Dear Shareholders,

In 2007, the continuing escalation in labour and material costs, appreciation if the Renminbi, and lowered refund on export value-added tax in China represented key obstacles that toy manufactures in the country were confronted with. To operate under such challenging conditions, Dream International Limited (the “Company”) and its subsidiaries (collectively the “Group”) implemented various strategies of business restructuring and revenue enhancement which achieved a fair level of success during the year under review.

In terms of business restructuring, we chose to close our plant near Shanghai in the fourth quarter of the financial year and concentrate our mainland production activities at our four plants in inland China. The benefit of such move includes taking advantage of more agreeable labour hours, boosting efficiency and taking greater control of costs. Meanwhile, operation of our plant in Vietnam progressed smoothly, driving our overall gross profit margin up to 15.6% from 14.8% last year. Also part of our restructuring efforts, the management team and workforce at Dream INKO Co. Ltd (“Dream INKO”) have been streamlining with a resultant saving of HK$11.2 million in administrative expenses, thus significantly narrowing our operating loss. For enhancing profitability, we carefully reviewed our product mix and continued to migrate towards higher margin, larger volume orders.

To broaden our revenue streams, we have redoubled efforts at attracting new customers. For our steel and plastic toys business, we successfully secured a character license with The Walt Disney Company (“Disney”) to manufacture scooters and ride-on products to meet its China market objectives. Moreover, we were able to include a marketing company and a large US retail chain store into our expanding customer portfolio. As for our plush stuffed toys operation, we took the initiative of enriching our product mix, which included bolstering our offering of electronic educational plush toys as they have enjoyed strong demand in the US market. We also reached an agreement with a well-known entertainment company and served as their new original equipment manufacturer. In securing contracts with numerous distinguished customers, we have thus proven that our products and services are of the highest quality, and our Company is worthy of trust and respect.

While we will continue to make every effort to improve efficiency and profitability, we are fully aware that the business environment in China will remain difficult in the foreseeable future. Pressures associated with the country’s rising labour cot, currency appreciation, and aftershocks of new labour laws are expected to persist. Customers have realized the operational complexion in China has changed a well and have been willing to bear part of the burden of increased costs. Compounding matters are the economic uncertainties which now loom over the US, a significant toy market. Unsurprisingly, such harsh conditions have already accelerated the consolidation of the toy industry, weeding out less competitive players and leaving the fittest ones, like Dream International Limited, in the industry.

Catering for the challenging operational environment in China, our Vietnam operations are progressing on schedule with two more plants expected to open in 2008. Likewise, our efforts in restructuring the Shanghai and Shenzhen plants are underway and expected to conclude this year. The reorganization of our production bases will allow us to generate greater profit through enhanced efficiency, thus taking full advantage of new business opportunities.

On behalf of the board, I would like to take this opportunity to express my appreciation to the management team and staff for their commitment and contributions to the Group. I would also like to extend my gratitude to our shareholders, business partners and customers for their loyal support over the past year.

Kyoo Yoon Choi
Chairman
Hong Kong,
18 April 2008