labour cost and raw material cost in the first half of 2008 was eased by the financial crisis, and as a result alleviate the financial impact on decrease of sales orders.

Number and Remuneration of Employees

At 30 June 2008, the Group had 16, 6,433, 45, 13, 7 and 2,783 employees in Hong Kong, Mainland China, South Korea, US, Japan and Vietnam respectively. The Group values its human resources and recognizes the importance of attracting and retaining quality staff for its continuing success. Staff bonuses and share options are awarded based on individual performance. Share options may be granted to employees in accordance with the share option scheme adopted by the Company on 22 January 2002. During the financial year of 2008, no share option had been granted under the share option scheme.

Liquidity, Financial Resources and Capital Structure

The Group continued to maintain a reasonable liquidity position. As at 30 June 2008, the Group had net current assets of HK$108.1 million (31 December 2007: HK$166.6 million).The Group’s total cash and cash equivalents (mainly in HK$, US$, RMB and Korean Won) as at 30 June 2008 amounted to HK$65.0 million (31 December 2007: HK$107.2 million). The total borrowings of the Group (in HK$, US$ and RMB) as at 30 June 2008, which are secured bank loans amounted to HK$126.4 million (31 December 2007: 114.7 million). The bank borrowings are on floating interest rate basis and repayable within one year. The Group’s gearing ratio, calculated on the basis of total borrowings over the total shareholders’ equity, was increased to 31.5% (31 December 2007: 25.5%) to fund the expansion of the production plants in Vietnam.

Pledge on Group Assets

Bank borrowings are secured on the Group’s building, plant and machinery and land use rights for the value of HK$60.9 million as at 30 June 2008 (31 December 2007: HK$97.9 million).

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FINANCIAL INFORMATION ON THE GROUP

APPENDIX I

WORKING CAPITAL OF THE GROUP

The Directors, after due and careful enquiry, are of the opinion that, based on available banking facilities and other facilities and internal resources of the Group, the Group has sufficient working capital for its present requirement and for the period ending twelve months from the date of this circular.

INDEBTEDNESS, LIQUIDITY AND FINANCIAL RESOURCES

Borrowings

As at the close of business on 31 January 2009, being the latest practicable date for the purpose of this indebtedness statement prior to the printing of this circular, the Group had total outstanding borrowings of approximately HK$112.1 million, of which approximately HK$54.5 million were guaranteed by Mr. Kyoo Yoon Choi with his deposit at bank and approximately HK$38.2 million were guaranteed by standby letter of credit or pledged with land use right, factory building, machinery and equipment with net book value of approximately HK$59.9 million, and the remaining balance was unguaranteed and unsecured.

Contingent liabilities

As at 31 January 2009, the Group had no material contingent liabilities.

Saved as aforesaid, and apart from intra-group liabilities, and normal trade payables, the Group did not have any loan capital issued or agreed to be issued, bank overdrafts, loans, debt securities issued and outstanding, an authorized or otherwise created but unissued term loans or other borrowings, indebtedness in nature of borrowings, liabilities under acceptances (other than trade bills) or acceptance credits, debentures, mortgages, charges, finance leases or hire purchase commitments, which are either guaranteed, unguaranteed, secured, or unsecured, guarantees or other material contingent liabilities outstanding at the close of business on 31 January 2009.

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VALUATION REPORT

APPENDIX II

==> picture [214 x 44] intentionally omitted <==

Room 2703 Shui On Centre 6-8 Harbour Road Wanchai Hong Kong

12 March 2009

The Directors

Dream International Limited 8th Floor, Tower 5 China HK City 33 Canton Road Tsimshatsui Kowloon Hong Kong

Dear Sirs,

In accordance with the instructions from Dream International Limited (the “Company”) to value certain assets including lands and buildings (the “Property”) of C&H Toys (Suzhou) Company Limited 希安琦玩具(蘇州)有限公司 (“C&H Toys”) in the People’s Republic of China (the “PRC”), we confirm that we have carried out inspections, made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing the capital values of such property interests as at 31 December 2008 (referred to as the “date of valuation”).

It is our understanding that this valuation is used for disposal purpose.

This letter which forms part of our valuation report explains the basis and methodology of valuation, and clarifies our assumptions made, titleship of property and the limiting conditions.

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VALUATION REPORT

APPENDIX II

BASIS OF VALUATION

The valuation is our opinion of the market value which we would define as intended to mean:

“The estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.”

VALUATION METHODOLOGY

Due to the nature of buildings and structures constructed, there is no readily identifiable market comparable to the Property, we have applied the cost method of valuation in assessing the properties. It is a method of using current replacement costs to arrive at the value to the business in occupation of the property as existing at the date of valuation.

This method of valuation, cost method, is based on an estimate of the market value for the existing use of the land, plus the current gross replacement costs of the improvements, less allowances for physical deterioration and all relevant forms of obsolescence and optimization.

The cost method generally furnishes the most reliable indication of value for property in the absence of a known market based on comparable.

ASSUMPTIONS

Our valuation has been made on the assumption that the owner sells the property interests in their continued uses and in their existing states without the benefit of any deferred term contracts, leaseback, joint ventures, management agreements or any similar arrangement which would serve to increase the value of the property interests.

We have assumed that all consents, approvals and licenses from relevant government authorities for the buildings and structures erected thereon have been granted. Also, we have assumed that all buildings and structures fall within the site are held by the owner or permitted to be occupied by the owner.

It is assumed that all applicable zoning and use regulations and restrictions have been complied with unless nonconformity has been stated, defined and considered in the valuation report. Moreover, it is assumed that the utilization of the land and improvements is within the boundaries of the property described and that no encroachment or trespass exists, unless noted in the report.

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VALUATION REPORT

APPENDIX II

No environmental impact study has been ordered or made. Full compliance with applicable national, provincial and local environmental regulations and laws is assumed. In addition, it is assumed that all required licences, consents or other legislative or administrative authority from any local, provincial or national government or private entity or organization either have been or can be obtained or renewed for any use which the report covers.

Other special assumptions of each property, if any, have been stated out in the footnotes of the valuation certificates.

TITLESHIP INVESTIGATION

We have been provided with copy of title document. However, due to the current registration system of the PRC, no investigations have been made for the legal title or any material liabilities attached to the property.

In the course of our valuation, we have relied upon the legal opinions as stated in the title report given by Mr. An Fenglian, PRC qualified lawyer and registered foreign lawyer of Mason Ching & Associates (“The PRC Lawyer”) in relation to the legal title to the properties located in the PRC under valuation.

All legal documents disclosed in this report are for reference only and no responsibility is assumed for any legal matters concerning the legal title to the property interests set out in this report.

LIMITING CONDITIONS

We have inspected the exterior and, where possible, the interior of the Property included in the attached valuation certificate. However, no structural survey has been made and we are therefore unable to report as to whether the properties are free from rot, infestation or any other structural defects. Also, no tests were carried out on any of the services.

We have not carried out detailed site measurements to verify the correctness of the land or building areas in respect of the property interests but have assumed that the areas shown on the legal documents provided to us are correct. Based on our experience of valuation of similar properties, we consider the assumptions so made to be reasonable. All documents and contracts have been used as reference only and all dimensions, measurements and areas are approximations.

No soil investigation has been carried out to determine the suitability of the ground conditions or the services for any property development.

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APPENDIX II

VALUATION REPORT

Having examined all relevant documentation, we have relied to a very considerable extent on the information provided by the Company or C&H Toys and have accepted advice given to us by it on such matters as planning approvals, statutory notices, easements, tenure, occupation, rentals, site and floor areas and in the identification of the property in which C&H Toys has valid interests. We have had no reason to doubt the truth and accuracy of the information provided to us by the Company or C&H Toys. We were also advised by the Company or C&H Toys that no material factors have been omitted from the information to reach an informed view, and have no reason to suspect that any material information has been withheld.

No allowance has been made in our valuation for any charges, mortgages or amounts owing on any of the property valued nor for any expenses or taxation which may be incurred in effecting a sale.

Unless otherwise stated, it is assumed that the interests are free of encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

Since the properties are located in a relatively under-developed market, the PRC, those assumptions are often based on imperfect market evidence. A range of values may be attributable to the properties depending upon the assumptions made. While the valuer has exercised his professional judgment in arriving at the value, report readers are urged to consider carefully the nature of such assumptions which are disclosed in the valuation report and should exercise caution in interpreting the valuation report.

OPINION OF VALUE

The valuation certificate has already shown the capital value of the property.

REMARKS

Our valuation has been prepared in accordance with generally accepted valuation procedures and in compliance with the requirements of the Rules Governing the Listing of Securities of The Stock Exchange of Hong Kong Limited (the “Rules”).

In valuing the property interests, we have complied with the requirements contained in the HKIS Valuation Standards on Properties (1st Edition 2005) published by the Hong Kong Institute of Surveyors and effective from 1 January 2005.

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VALUATION REPORT

APPENDIX II

Valuation of the property is denominated in Chinese Renminbi (RMB).

The valuation certificate is enclosed herewith.

This valuation report is issued subject to our General Service Conditions.

Yours faithfully, For and on behalf of GREATER CHINA APPRAISAL LIMITED

K. K. Ip BLE, LLD Chartered Valuation Surveyor Registered Professional Surveyor Managing Director

Note: Mr. K. K. Ip, who is a chartered valuation surveyor and a registered professional surveyor, has substantial experience in valuation of properties in the PRC since 1992. Mr. K. K. Ip joined Greater China Appraisal Limited in 1997.

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VALUATION REPORT

APPENDIX II

VALUATION CERTIFICATE

Property held for owner occupation

Property

Description

Particulars of Market value as at Occupancy 31 December 2008 (RMB)

The property comprises three parcels of land (the “Lands”) with a total land area of approximately 47,945.63 square meters, 8 buildings (the “Buildings”) erected on the Lands. The Buildings were completed between 2000 and 2003.

Lands and buildings The property comprises three parcels of land occupied by (the “Lands”) with a total land area of C&H Toys (Suzhou) approximately 47,945.63 square meters, Company Limited 8 buildings (the “Buildings”) erected on the at Liutai Road, Lands. The Buildings were completed Banqiao District, between 2000 and 2003. Taicang City, Jiangsu Province The total gross floor area of the Buildings The PRC is approximately 41,272.32 square meters. Detailed breakdown is shown as follows:

The property is currently 52,000,000 vacant.

	No. of	No. of	Gross
Buildings	Blocks	Storeys	Floor Area
			(sq.m.)
Factory	3	2-5	25,533.82
Administration	1	3	4,879.92
Dormitory	2	3-5	8,890.02
Warehouse	2	1	1,968.56
Total:	8		41,272.32

See footnote (iv) for the buildings with no Building Ownership Certificate obtained.

The property is held under three sets of State-owned Land Use Rights Certificate for the latest term expiring on 28 October 2052 for industrial use.

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VALUATION REPORT

APPENDIX II

Notes:

(i) According to 3 sets of State-owned Land Use Rights Certificate between 16 December 1999 and 23 April 2003, the land use rights of the Lands have been granted to C&H Toys. Details are shown as follows:

Land Use Nature Lot No. Rights Certificate No. of land Land use 050005 太國用(99)字 Grant Industrial 第01050005號 050006 太國用(99)字 Grant Industrial 第01050006號 050041 太國用(2003)字 Grant Industrial 第01050041號 Total:	Land use Land area rights term (sq.m.) 16,855.8 To be expired on 13 October 2049 29,553.33 To be expired on 13 October 2049 1,536.5 To be expired on 28 October 2052 47,945.63

(ii) According to 3 sets of Building Ownership Certificate (太房權証板橋字第00000079號，太房權証板橋字第 00000081號，太房權証板橋字第00000321號) issued by Taicang People’s Government, the ownership of the Buildings are held by C&H Toys.
(iii) In arriving at the market value of the property, we have assumed that the owner of the property have free and uninterrupted rights to use, or transfer the property for the whole of the unexpired term of the land use rights, and that the property can be freely disposed of and transferred to third parties without any additional payment to the relevant government authorities.
(iv) As at the valuation date, there were erected on the Lands 13 buildings (other than the Buildings), with a total gross floor area of approximately 2,334.62 square meters, being used as temporary workshops, warehouses and pump rooms, of which no Building Ownership Certificates have been obtained. We have attributed no value to these 13 buildings.
(v) Opinions of the PRC Lawyer are summarized as follows,
(a) C&H Toys is in possession of 3 sets of State-owned Land Use Rights Certificate by which the land use rights of the Lands have been granted to C&H Toys.
(b) C&H Toys is in possession of 3 sets of Real Estate Ownership Certificate by which the building ownership rights of the Buildings are held by C&H Toys. No Building Ownership Certificates have been obtained for 13 buildings (other than the Buildings) erected on the Lands, with a total gross floor area of approximately 2,334.62 square meters, being used as temporary workshops, warehouses and pump rooms.
(c) C&H Toys is the legal holder of the land use rights and building ownership rights of the property. C&H Toys has the rights to transfer, lease, mortgage and dispose of the property without obtaining any approval, permit or consent from any governmental authorities.
(d) The property has been used for its prescribed usage.
(e) The property is not subject to any mortgages or encumbrances.

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GENERAL INFORMATION

APPENDIX III

1. RESPONSIBILITY STATEMENT

This circular includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors collectively and individually accept full responsibility for the accuracy of the information contained in this circular and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement herein misleading.

2. DISCLOSURE OF INTERESTS

(a) Directors’ Interests

As at the Latest Practicable Date, the following Directors had or was deemed to have interests or short positions in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) (i) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were taken or deemed to have under such provisions of the SFO); or (ii) which were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (iii) which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules:

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APPENDIX III

GENERAL INFORMATION

(1) Long Position in Shares and underlying Shares of the Company Ordinary Shares

Number of ordinary shares held

==> picture [364 x 266] intentionally omitted <==

----- Start of picture text -----

Percentage of
issued share
Personal Family Corporate capital of
interests interests interests Total the Company
(Note 1)
The Company
Kyoo Yoon Choi — — 455,000,000 455,000,000 68.06%
(Note 2)
Yong M. Lee 1,740,000 — — 1,740,000 0.26%
C & H Co., Ltd.
Kyoo Yoon Choi 189,917 124,073 — 313,990 61.03%
(Note 3)
----- End of picture text -----

Notes:

The shares are registered under the names of the directors and chief executives of the Company who are the beneficial owners.
Kyoo Yoon Choi in his own name holds approximately 36.91% of the issued share capital of C & H Co., Ltd., and together with his wife, Woul Hee Cha, hold approximately 61.03% of the issued share capital of C & H Co., Ltd. which owned 382,850,000 shares in the Company. In addition, Kyoo Yoon Choi beneficially owns 100% of interest of Uni-Link Technology Limited which owned 72,150,000 shares of the Company.
The wife of Kyoo Yoon Choi, Woul Hee Cha, holds approximately 24.12% of the issued share capital of C & H Co., Ltd.

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GENERAL INFORMATION

APPENDIX III

(2) Interests in Share Options

Share Options granted to Directors under the Share Option Scheme of the Company adopted at annual general meeting of the Company held on 22 January 2002 and remain outstanding as at Latest Practicable Date are:

Number of Options

		Period during		Balance at	Balance at
		which options	Exercise price	1 January	30 June
Directors	Date granted	exercisable	per share	2008	2008
Young M. Lee	7 February 2002	7 February 2003 to	HK$1.18	1,360,000	1,360,000
		7 February 2012
James Wang	7 February2002	7 February 2003 to	HK$1.18	520,000	520,000
		7 February 2012

Save as disclosed above, as at the Latest Practicable Date, none of the Directors of the Company had or was deemed to have any interests or short positions in the shares, underlying shares or debentures of the Company and its associated corporations (within the meaning of Part XV of the SFO) as required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they were taken or deemed to have under such provisions of the SFO) or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required to be notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Companies contained in the Listing Rules.

None of the Directors has any direct or indirect interests in any assets which have been acquired or disposed of by or leased to, or which are proposed to be acquired or disposed of by or leased to, the Group since 31 December 2007, the date to which the latest published audited consolidated financial statements of the Group were made up.

There is no contract or arrangement entered into by any member of the Group subsisting at the Latest Practicable Date in which any Director is materially interested and which is significant in relation to the business of the Group.

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GENERAL INFORMATION

APPENDIX III

(b) Substantial Shareholders

As at the Latest Practicable Date, so far is known to the Directors, the following persons (not being a Director or a chief executive of the Company) had an interest or short position in the Shares or underlying Shares of the Company which are required to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or, required to be entered in the register maintained by the Company pursuant to Section 336 of the SFO, or were, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any member of the Group:—

		Number of issued	Percentage
		Shares held	of the issued
Name of		(long position (L)/	share capital
Shareholder	Capacity	short position (S))	of the Company
C & H Co., Ltd.	Beneficial Owner	382,850,000 (L)	57.27%
(Note 1)
Uni-Link Technology	Beneficial Owner	72,150,000 (L)	10.79%
Limited_(Note 2)_

Note:

(1) Kyoo Yoon Choi, being a director of C & H Co., Ltd., together with his wife, Woul Hee Cha, hold approximately 61.03% of the issued share capital of C & H Co., Ltd. and Kyoo Yoon Choi beneficially owns 100% of the issued share capital of Uni-Link Technology Limited. Kyoo Yoon Choi is considered to have deemed interests in the 455,000,000 ordinary shares as to approximately 68.06% of the issued shares of the Company.
(2) James Wang, being a director of the Company, is also a director of Uni-Link Technology Limited.

Save as disclosed above, as at the Latest Practicable Date, so far is known to the Directors, there was no person who had an interest and/or a short position in the Shares or underlying Shares which is required to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 Part XV of the SFO or, who was, directly or indirectly, interested in 10% or more of the nominal value of the issued share capital carrying rights to vote in all circumstances at general meetings of any member of the Group.

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GENERAL INFORMATION

APPENDIX III

3. MATERIAL CONTRACTS

The following contracts (not being contracts entered into the ordinary course of business carried on by the Group) have been entered into by the Group within the two years immediately preceding the date of this circular and are or may be material:

(i) the Disposal Agreement;
(ii) the agreement of transfer of assets dated 9 October 2007 as announced by the Company on the same date entered into between Dream Vina Co. Limited, a wholly-owned subsidiary of the Company, as the vendor, and C&H Vina Co. Limited, as the purchaser, in relation to the sale and purchase of land use right, properties, machinery and vehicles in a consideration of US$1,170,000; and
(iii) the loan agreement dated 1 June 2007 as announced by the Company on 11 June 2007 entered into between Dream INKO Co., Limited, an indirectly wholly-owned subsidiary of the Company, as the lender, and KTI Co., Limited, as the borrower, in relation to the loan in the principal amount of Korean Won 1,000 million (equivalent to HK$8.4 million).

4. DIRECTORS’ SERVICE CONTRACTS

Save as disclosed below, none of the Directors had any existing or proposed service contract with any member of the Group (excluding contracts expiring or determinable by the employer within one year without payments of compensation (other than statutory compensation)):

Mr. Oliver, Shing Kay Wong was appointed as independent non-executive Director of the Company with effect from 1 September 2008 for a fixed term of two years. The annual director’s fee is HK$120,000.00 for the first year and HK$126,000.00 for the second year of such term.
Professor Byong Hun Ahn was appointed as independent non-executive Director of the Company with effect from 30 May 2008 for a fixed term of two years. The annual director’s fee is HK$120,000.00 for the first year and HK$126,000.00 for the second year of such term.

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GENERAL INFORMATION

APPENDIX III

5. COMPETING INTEREST

As at the Latest Practicable Date, so far as the Directors are aware of, no Directors or their respective associates had any interest in a business which competes or is likely to compete, either directly or indirectly, with the business of the Group.

6. EXPERTS

The following is the qualification of the expert who has given opinions or advices which is contained in this circular:

Name Qualification Greater China Appraisals Limited Professional Property Valuer

The above expert has given and has not withdrawn its written consent to the issue of this circular with the inclusion of its report and references to its name in the form and context in which it appear.

As at the Latest Practicable Date, the above expert was not beneficially interested in the share capital of any member of the Group nor did it have any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group or any interest, either direct or indirect, in any assets which have been, since 31 December 2007, the date to which the latest published audited consolidated financial statements of the Group were made up, acquired or disposed of by or leased to or are proposed to be acquired or disposed of by or leased to any member of the Group.

7. LITIGATION

A company in the United States commenced a lawsuit in the State of Texas against the Company on or about 3 April 2008 on the grounds that the Company infringed their patent by selling, offering for sale, distributing and importing infringing goods. The plaintiff sought an award of damages but on or about 25 September 2008 the courts of the State of Texas ruled in favour of the Company.

Save as disclosed above, as at the Latest Practicable Date, no member of the Group was engaged in any litigation or arbitration of material importance and no litigation, arbitration or claim of material importance was known to the Directors to be pending or threatened against any member of the Group.

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GENERAL INFORMATION

APPENDIX III

8. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors are not aware of any material adversechange in the financial or trading position of the Group since 31 December 2007, being the date to which the latest audited financial statements of the Company were made up.

9. GENERAL

(a) The registered office of the Company is located at 8th Floor, Tower 5, China Hong Kong City, 33 Canton Road, Tsimshatsui, Kowloon, Hong Kong.
b) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Abacus Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong.
(c) As at the date of this circular, the Board comprises of five executive Directors namely, Mr. Kyoo Yoon Choi (Chairman), Mr. Young M. Lee, Mr. James Wang, Mr. Hyun Ho Kim and Mr. Sang Hee Jung and three independent non-executive Directors namely, Professor Cheong Heon Yi, Professor Byong Hun Ahn and Mr. Oliver, Shing Kay Wong.
(d) The company secretary of the Company is Mr. Shum Chi Chung (“Mr. Shum”) who was appointed with effect from 4 February 2008. Mr. Shum is a member of the Hong Kong Institute of Certified Public Accountants and holds a Bachelor’s degree in Business Administration (with honours) from The Hong Kong University of Science and Technology.
(e) The English text of this circular shall prevail over the Chinese text.

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GENERAL INFORMATION

APPENDIX III

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours at the Company’s principal office in Hong Kong from the date of this circular up to and including the date of the EGM:

(a) the memorandum and articles of association of the Company;
(b) the material contracts referred to in paragraph 3 headed “Material Contracts” in this appendix;
(c) the annual reports of the Group for each of the financial years ended 31 December 2006 and 31 December 2007;
(d) the valuation report, the text of which is attached as Appendix II; and
(e) this circular.

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NOTICE OF EXTRAORDINARY GENERAL MEETING

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DREAM INTERNATIONAL LIMITED 德林國際有限公司

(Incorporated in Hong Kong with limited liability) (Stock Code: 1126)

NOTICE IS HEREBY GIVEN that a extraordinary general meeting (the “EGM”) of Dream International Limited (the “Company”) will be held at Imperial Room III, Tower Wing, Mezzanine Floor, The Royal Pacific Hotel and Towers Hong Kong, 33 Canton Road, China Hong Kong City, Tsimshatsui, Kowloon, Hong Kong on 29 May 2009 at 11:00 a.m. (or immediately after the conclusion or adjournment of the annual general meeting of the Company to be held on the same day, if later) for the purpose of considering and, if thought fit, passing (with or without amendments) the following resolutions:—

ORDINARY RESOLUTIONS

“ THAT :

(a) the agreement (the “Disposal Agreement”) dated 9 January 2009 entered into between 江蘇省太倉經濟開發區管理委員會 and C&H Toys (Suzhou) Co., Ltd. (希安琦玩具(蘇州)有限公司) relating to the sale and purchase of the PRC Property (as defined in the circular dated 12 March 2009 issued to shareholders of the Company) and the transactions contemplated thereunder be and are hereby approved, confirmed and ratified;
(b) the directors of the Company (the “Directors”) be and are hereby authorised to do all acts and execute all documents they consider necessary or expedient to give effect to the transactions contemplated under the Disposal Agreement.”

For and on behalf of the Board

Dream International Limited Young M. Lee Executive Managing Director

Hong Kong, 12 March 2009

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NOTICE OF EXTRAORDINARY GENERAL MEETING

Notes:

(1) Any member entitled to attend and vote at the EGM of the Company shall be entitled to appoint another person as his proxy to attend and vote instead of him. A proxy need not be a member. A proxy or proxies representing either a member who is an individual or a member which is a corporation shall be entitled to exercise the same powers on behalf of the member which he or they represent as such member could exercise.
(2) Where there are joint holders of any share any one of such joint holder may vote, either in person or by proxy, in respect of such share as if he were solely entitled thereto, but if more than one of such joint holders be present at any meeting the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members in respect of the joint holding. Several executors or administrators of a deceased member in whose name any share stands shall be deemed joint holders thereof.
(3) A form of proxy for use at the EGM is enclosed herewith.
(4) The form of proxy and the power of attorney or other authority, if any, under which it is signed or a notarially certified copy of such power of attorney must be lodged at the Company’s Hong Kong branch share registrar, Tricor Abacus Limited at 26th Floor, Tesbury Centre, 28 Queen’s Road East, Hong Kong, not less than 48 hours before the time appointed for holding the EGM or adjourned meeting or not less than 24 hours before the time appointed for taking the poll subsequent to the date of the EGM or adjourned meeting thereof (as the case may be) and in default the form of proxy shall not be treated as valid. Completion and return of the form of proxy shall not preclude members from attending and voting in person at the EGM or at any adjourned meeting (as the case may be) should they so wish.

– 113 –

AI assistant

Dream International Limited — Proxy Solicitation & Information Statement 2009

49709_rns_2009-03-11_726b73ee-2dc2-492a-9d5b-25ca24971073.pdf

DREAM INTERNATIONAL LIMITED 德林國際有限公司

VERY SUBSTANTIAL DISPOSAL OF PRC PROPERTY

CONTENTS

DEFINITIONS

“Announcement”

DEFINITIONS

DEFINITIONS

DREAM INTERNATIONAL LIMITED 德林國際有限公司

VERY SUBSTANTIAL DISPOSAL OF PRC PROPERTY

INTRODUCTION

LETTER FROM THE BOARD

THE DISPOSAL AGREEMENT

Parties to the Disposal Agreement

Disposal of PRC Property

Consideration

LETTER FROM THE BOARD

Conditions Precedent

Completion

INFORMATION ON THE PRC PROPERTY

FINANCIAL EFFECTS OF THE DISPOSAL

VALUATION OF THE PRC PROPERTY

REASONS FOR AND BENEFITS OF THE DISPOSAL

THE EGM

RECOMMENDATION

1. FINANCIAL SUMMARY

2. UNAUDITED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 JUNE 2008

CONSOLIDATED INCOME STATEMENT — UNAUDITED

CONSOLIDATED BALANCE SHEET — UNAUDITED

CONSOLIDATED BALANCE SHEET — UNAUDITED (Continued)

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY — UNAUDITED

CONSOLIDATED CASH FLOW STATEMENT — UNAUDITED

NOTES TO THE INTERIM FINANCIAL INFORMATION

1 GENERAL INFORMATION

2 BASIS OF PREPARATION

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

2 BASIS OF PREPARATION (Continued)

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

3 SEGMENT INFORMATION

(a) Primary reporting format — business segments

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

3 SEGMENT INFORMATION (Continued)

(a) Primary reporting format — business segments (Continued)

(b) Secondary reporting format — geographical segments

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

4 OTHER REVENUE

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

7 INCOME TAX (EXPENSE)/CREDIT

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

7 INCOME TAX (EXPENSE)/CREDIT (Continued)

8 DIVIDEND

9 (LOSS)/EARNINGS PER SHARE

(a) Basic

(b) Diluted

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

10 CAPITAL EXPENDITURE

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

11 COST OF INVENTORIES SOLD

12 TRADE AND OTHER RECEIVABLES

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

12 TRADE AND OTHER RECEIVABLES (Continued)

(a) Ageing analysis

(b) Impairment of trade debtors

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

13 TRADE AND OTHER PAYABLES

14 COMMITMENTS

(a) Capital Commitments

(b) Other Commitments

APPENDIX I

NOTES TO THE INTERIM FINANCIAL INFORMATION (Continued)

15 RELATED PARTY TRANSACTIONS

Dream International Limited Proxy Solicitation & Information Statement 2009