20-F

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

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

OR

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

For the fiscal year ended December 31, 2004

OR

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

For the transition period from              to             .

Commission file number 000-19804

DSG INTERNATIONAL LIMITED

(Exact name of Registrant as specified in its charter)

(Translation of Registrant’s name into English)

British Virgin Islands

(Jurisdiction of incorporation or organization)

17/F Watson Centre, 16-22 Kung Yip Street, Kwai Chung

Hong Kong

Tel. No. 852-2484-4820

(Address of principal executive office)

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

Title of each Class	Name of each exchange on which registered
None

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

Ordinary Shares, par value

$0.01 per share (“Ordinary Shares”)

(Title of Class)

(Title of Class)

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

None

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Ordinary Shares              7,258,316

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

Indicate by check mark which financial statement item the registrant has elected to follow.    ¨  Item 17    x  Item 18

(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.    ¨  Yes    ¨  No

PART I

Item 1. Identity of Directors, Senior Management and Advisors.

Not applicable.

Item 2. Offer Statistics and Expected Timetable.

Not applicable.

Item 3. Key Information.

A. Selected Financial Data

The information required is contained in the Selected Consolidated Financial Data of the Annual Report to Shareholders, and is incorporated herein by reference.

B. Capitalization and Indebtedness

The information required is contained in the Consolidated Balance Sheets and Consolidated Statements of Shareholders’ Equity of the Annual Report to Shareholders, and is incorporated herein by reference.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Among the factors that have a direct effect on the results of operations and financial condition of DSG International Limited (the “Company”) are the following:

1. Raw Material Cost

The upward trend for the major raw material components continued in 2004. The operating results in all of our segments were affected adversely by this factor. Most raw materials used by the Company are oil based by-products which are highly volatile both in price and unpredictable demand. In addition to maintaining multiple sources, the Company has entered into various short-term supply contracts to effectively manage the volatility on supply and pricing. While the Company continues to implement programs to drive the cost out, it is difficult to predict that these measures will be adequate to offset raw material cost increases and shortage of supplies.

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2. Branded Product Innovation

Patents and other intellectual property rights are an important competitive factor in the disposable diaper market, mostly because of the industry emphasis in product innovations. Patents held by the main competitors could severely limit the Company’s ability to keep up with branded product innovations, by prohibiting the Company from marketing product with comparable features.

3. Pricing and Volumes

The market position of the Company’s main global competitors, the Procter & Gamble Company (“P&G”) and Kimberly-Clark Corporation (“KC”), relative to the Company, varies from one geographic area to another; but due to their substantial financial, technical, marketing, manufacturing, logistics and personnel resources, both of these major manufacturers have the ability to exert significant influence in price and volumes, and gain substantial market share in any of their marketing areas. They have heavily promoted diapers in the multi-pack configuration. These packages offer a lower unit price than previously available to the retailer and consumer. It is possible that as a consequence of this strategy, in those geographic markets in which the main competitors have adopted it, the Company may realize lower selling prices and/or lower sales volume. As a result, the intense competition in the markets may result in pricing pressure, lower sales and reduced margins. The Company’s business and operating results could be materially and adversely affect by these continuing competitive pressures and the Company may be unable to compete successfully with these main competitors in the future.

In early 2005, both P&G and KC had announced price increases of approximately 5%. This increase is attributed to the substantial increased costs of raw material. Although it presents opportunities for the Company to improve its margin, there is no guarantee that the Company can be successful to put through the price increase.

4. Increased Cost

On May 21, 2001, the Company entered into an agreement with P&G to settle any potential liability of the Company which may have existed with respect to any past infringement on P&G patents prior to January 1, 2001 and to agree on royalty payments relating to sales on certain of the Company’s products in the Asian Pacific and Australian region after December 31, 2000. A similar agreement with P&G was entered into in 1998 relating to the North American region that provides for payments of royalty fees based on a percentage of certain products sold after December 31, 1997 within the North American region.

On September 12, 2003, the Company entered into another agreement with P&G to resolve any possible dispute between the parties related to a patent. This agreement grants a royalty bearing non-exclusive rights to use certain features for certain products produced by the Company’s North American region. The royalty fee is calculated based on percentage of the products sold and recorded as selling, general and administrative expenses in the consolidated statements of operations.

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The Company believes that the royalty being charged by P&G under its respective license agreements is approximately the same royalty that will be paid by its major competitors for similar patent rights. However, these royalties will continue to have an adverse impact on the Company’s future financial condition and results of operations as compared to pre-settlement.

5. Increased Financial Leverage

The Company’s short and long-term debts were $51.9 million as of December 31, 2004, an increase of $15.9 million from $36.0 million last year. The debts bear various interest rates as of December 31, 2004 ranging from 2.3% to 8.5%. The existing level of the Company’s financial leverage could adversely affect the Company’s ability to obtain additional financing for working capital, acquisitions or other purposes and could make the Company more vulnerable to economic crisis in the different geographical markets and to competitive pressures from its main competitors. The global uprising trend in interest rates could also adversely affect the Company’s financial performance.

As a substantial portion of the Company’s available cash from operations will have to be applied to meet debt service requirements, the Company’s liquidity could be affected as well as its ability to fund capital expenditures. Notwithstanding, the Company believes that its cash flow from operations and other sources of liquidity will be adequate to meet its requirements for working capital, capital expenditures, interest payment and scheduled principal payment for the foreseeable future. However, if the Company is unable to generate sufficient cash flow from operations in the future, it may be required to refinance all or a portion of its existing debt or obtain additional financing. There is no assurance that this additional financing could be obtained or if obtained, would be on terms favorable to the Company.

6. Litigation Risk

As the Company operates in an industry in which patents are numerous and are enforced vigorously, the Company and its subsidiaries are from time to time involved in legal matters.

The Company is currently not defending itself in any significant litigation matters. Although it cannot be certain, in management’s opinion, none of the legal proceedings in which the Company is currently involved, individually or in the aggregate, is expected to have a material adverse effect on the Company’s business, financial condition or results of operation.

7. Worldwide Political, Economic, Legal and Other Uncertainties

The Company is incorporated in the British Virgin Islands and has operating subsidiaries incorporated in Hong Kong, the United States, The United Kingdom, the People’s Republic of China (“PRC”), Thailand, Indonesia and Malaysia. The Company manufactures and distributes baby diapers, training pants and adult incontinence products in North America, Europe, Greater China and South East Asia regions. The global operations may render the Company subject to political, economic risks and legal uncertainties, including the changes in economic and political conditions and government policies;

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wars, civil unrest, acts of terrorism and other conflicts; changes in tariffs, trade agreements and taxation and limitation of repatriation of funds due to foreign exchange controls. The occurrence or consequences of any of the aforesaid factors may restrict the Company’s ability to operate in the affected region and decrease the profitability of the Company’s operations in that region.

Item 4. Information on the Company.

A. History and Development of the Company

DSG International Limited, established in Hong Kong in 1973, is one of the world’s leading companies specializing in manufacturing disposable baby diapers, training pants and adult incontinence products, with over thirty years of experience in this industry. The Company now operates eight manufacturing facilities in North America, Asia and Europe with extensive distribution activities around the world.

In the 10-year span, from 1984 to 1994, the Company had expanded its operations into the United States of America, United Kingdom, Australia, Singapore, Switzerland, Canada, Thailand, and China. In addition, the Company successfully completed the initial public offering in the U.S. of its Ordinary Shares listed under the NASDAQ National Market System in 1992.

In April 1995, the Company’s management group, led by the Chairman, Brandon Wang, and two other equity investors proposed a going private transaction to which the holders of all the outstanding shares of the Company held by the public would receive $19 per share. On May 26, 1995, after a review by a Special Committee of independent directors appointed to consider and advise on the proposal, the Board of Directors approved the going private transaction at a price of $19.25 per share and authorized the Company to enter into a merger agreement with corporations that had been formed by the management group. On July 7, 1995 the merger agreement that had been entered into as of May 26, 1995 to effect the going private transaction was terminated because there was no reasonable possibility that certain conditions of the merger agreement could be satisfied within the time period stipulated in the agreement as there was no reasonable prospect that financing would be available on satisfactory terms within such time period.

In March 2001, the Company acquired all the U.S. assets including the “DRYPERS®” brand name and the manufacturing facilities in Marion, Ohio and Vancouver, Washington of a major U.S. disposable baby diaper manufacturer which was in bankruptcy, and was thus able to substantially expand its sales in the U.S.

On November 11, 2002, the Company entered into a definitive agreement to sell its Australian subsidiaries and the sale was completed on December 6, 2002.

In October 2002, the Company purchased land in an industrial zone in Saraburi, Thailand of approximately 240,000 square feet in order to expand the production capacity in Thailand. In December 2002, the Company set up a wholly owned subsidiary in Shanghai, PRC to manufacture disposable baby diapers products.

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In April 2003, the Company entered into a joint venture agreement with two Japanese partners to establish a manufacturing facility in Shanghai, PRC to manufacture certain raw material for disposable diapers products. The Company owns a 75% interest in the joint venture company. In September 2003, the Company closed a dormant subsidiary in Canada.

In June 2004, the Company announced the reopening of the Duluth, Georgia facility as a distribution center to reinforce logistic capabilities by having a Southeastern U.S. location. At the same time the Company announced the planned August 2004 closure of the Oconto Falls, Wisconsin adult incontinence facility. This decision is a key part of the Company’s strategic plans for 2004 to de-emphasize the Institutional Market sector of the U.S. adult incontinence business. The Company will continue to focus on and build its successful business in the Retail Market sector. The manufacturing of the adult incontinence products will be consolidated into the Marion, Ohio plant where the Company can benefit from the economy of scale and combined shipments of both baby and adult products to the same retail customers.

In December 2004, the Company reorganized its subsidiary structure in the Southeast Asia region. Upon completion of the reorganization, the Company’s directly and majority-owned subsidiaries in Malaysia, Singapore and Indonesia are now subsidiaries of DSG International (Thailand) Ltd. (“DSGT”). DSGT and its subsidiaries are accounted for by the Company as entities under common control. Shares were swapped in the intercompany transaction to accomplish the corporate reorganization. As part of the reorganization, a dividend of $2.6 million was paid to the minority shareholders. In addition, directors and certain key employees of the Company purchased shares in DSGT for $326,000. The Company recognized compensation expense of $2.0 million for the difference between the issuance price and fair value and a gain on the sale of shares of subsidiary of $1.5 million. Prior to the sale of shares to related parties, the Company owned approximately 88% of DSGT. As a result of these transactions, the Company now owns approximately 82% of DSGT.

On December 22, 2004, DSGT filed a registration statement and draft prospectus with the Securities and Exchange Commission, Thailand and the Stock Exchange of Thailand (“SET”) proposing a public offering of shares of DSGT on the SET. The Company expects to complete the public offering of additional new shares on the SET in 2005 and expects to continue to have a majority ownership of DSGT after the completion of the public offering. The Company will likely have gains on the sale of stock in connection with this public offering in 2005.

DSG International Limited is incorporated in the British Virgin Islands under the International Business Companies Act of 1984 and has its principal executive office at 17/F Watson Centre, 16-22 Kung Yip Street, Kwai Chung, Hong Kong. Its telephone number is (852) 2484-4820.

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CAPITAL EXPENDITURES

Principal capital expenditures of the continuing operations over the last three years include the following:

	2004		2003		2002
Purchase of land in Thailand	$	—	$	289,000	$	—
Purchase of land use right in Shanghai, PRC		—		1,676,000		1,433,000
Purchase of London residence property		—		12,297,000		—
Construction of manufacturing equipment for the joint venture investment in Shanghai, PRC		9,662,000		3,754,000		—
Building construction for the joint venture investment in Shanghai, PRC		2,638,000		—		—
Building construction in Thailand		3,425,000		523,000		—
Additions and modifications to machinery and equipment in the Company’s various operations		5,943,000		5,787,000		4,136,000
Total	$	21,668,000	$	24,326,000	$	5,569,000

The Company’s plan for major investment in 2005 is the capital injection of $1.1 million for the Shanghai, PRC diaper manufacturing plant, and the remaining building construction cost of $606,000 for the joint venture investment in Shanghai, PRC. The financing for these expenditures will be partially funded by banking facilities and partially funded by internally generated cash from operations.

The Company’s plans for capital expenditures are subject to changes from time to time and could result from, among other things, the consummation of any significant amount of additional acquisition or investment opportunities, which the Company is constantly exploring.

B. Business Overview

1. General

The Company manufactures and markets disposable baby diapers, training pants and adult incontinence products primarily under its own brand names, which include “DRYPERS®”, “FITTI®”, “PET PET®”, “COSIFITS®”, “BABY LOVE®”, “BABYJOY®”, “DISPO 123^™”, “HANDY^™”, “CERTAINTY®” and “MERIT®”. The “DRYPERS®” brand was acquired in March 2001. The Company also manufactures and markets disposable baby diapers, adult incontinence and training pants products under private labels. The Company’s products are sold internationally, with its eight manufacturing facilities being in Hong Kong, the United States, the United Kingdom, the People’s Republic of China (“PRC”), Thailand, Indonesia and Malaysia.

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The Company manufactures and distributes private label and branded disposable baby diapers, adult incontinence products, training pants and youth pants for the North American markets with its operations in Marion, Ohio and Vancouver, Washington. With a good regional presence, the Company’s “FITTI®” brand is a strong selling brand of disposable baby diapers and training pants in key markets. The Company’s “DRYPERS®” brand is another regional brand of disposable baby diapers and training pants products in the North American market. The Company’s sales in adult incontinence products, training pants and youth pants have grown in their significance in the Company’s North American market.

In the PRC, the Company estimates that the consumer market penetration rate of disposable baby diapers is around 4% and the market size is growing at a rate of 15% per annum. The Company’s leading brands, “FITTI®” and “PET PET®”, are well established in most of the major cities including Shenzhen, Guangzhou, Shanghai and Beijing; and the Company’s economy brands, “FITTI® Basic” and “BABY LOVE®”, expanded rapidly in the eastern, northeastern, western and central part of the PRC. By using the premium “FITTI®” and economy “FITTI® Basic” brands, the Company delivers a clear brand icon to the consumers in the PRC and strengthens the baby disposable diapers market penetration nationwide in the PRC. The Company estimates that it holds the third position in overall market share among its competitors in the PRC. In the Guangdong province, the major southern province of the PRC, the Company has a well-established sales and distribution network that extends throughout the province and cities and the Company believes that it is the market leader in the province, with around 28% market share. In the northern part of the PRC, the Company’s sales operation has built up direct sales distribution channels in the Beijing and Tianjin markets and expanded its wholesale network into other northern and northeastern provinces such as Shandong, Shanxi, Hebei, Shaanxi, Jilin and Liaoning as well as various cities. In the eastern part of the PRC such as Fujian, Zhejiang, Jiangsu provinces, the Company established a strong sales and distribution network by working with a number of reputable territorial wholesalers. Management of the Company is optimistic about the growth opportunity in these provinces and cities. In Shanghai Municipal, the Company developed its direct sales and distribution network with major foreign investor-owned hypermarkets and state-owned supermarket chains. The Company’s sales office in Shanghai also functions as a nationwide sales and marketing centre to focus and keep pace with the market development in the PRC. In addition, the Company has a sales office in Wuhan to reinforce the distribution efforts in the Central and Western part of the PRC. Overall, the Company has expanded its sales and distribution networks in 28 provinces, 3 municipals and over 200 cities in the PRC through its direct sales and distribution team and engagement of either distributors or wholesalers. The Company continues its effort in exploring the potential of other PRC markets. In 2004, the Hong Kong disposable diaper market remains stagnant due to low birth rate and weak economy; however, the Company maintained its second place position in the Hong Kong market with an estimated market share of 21%.

In Thailand, the Company underwent brand consolidation from four to three diapers brands, namely “FITTI®”, “BABYLOVE®” and “FITTI® Basic” in order to strengthen its market positioning against the competitors. The Company has successfully built its brand value by continuous advertising and promotional campaigns and the Company’s “BABYLOVE®” brands gained additional market share in the mid-range sector. The Company’s overall baby diapers sales volume grew by over 30% in 2004 versus 2003 and the market share improved from 15% in 2003 to 20% in 2004, represented the second largest market leader in Thailand. In Malaysia, the Company underwent several key strategic moves, including brand consolidation from five to three diaper brands, namely “FITTI®”, “PET PET®” and “FITTI® Basic”, reorganizing of sales and marketing team and expansion of distribution channels. In response to the consumer demands in

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the market place, the Company improved its products quality and features on “PET PET®” and “FITTI® Basic”, and created product differentiation among competitors’ brands. The Company’s overall baby diapers sales volume grew by 7% in 2004 over 2003. The Company’s market share edged up to 12% in 2004 and seized the second largest market leader position in Malaysia in the last quarter of 2004. In Indonesia, there was a price war on all the products from premium to economy ranges in the market commenced in the middle of the year 2004 and the consumers are becoming price-driven. The Company has reacted proactively through a series of product repositioning in the last quarter of 2004 and launched a newly designed economy product in the first quarter of 2005. In Singapore, the Company has improved its distribution channel in traditional trade segment and restructured its operation in late 2004 to improve efficiency and profitability. The Company re-launched “PET PET®”, upgraded “FITTI® Basic” in the second half of the year 2004 and captured a 4% volume growth in the market. With the product repositioning and feature upgrades, the Company is optimistic on the sales growth of disposable baby diapers in the coming years.

In December 2004, the Company reorganized its subsidiary structure in the Southeast Asia region. Upon completion of the reorganization, the Company’s directly and majority-owned subsidiaries in Malaysia, Singapore and Indonesia are now subsidiaries of DSG International (Thailand) Ltd. (“DSGT”). DSGT and its subsidiaries are accounted for by the Company as entities under common control. Shares were swapped in the intercompany transaction to accomplish the corporate reorganization. As part of the reorganization, a dividend of $2.6 million was paid to the minority shareholders. In addition, directors and certain key employees of the Company purchased shares in DSGT for $326,000. The Company recognized compensation expense of $2.0 million for the difference between the issuance price and fair value and a gain on the sale of shares of subsidiary of $1.5 million. Prior to the sale of shares to related parties, the Company owned approximately 88% of DSGT. As a result of these transactions, the Company now owns approximately 82% of DSGT.

On December 22, 2004, DSGT filed a registration statement and draft prospectus with the Securities and Exchange Commission, Thailand and the Stock Exchange of Thailand (“SET”) proposing a public offering of shares of DSGT on the SET. The Company expects to complete the public offering of additional new shares on the SET in 2005 and expects to continue to have a majority ownership of DSGT after the completion of the public offering. The Company will likely have gains on the sale of stock in connection with this public offering in 2005.

The Company manufactures and distributes adult incontinence products through its operation in Thailand to all other markets in Asia under its “DISPO 123^™”, “HANDY^™” and “CERTAINTY®” brands. The Company achieved 20% volume growth in 2004 and was holding a strong 72% market share, being the market leader in the adult incontinence market in Thailand. In other Asian markets, the sales of adult incontinence products have increased steadily over the years and the Company’s brands are well established both in the retail and institutional sectors. Some new brands have been introduced in different South East Asian countries but the Company remains optimistic about the market growth potential of the adult incontinence market in the Asian Pacific region.

During 2004, the Company’s operation in the United Kingdom continues to market its branded products to wholesalers and grocery retail accounts and experienced a modest growth of net sales from $3.5 million to $4.2 million. The Company manufactures private label disposable diapers on a selective basis.

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The Company’s marketing strategy is to provide retailers and wholesalers with quality, value-oriented products which offer good profit margins, combined with a high level of service, rather than attempting to mass market its products in competition with the industry leaders. The Company believes that its attention to raw material costs and manufacturing efficiency, combined with careful control of advertising and promotional costs, enables it to produce and market value-oriented products at competitive prices.

The Company’s growth strategy is to target its products at selected sectors of mature markets, such as the United States and Europe, and to take a broader marketing approach in less developed markets where there is a high rate of growth in disposable diaper usage. The Company believes that its manufacturing facilities in Asia will enable it to participate in the expected growth of those markets. In the past, the Company has expanded its business into new markets by acquiring the assets of disposable baby diaper and adult incontinence manufacturers. The Company also expands through establishing its own manufacturing facilities in emerging markets which offer significant growth potential, such as the Company’s facilities in the PRC, Thailand, Indonesia and Malaysia, which were opened in 1994, 1995, 1998 and 1999, respectively.

The Company’s principal raw materials are fluff wood pulp and super absorbent polymer. Other raw materials include polyethylene back-sheets, cloth-like breathable back-sheets, polypropylene non-woven liners, adhesive tapes, mechanical closure tapes, hot melt adhesive, elastic, aloe vera and tissue. Fluff wood pulp costs and other raw material costs had edged up in 2004. It is anticipated that these raw material costs will continue to increase in 2005, particularly the wood pulp, super absorbent polymer and polypropylene non-woven. The Company estimates that the magnitude of this raw material increase will be about the same as 2004. Raw material costs typically account for about three-quarters of cost of goods sold.

Disposable diapers are designed and marketed with two basic objectives in mind: (1) to afford parents of infants up to two and one-half years of age the convenience of diapers which are disposed of after one use and (2) to reduce the risk of chapping (“diaper rash”) which often occurs when moisture from a soiled diaper remains in contact with the baby’s skin. The basic concept of most disposable diapers on the market is the same: to allow moisture to pass through a soft inner layer which is in contact with the baby’s skin into a highly absorbent inner core, from which the moisture is prevented from escaping by an outer moisture-proof back-sheet. There are significant differences in quality among the various disposable diapers currently on the market. The most important quality features of disposable diapers are their ability to absorb and retain fluids, to prevent leakage through leg and waist openings by the use of elasticized bands, and to be easily fitted and held in place by adhesive tapes which secure the diaper firmly without causing discomfort to the baby. Other features, such as innovative fastenings, attractive designs, extra-dry sub-layer, gender specific absorbent cores, stand-up leg gathers, cloth-like breathable back-sheets, mechanical closure tapes, elastic waistband, aloe vera and packaging help to differentiate products from one another.

Adult incontinence products are designed for the convenience of males and females having various degrees of incontinence. The basic concept of most adult incontinence products is to prevent leakage of liquid and solid by absorbing the moisture into a highly absorbent inner core and retaining the soiled contents within an outer moisture proof back-sheet. Similar to disposable diapers, the most important quality features of adult incontinence products are their ability to absorb and

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retain fluids, to prevent leakage through leg and waist openings by the use of elasticized bands, and to be easily fitted and held in place by adhesive tapes which secure firmly without causing discomfort to the user. The absorption media for adult incontinence products are fluff wood pulp and super absorbent polymer. Other features, such as wetness indicator, stand-up leg gathers, elastic waistband, frontal tape closure system and packaging help to differentiate products from one another.

The Company introduces adult incontinence products into its markets in a manner consistent with its niche market strategy. The Company believes that the key to successful marketing of this type of product is the high and prompt level of service from the manufacturer and distributor, regular contact with institutions to ensure proper knowledge of the products, and providing a range of products of high quality and performance.

2. Geographic Segment and Product Category Information

The following table sets forth the percentage of the Company’s net sales of continuing operations by geographic market and product category activity:

	2004		2003		2002
Net sales
North America	65.4	%	69.8	%	70.9	%
Asia	32.6		28.5		27.3
Europe	2.0		1.7		1.8
	100.0	%	100.0	%	100.0	%
Product sales by category
Disposable baby diapers	80.8	%	77.5	%	79.3	%
Adult incontinence products	14.7		16.4		14.5
Training pants, youth pants and sanitary napkins	4.5		6.1		6.2
	100.0	%	100.0	%	100.0	%

3. Seasonality

There is no significant seasonality impact on the Company’s business in most countries.

4. Raw Materials

The raw material components used in the manufacturing process are fluff wood pulp, super absorbent polymer, polyethylene back-sheet, cloth-like breathable back-sheet, polypropylene non-woven liner, adhesive closure tape, mechanical closure tapes, hotmelt adhesive, elastic, aloe vera and tissue.

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The main raw material is fluff wood pulp, which is purchased from several suppliers in the United States and Scandinavia. The source from which the fluff wood pulp is shipped to the Company’s manufacturing facilities is dependent on price, quality and availability. Other raw materials are purchased from various sources, also depending on price, quality and availability. Fluff wood pulp costs and other raw material costs had edged up in 2004. It is anticipated that these raw material costs will continue to increase in 2005. The Company maintains good and long-term relationships with its raw materials suppliers. The Company’s chief purchasing officer oversees the purchasing and sourcing policies of each of the Company’s manufacturing facilities and is responsible for new material developments and keeping track of all world-wide producers of raw materials. This person also negotiates and determines the purchase of the Company’s major raw materials with the Company’s key raw material suppliers.

The Company has negotiated supply contracts with several of its key suppliers. Such arrangements are generally designed to achieve volume discounts on price and to assure supply stability. In the event of unacceptable price increases, the Company usually has the right to terminate the arrangement upon specified notice periods, which generally range from two to three months.

Some of the suppliers of raw materials to the Company also manufacture disposable diapers which compete with the Company’s products. The Company has not experienced any difficulty with its raw material suppliers who are in competition with it on sales of finished product, but nevertheless it takes steps to ensure that it has alternative sources of supply available.

The main source of energy for the Company’s plants is electricity. The automated process for manufacturing disposable diapers consumes larger amounts of electricity than many other light industries, but none of the Company’s operating subsidiaries has experienced any problems with electricity supply.

5. Marketing Channels

a. North America

i. Products

The Company manufactures and distributes disposable baby diapers, disposable training and youth pants and adult incontinence products throughout North America under the brand names of “DRYPERS®”, “COMFEES®” and “FITTI®”, as well as a growing number of different private label brands. In March 2001, the Company acquired the “DRYPERS®” brand and continues to maintain regional distribution on same. The “DRYPERS®” brand is a full-featured premium product including all of the features of the leading national brands to deliver premium product performance to the quality conscious consumers. The “FITTI®” brand is a full-featured value product, recognized for its unique wetness indicator, a cute print that fades away when the diaper becomes wet. The “FITTI®” brand name is also used with the Company’s disposable training pants and the DRI-NITE JUNIOR disposable youth pants. The Company’s pant products feature tear-away side panels, soft cloth-like covers and comfortable waist and hip elastic and the unique “back tag” feature. The “FITTI®” training pants were the first North American product in this segment to offer the Company’s unique wetness indicators.

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The Company continues to expand its private label baby diaper and training pants business throughout North America with such customers as Wal-Mart, Walgreens, Kroger, Giant Eagle, Meijer, Aldi, Amway/Quixtar, Federated Foods and Consolidated Stores. The Company is one of very few full line manufacturers capable of producing and marketing a full range of disposable baby diapers as well as training pants and youth pants. This advantage should enhance the Company’s sales and private label partnership opportunities moving into the future. Sales grew steadily with expanded private label sales and distribution through the leading disposable diapers retailers, such as Wal-Mart Stores USA and Canada in 2004.

The Company’s primary focus on adult incontinence products is the continued development of profitable private label partnerships within the retail segment of the market with selected retailers such as Walgreens. The Company’s focus is on the adult brief products, offering a wide range of product and feature alternatives. The Company was the first to bring disposable adult pants to the North American market and the Company will continue to explore innovative product opportunities that will make a positive difference in this category and bring better solutions to the incontinence user.

ii. Sales and Marketing

Disposable baby diapers account for more than 90% of the baby diaper changes in North America. The market can be divided into several segments: brands that are advertised and sold nationally; brands that are not widely advertised and are sold regionally; and baby diapers that are sold under private label brands. The nationally advertised brands account for around 85% of all baby diapers and 80% of all training pants sales. The Company maintains a good distribution base on its “DRYPERS®” and “FITTI®” brands. The Company’s “DRYPERS®” and “FITTI®” brand training pants have enjoyed excellent consumer acceptance. The new “DRYPERS®” training pant is the first one in the value segment to offer stretchy side panels similar to the leading national brand. Another training pant first for the Company is the unique back tag. The Company was also first to offer wetness indicators on their training pants. The Company’s youth pant segment continues to grow and now accounts for more than 4% of total category sales and 18% of pant segment sales.

The Company efficiently services the North American market from three manufacturing and distribution facilities. These facilities are located in Duluth, Georgia, Marion, Ohio and Vancouver, Washington. The Company believes it has more competitive advantages than other competitors in offering its national trade customers the logistical benefits of multiple and geographically well-positioned facilities. The Company closed its Oconto Falls, Wisconsin facility by exiting the institutional adult incontinence business and relocated the remaining production capacity for retail markets to Marion, Ohio facility. This closure was strategically implemented to reduce overhead expenses and terminate unprofitable business. Where beneficial for the Company and appropriate for its trade customers, the Company commissions independent brokers and non-food sales representatives to sell directly to retailers and distributors/wholesalers. These brokers and sales representatives, managed by the Company’s direct sales management team, serve as the Company’s agents within defined territories to monitor sales, implement trade promotions and handle the required merchandising activities and responsibilities. The Company’s direct sales management team is responsible for the Company’s marketing and headquarter sales functions.

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The Company remains committed to its marketing philosophy of direct servicing of its customers and accounts by the sales management personnel. This allows the Company to provide a high degree of category expertise and education to the trade and to be able to promptly respond to trade and market needs. In addition, the strategic locations of its North American manufacturing and distribution facilities has enabled the Company to achieve average shipping transit time of one to two days for most North American destinations and an excellent focus on supply chain management.

Private Label. This segment of the Company’s business is the major volume area and area of potential growth. The Company continues to strengthen its existing private label partnerships with major retailers such as Wal-Mart USA, Wal-Mart Canada, Kroger, Walgreens, A&P, Giant Eagle, Amway/Quixtar, Aldi, Federated, and Consolidated Stores, by adding new products in both areas of disposable baby diapers and training pants. The Company will continue to target other major retailers to establish new profitable private label partnerships in all of its product categories. The Company has positioned itself very well with an advanced line-up of premium products that are better suited to meet the needs of the North American retailers than most of its competitors. The Company recognizes that the private label segment remains somewhat more insulated than that of the typical “value” brands from the aggressive price/promotional strategies of the advertised brands, due to the protective/defensive posture that major retailers tend to take when it comes to protecting their corporate brand franchise. The Company is one of a limited number of manufacturers capable of supplying a full range of quality disposable baby diapers, training pants, and youth pants and has a proven track record for delivering quality products, category expertise and customer service for more than twenty years in North America.

Branded Products. Due to the intense price and promotional pressure by the advertised brands, combined with a declining birth rate in the U.S. market, the “value brand” segment continues to shrink. By the end of 2004, the combined share of the Company’s “DRYPERS®” and “FITTI®” brands was roughly 1.0% of the total units of disposable baby diapers and training pants sold in grocery outlets throughout North America. The Company continues to pursue a hybrid marketing program on the “DRYPERS®” brand. This hybrid is a combination of “every day low price” (“EDLP”) and targeted consumer and trade marketing, designed to increase sales while enhancing their marketing return on investment. The grocery sector (excluding Wal-Mart) now represents around 40% of the over $3.7 billion United States retail market. In certain markets, such as New York/New Jersey, the nation’s largest retail market, the Company believes that the “FITTI®” brand share is much greater than conventional market share tracking companies would indicate. This is because a much higher percentage of “FITTI®” diapers and training pants are sold through urban wholesalers and inner city retailers that typical market research does not track. The Company concentrates its efforts and marketing activities in providing wholesalers and retailers with above average category profits through the use of packaging with greater shelf impact, consumer preferred pre-priced packaging, creative promotional support, creative consumer marketing vehicles, efficient distribution, electronic data interchange and a high level of customer service. The Company has maintained its strategy of providing the best EDLP on its “FITTI®” brand, offering the consumer “the best product for the price” all the time. The Company provides consumers with quality products at affordable price, unique product features and consistent value. The Company has worked to maintain its branded business with a concentrated effort against a primary diaper selling class of trade: grocery with key retail partners such as Shoprite, Pathmark, and Super Value. Some distribution and sales gains have been made in other non-grocery outlets such as Fred’s Dollar Stores and the U.S. military. The Company continues to benefit from new product ideas and unique retailer profit opportunities to the disposable baby products segment.

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The Company recognizes that private brands represent more than 30% of the retail category sales in adult incontinence with steady growth and it is this sector of adult incontinence where the greatest retail sales opportunity exists. The Company will continue to target this private brand segment with a range of superior products in terms of product features and performance. The Company’s strategy is to provide products to the marketplace that are superior to other available products and that are also more affordable than the advertised brands. The drug store trade still represents the majority of adult incontinence retail sales with approximately 50% share of the over $600 million category. Growth potential for the entire category remains high as the population continues to age, people who are incontinent become more open to treatment solutions and better products are developed.

b. Asia

i. Products

The Company manufactures disposable baby diapers primarily under its own brands in Asia. The Company’s leading brands are “FITTI®” and “PET PET®”, and economy brands are “FITTI® Basic”, BABY LOVE®”, and “BABY JOY®”. The Company also manufactures private labels on a selective basis. Both “FITTI®” and “PET PET®” enjoy substantial market share, are well supported by advertising and promotional activities, and are priced strategically lower than the major U.S. national and the Japanese brands sold in Asia. The Company’s economy brands are products targeted to compete strictly on price and value with local brands.

The Company manufactures and distributes adult incontinence products under its own brands “DISPO 123^™”, “HANDY^™”, “CERTAINTY®” and “CERTAINTY® Guard”. The Company also manufactures adult incontinence products in private labels. The “DISPO 123^™” product is an ultra anatomic diaper, featuring multi-strand leg elastics, frontal tape closure system and stand-up leg gathers, “HANDY^™”, “CERTAINTY® and “CERTAINTY® Guard” has similar features as “DISPO 123^™” with slight specifications change.

ii. Sales and Marketing

The Company continues to command one of the leading market positions in Asian markets. The Company enjoys first-mover advantages and localization of manufacturing and distribution base in most of the markets in the Asian region and has established invaluable brand image and strong positions for the Company’s products. The Company continues to focus on expansion of sales in the PRC, Thailand, Malaysia and Indonesia by capitalizing on the increasing usage of disposable baby diapers that are well supported by strategic pricing and effectively designed advertising and promotional activities. The Company also sells its products in Brunei and, to a lesser extent, India, Vietnam, Philippines and Pakistan.

The volume of disposable baby diaper usage varies significantly in different markets, depending to a large extent on the level of per capita disposable incomes. The disposable baby diaper usage is relatively high in Hong Kong and Singapore. Although these two mature markets contracted due to economic downturn, the Company has been able to pursue strategies to maintain its market share in these markets. Disposable baby diaper usage is relatively low in other Asian developing countries, but the Company believes that there is huge potential on volume growth as usage and income levels in these countries continue to increase.

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In Asia, the Company identified the PRC, Thailand, Malaysia and Indonesia as the key markets that will expand rapidly in the next decade. The Company’s strategy is to offer a premium branded product targeted to compete with major U.S. and Japanese brands and to offer mid-range and economy brands to compete in the fastest growing segment of the markets. The Company also ensures flexibility in product features, packaging and marketing functions to satisfy the ever-changing needs and trends of the different markets in Asia.

In Hong Kong, the Company has its own direct sales force. Its products are sold in all major pharmacy outlets and department stores which account for 65% of all disposable baby diaper sales, while the remaining 35% are sold in major retail supermarket and hypermarket chains such as Park’N Shop, Wellcome and China Resources Company. The disposable baby diaper market in Hong Kong has contracted due to low birth rates, and a weak economy. Around 90% of the Company’s disposable baby diapers sales in Hong Kong are sales of “FITTI®” and “PET PET®” brands of products which collectively have approximately 21% share of the market. The “FITTI®” and “PET PET®” brands are supported by advertising and promotion programs, which not only impact sales in the local market but also in the Pearl River Delta area of Guangdong province in the PRC.

In the PRC, the Company’s leading brands are distributed in hypermarkets, supermarket chains, department stores and independent retail stores in most of the provinces, such as Guangdong, Fujian, Zhejiang, Jiangsu, Shandong, Shanxi, Hebei, Shaanxi, Liaoning, Jilin and major municipals and cities, such as Guangzhou, Shenzhen, Shanghai, Shantou, Zhongshan, Tianjin and Beijing. To cope with the rapid development of foreign invested hypermarkets and state-owned supermarket chains in the PRC, the Company has good relationships with the major players like Carrefour, Wal-mart, Trust-Mart and Makro, as well as Century Lianhua, and others. The Company’s products are listed and sold in these hypermarkets and supermarket chains. The Company’s sales operation in Beijing directly services the Beijing and Tianjin markets and expands sales and distribution to northern and northeastern markets such as Shandong, Shanxi and Liaoning provinces and other cities. The Company’s sales and marketing office in Shanghai not only directly services the Shanghai market and serves as a logistic center for the markets in the eastern part of the PRC, but also oversees the nationwide market in the PRC. The Company also has a sales office in Wuhan focuses on the expansion of its distribution network to the provinces and cities in the Central and Western part of the PRC, such as Wuhan, Chengdu, Sichuan, Chongqing, Yunan, Hunan and Hubei. The Company has expanded its distribution network to 28 provinces, 3 municipals and over 200 cities in the PRC. The Company’s sales expansion in the PRC is well supported by its strategic products and pricing together with customized advertising and promotion programs. The Company estimates that the current usage of disposable baby diapers in the PRC is around 4% and will grow in accordance with the anticipated rapid economic growth of the country.

In Malaysia, the Company’s “FITTI®” and “PET PET®” brands are one of the leading brands in the market, coupled with the benefits of a domestic manufacturing facility in Selangor, Malaysia, the Company is able to compete with U.S. and Japanese major brands. The Company’s economy brands, “FITTI® Basic” expanded rapidly and have gained a significant share in the economy segment of the market. The Company’s products are distributed nationwide by its own sales forces directly to the major chain stores such as Tesco, Makro, Jusco, Giant and Carrefour, as well as to the other secondary chain stores, independent supermarkets and to lower-end retail outlets.

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In Thailand, although the usage of disposable baby diapers is relatively low, the disposable baby diaper market has been growing rapidly in the recent few years. The Company’s major brands in the market are “FITTI®”, “BABY LOVE®” and “FITTI® Basic”. The Company’s sales have been increasing with the growth of the market and from the expansion of the Company’s distribution networks throughout the country. Over 60% of the Company’s sales in Thailand were in the Bangkok metropolitan area, with the rest of the sales coming from the suburban provinces. The Company’s products are distributed to supermarkets and department stores by its own nationwide sales force. The Company has been able to capitalize on the market growth and sustained a market share of about 20% in 2004. The Company also manufactures private label products for a supermarket chain. The Company’s adult incontinence products are distributed to hospitals, supermarkets and department stores. AC Neilsen reported the market share of the Company’s adult incontinence products was 72% in 2004. The Company is also expanding its sales of adult incontinence products in other Asian markets.

The Company’s brands “FITTI®”, “PET PET®”, “BABY LOVE ®” and “FITTI Basic ®”are the leading brands in the Indonesian market. With the joint venture manufacturing facility near Jakarta, the Company is able to reduce its product costs as a result of an import duty exemption on raw materials and minimize the adverse effect of currency fluctuation. The Company’s products are sold in all major hypermarkets and supermarket chains and its major competitors in the market are imported U.S. and Japanese major brands and a local brand.

In Singapore, the disposable baby diaper market in Singapore is mature but relatively small. The Company’s brands are “FITTI®”, “PET PET ®” and “FITTI® Basic” which are sold and distributed directly by its own sales force in major retail chains, department stores and hypermarkets.

The Company presently does not plan to export its products to Japan, Taiwan and Korea because current non-tariff barriers and complex distribution arrangements make entry into these markets too expensive for imported products.

In countries that have high rates of import duties on products and high risk of currency fluctuation, the Company believes that it is more efficient and economical to service their markets through domestic manufacturing facilities. The Company presently has manufacturing facilities in Hong Kong, Zhongshan, PRC, Thailand, Indonesia and Malaysia.

c. Europe

i. Products

The Company manufactures and markets branded and private label disposable baby diapers in the United Kingdom. The Company’s brands currently in production are “FITTI®”, “COSIFITS®” and “CARES®”. “FITTI®” is a value brand baby diaper with full features such as leg gathers, wetness indicator, cloth-like back-sheet, extra-dry sub-layer and mechanical fasteners. “COSIFITS®” and “CARES®” are economy brands featuring frontal tape and an extra-dry sub-layer.

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ii. Sales and Marketing

The U.K. retail disposable baby diaper market in 2004 was approximately $730 million. The Company estimates approximately 90% of the market was branded products from P&G and KC and the remainder is comprised of various private label brands of retailers supplied by European diaper manufacturers.

The Company focused on selling its branded products to regional retailers and wholesalers by offering a value-oriented product with good profit margins and a high level of service. The Company also produces its own label for certain U.K. grocery chains.

6. Dependant Patents, Licenses and Contracts

a. Patents, Trademarks and Licenses

Brand identification is an important element in marketing the Company’s products, and the Company recognizes the importance of its trademarks to the success of its business. The Company has registered its major trademarks or has applications pending in each of the major markets in which its products are sold, and it has applications pending in several other countries for many of its other trademarks. As the Company decides to pursue opportunities in new markets, it seeks registration of the trademarks under which it will market its products in those countries.

The Company has licenses to use certain patented technology relating to certain features of the disposable diapers it manufactures. In 1997, P&G claimed that certain of the Company’s diaper products infringe P&G’s patents and demanded payment for past infringement and an agreement to pay future royalties. The Company and P&G reached settlement of this claim for the United States market in 1998. On May 21, 2001, the Company entered into an agreement with P&G to settle any potential liability of the Company which may have existed with respect to any past infringement on P&G patents prior to January 1, 2001 and to agree on royalty payments relating to sales on certain of the Company’s products in the Asian Pacific and Australian regions after December 31, 2000 ($332,000, $216,000 and $546,000 for the year ended December 31, 2004, 2003 and 2002, respectively). The agreement encompasses fixed payments totaling $300,000 relating to the period prior to January 1, 2001 and payment of royalties based on a percentage of sales of certain products in the Asian Pacific region beginning January 1, 2001.

On September 12, 2003, the Company entered into another agreement with P&G to resolve any possible dispute between the parties related to the patent. This agreement grants a royalty bearing, non-exclusive right for certain products produced by the Company’s North American region.

b. Contracts

In December 2004, the Company, entered into an agreement with three lenders for an Equipment Loan of JPY1,200,000,000.

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This is a term loan for five years maturing in 2009 with quarterly payment of $525,500 plus interest (Japanese swap rate 4.5% or a fixed rate of 5.175% per annum). The security for this loan is the manufacturing equipment in our joint venture and the joint ventures receivables.

In 2004, the Company pledged a fixed deposit of $1.7 million with a bank in Thailand for a banking facility provided to the Company’s Thailand operation.

The Company is a contract manufacturer for certain customers to supply private label products for baby disposable diapers and adult incontinence products.

The Company entered into financial contracts with certain Banks and Financial Institutions for various financing facilities of revolving working capital lines, equipment leasing and term loans.

In March 2001, one of the Company’s U.S. subsidiaries (the “Subsidiary”) entered into an amended financing agreement with its existing financial institution (the “Senior Lender”) under which the Subsidiary received a term loan of $11 million (the “Term Loan”), a capital expenditure line of up to $5 million, and a revolving credit facility (based on the lesser of a percentage of eligible accounts receivable and inventory or $15 million). Such financing was entered into in connection with the Subsidiary’s purchase of certain assets of the North American operations of Drypers Corporation.

In April 2002, the Senior Lender and the Subsidiary amended the revolver line to allow for advances of up to $1.45 million for a legal settlement, increased the capital expenditure line to $6.98 million and revised certain covenants including capital expenditures, payments and prepayments, and additional indebtedness.

As of December, 2004 and 2003, the Subsidiary borrowed $3.58 million and $2.25 million Term Loan, respectively with interest payable at prime plus 3.25% per year at 8.5% and 7.25%, respectively. These loans are divided into two separate term loan and repayable in monthly installments of principal in the amount of $145,732 and $121,587 plus accrued interest and are collateralized by the substantially all the Subsidiary’s assets as of December 31, 2004 and 2003, respectively. In addition, the Subsidiary had outstanding borrowings of approximately $3.75 million and $6.57 million of the $15 million revolving credit facility as of December 31, 2004 and 2003, respectively. These amounts were recorded as a component of short-term borrowings in the Company’s consolidated balance sheets. The Company had approximately $11.25 million and $8.43 million available for additional borrowings under the revolving credit facility at December 31, 2004 and 2003, respectively.

Among other things, the Senior Lender Loan agreement contains certain restrictive covenants, including the maintenance of earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and tangible net worth, and places limitations on acquisitions, dispositions, capital expenditures, and additional indebtedness. At December 31, 2002, the Company was not in compliance with the fiscal year ended audited subsidiary financial statements delivery time period covenants. This violation was waived by the Senior Lender on March 28, 2003.

In connection with the waiver of this 2002 covenant violation, the Senior Lender and the Company amended the

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Term Loan agreement to extend the fiscal year ended audited subsidiary financial statements delivery time period and re-establish the minimum EBITDA and tangible net worth covenants on June 19, 2003. The Company also entered into amendment of the Term Loan agreement with the Senior Lender to reflect the changes in the U.S. tax law on October 15, 2003. The Company was in compliance with covenants in 2003 and 2004.

Under the Sale and Purchase Agreement between DSG International Limited (“DSGIL”) and Castle Harlan Australian Mezzanine Partners Pty. Limited (“CHAMP”), dated November 11, 2002, CHAMP agreed to purchase and DSGIL agreed to sell its Australian subsidiaries. The gross value of the transaction was A$53 million (approximately US$29.6 million). The transaction closed on December 6, 2002.

7. Competition

The disposable baby diaper industry is dominated world-wide by the brands of two major U.S. manufacturers: P&G and KC. The market position of these manufacturers, relative to the Company, varies from one geographic area to another, but due to their substantial financial, technical and marketing, manufacturing, logistics and personnel resources, both of these major manufacturers have the ability to exert significant influence and gain substantial market share in any of their marketing areas. Despite the disparity in relative strength, however, the Company has been able to secure its position in the face of very strong competition from the industry leaders by remaining innovative, flexible and financially responsible.

a. North America

The North American disposable baby diaper market remains dominated by the brands of the two major U.S. manufacturers: P&G and KC. Their combined market share of the disposable baby diaper market is 85%; including the disposable training pant, youth pant and swim pant products. In 2004, total category unit sales are declining at a rate of about 4% and dollar sales at a rate of about 6%, with volume continuing to shift from the grocery and drug classes of trade to the dollar store and mass merchandisers. Consumers continue to move to larger packs for a lower price per diaper and more savings. These two major manufacturers continued their strategy of driving their business with aggressive retail pricing, rather than competing solely on the basis of consumer-driven marketing programs and product innovations. Retail pricing pressure remained intense in the disposable diaper and training pant categories throughout 2004. A number of major retailers remain concerned with the negative impact that the advertised brand’s strategy has had on their own private label sales and margins, and some continue to take corrective actions like raising national brand retail price and reducing branded store keeping units to protect their own brands. All of the moves made by the advertised national brands have resulted in lower retail prices and the narrowing of retail price spreads between the advertised brands and private label offerings. In an effort to compete with the leading U.S. retailer, others have relied on low entry level price points and diluted profit margins.

The continued moves by the major manufacturers to keep retail prices depressed, promote aggressively and keep the retailers satisfied with minimal margins in favor of sales volume, have put serious sales and margin pressure on smaller brand and private label manufacturers. This pressure has and will intensify with rising raw material costs. In response to this competitive activity, the Company has reallocated its promotional spending and has maintained a strategy in line with EDLP, targeted trade promotions, enhanced product features and tightened cost controls. This strategy on its core “FITTI®” and “DRYPERS®” brands has allowed the Company to protect its share in some critical markets and expand its private label base of business.

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In the adult incontinence arena, the Company is in a good competitive position, having the capability to provide key retailers and consumers with product technology that is superior to what some other manufacturers can currently provide. There is an added advantage that comes from the demand for better products in order to meet the performance and comfort requirements of incontinent consumers. In spite of the tough competitive climate, overall margins potential in the adult products remain slightly better than in the baby products.

b. Asia

The Company’s main competition in Asia comes from the brands of the P&G and KC, and several manufacturers from Japan and Taiwan. The Company believes that it has been able to maintain a significant share of the Asian market due to its longer presence and well established brands in that region and the logistical advantage which results from the strategic location of its manufacturing operations.

c. Europe

In the United Kingdom, the disposable baby diaper market continues to be dominated by P&G and KC. Both companies continued to heavily promote and discount their brands in the U.K. market. As a consequence of continued pressure on prices from certain customers, and upward pressure of raw materials costs, the profit margin of the diaper business has declined in 2004 compared to the year before.

8. Government Regulations

a. Customs and Import Duties

Some of the raw materials used in manufacturing the Company’s products are subject to import duties at varying rates in the countries in which the Company’s manufacturing facilities are located. However, import duties on raw materials do not represent a significant part of the cost of the finished product and, in most cases, the import duties are refundable if the finished goods are exported from the countries of manufacture.

Imports of finished products to some of the markets are subject to import duties at various rates. However, such duties are usually incorporated in the selling price of the finished product.

b. Environment

The Company believes that operations at all of its manufacturing facilities are conducted in compliance with applicable environmental laws, and that none of the material substances used or disposed of by the Company in its manufacturing operations are considered to be toxic or hazardous substances under such laws.

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The Company closely monitors environmental laws and regulations pertaining to disposal of solid waste, which includes household refuse, packaging and paper materials, and yardwaste, in addition to disposable diapers, in each of the markets in which its products are sold. The Company is not aware of any such laws or regulations which would have a material adverse effect on the Company’s business as presently conducted and proposed to be conducted. A number of states in the United States have passed legislation that is intended to discourage the use of disposable products such as beverage containers, certain packaging materials and disposable diapers, or to encourage the use of non-disposable or recyclable products. The Company believes that it will not have to make any changes to its products to comply with presently existing environmental laws and regulations in the markets in which its products are sold.

The Company endeavors to develop products which are environmentally responsible by closely monitoring world-wide developments in various raw material components and actively works with suppliers to develop and market products utilizing such components.

c. Insurance

All of the Company’s plant, machinery and inventories are covered by fire and extended coverage insurance. The Company maintains product liability insurance in amounts it believes to be adequate in all its operations, except for its operations in Asia where local manufacturers customarily do not carry product liability insurance because the risk of product liability lawsuits is considered to be slight.

C. Organizational Structure

The Company’s significant subsidiaries are:

Name	Country of incorporation	Ownership interest
Advance Medical Supply Company Limited	Thailand	82.17	%
Associated Hygienic Products Inc.	Wisconsin, USA	100.00	%
Associated Hygienic Products LLC	Delaware, USA	100.00	%
Disposable Soft Goods (Malaysia) Sdn. Bhd.	Malaysia	82.17	%
Disposable Soft Goods (S) Pte Limited	Singapore	82.17	%
Disposable Soft Goods (UK) Plc.	U.K.	100.00	%
Disposable Soft Goods (Zhongshan) Limited	Zhongshan, PRC	100.00	%
Disposable Soft Goods Limited	Hong Kong	100.00	%
DSG (Malaysia) Sdn. Bhd.	Malaysia	82.17	%
DSG (Shanghai) Manufacturing Limited	Shanghai, PRC	100.00	%
DSG International (Thailand) Public Company Limited	Thailand	82.17	%
PT DSG Surya Mas Indonesia	Indonesia	49.30	%
Shuiling Holding Company Limited	British Virgin Islands	75.00	%
Shanghai DSG MegaThin Company Limited	Shanghai, PRC	75.00	%

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In December 2004, the Company reorganized its subsidiary structure in the Southeast Asia region. Upon completion of the reorganization, the Company’s directly and majority-owned subsidiaries in Malaysia, Singapore and Indonesia are now subsidiaries of DSG International (Thailand) Ltd. (“DSGT”). DSGT and its subsidiaries are accounted for by the Company as entities under common control. Shares were swapped in the intercompany transaction to accomplish the corporate reorganization. As part of the reorganization, a dividend of $2.6 million was paid to the minority shareholders. In addition, directors and certain key employees of the Company purchased shares in DSGT for $326,000. The Company recognized compensation expense of $2.0 million for the difference between the issuance price and fair value and a gain on the sale of shares of subsidiary of $1.5 million. Prior to the sale of shares to related parties, the Company owned approximately 88% of DSGT. As a result of these transactions, the Company now owns approximately 82% of DSGT.

On December 22, 2004, DSGT filed a registration statement and draft prospectus with the Securities and Exchange Commission, Thailand and the Stock Exchange of Thailand (“SET”) proposing a public offering of shares of DSGT on the SET. The Company expects to complete the public offering of additional new shares on the SET in 2005 and expects to continue to have a majority ownership of DSGT after the completion of the public offering. The Company will likely have gains on the sale of stock in connection with this public offering in 2005.

D. Description of Property

The Company now operates eight manufacturing facilities, with plants located in: the United States at Marion, Ohio and Vancouver, Washington; the PRC at Hong Kong and Zhongshan, Guangdong; Chesterfield, U.K.; Bangkok, Thailand; Cikande, Indonesia and Selangor, Malaysia.

Over the years, the expansion in the Company’s Thailand operations has outgrown the existing manufacturing facility. As a result, the Company purchased land of approximately 240,000 square feet in Saraburi, Thailand in 2002 and completed the building construction in 2004. The Company relocated its Thailand operation to the new facility in the third quarter of 2004.

The Company’s joint venture investment in China acquired land of approximately 130,000 square feet in Waigoaqiao, Shanghai, PRC. As Chinese law prohibits foreigners or foreign entities to have land ownership, this land was acquired with a 50 years land use rights only. In addition, the Company purchased another land of approximately 200,000 square feet adjacent to the land purchased by Shanghai joint venture investment for the near future facility expansion. Presently, there is no plan to start the building construction.

On March 20, 2003, the Board of Directors of the Company authorized the purchase of the London residence of Mr. Wang, for its fair market value of $12.3 million as determined by an independent appraiser. The net proceeds of this transaction of $5.7 million was used by Mr. Wang to repay a portion of the shareholder loan due to the Company. The Board of Directors authorized Mr. Wang and his wife’s use and lease of this London property from the Company at a market rate determined by an independent appraiser of $36,000 per month.

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The Company utilizes an aggregate of approximately 1,709,609 square feet of space in its manufacturing operations. The Company believes that its plant facilities are adequate for its present operations.

The Company operates 25 productive disposable baby diaper, training pants and adult incontinence machines. The gross productivity of the machines ranges from 350 pieces to 600 pieces per minute for disposable baby diapers, 100 pieces to 150 pieces per minute for training pants and adult incontinence products. The productivity of the machines is dependent on the machine types, sizes and packing configurations of the products.

The following table summarizes the physical properties that are used by the Company in its manufacturing and distribution operations:

Location	Use	Approximate size (Sq. feet)	Owned/ leased	Lease expiration date
Marion, OH	Manufacturing	440,000	Leased	Oct. 2007
Bangkok, Thailand	Manufacturing	240,000	Owned	N/A
Shanghai, PRC	Manufacturing	202,305	Leased	Jun. 2052
Cikande, Indonesia	Manufacturing	174,000	Leased	Sep. 2027
Vancouver, WA	Manufacturing	134,732	Leased	Sep. 2006
Selangor, Malaysia	Manufacturing	130,681	Leased	Nov. 2006
Shanghai, PRC	Manufacturing	129,672	Leased	Jun. 2052
Zhongshan, PRC	Manufacturing	122,321	Leased	Oct. 2044
Hong Kong, PRC	Manufacturing	70,898	Leased	Jun. 2008
Chesterfield, U.K.	Manufacturing	65,000	Leased	May 2008
Bangkok, Thailand	Office	22,822	Leased	Nov. 2005
Singapore	Office	16,500	Leased	Aug. 2005
Shanghai, PRC	Office	3,815	Leased	Mar. 2006
London, U.K.	Office	3,500	Owned	N/A
London, UK	Residence	10,000	Owned	N/A
Duluth, GA	Office	2,250	Leased	May 2006
Beijing, PRC	Office	2,140	Leased	Oct. 2005
Guangzhou, PRC	Office	725	Leased	May 2006
Wuhan, PRC	Office	602	Leased	Dec. 2005

Assets Held-For-Sale

Location	Previous Use	Approximate size (Sq. feet)	Owned/ leased
Duluth, GA	Office and Manufacturing	226,625	Owned
Oconto Falls, WI	Manufacturing	165,684	Owned
Bangkok, Thailand	Manufacturing	68,805	Owned

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The Company has an aggregate of approximately 461,114 square feet of space in assets held-for-sale. The Company’s land and building in Duluth, Wisconsin and Thailand are retired from active use resulting from moving the Company’s production with carrying value of $5.21 million, $1.85 million and $767,000, respectively as of December 31 2004. The Company’s assets held-for-sales in Wisconsin and Duluth were disposed in January 2005 and March 2005 with cash consideration of $1.87 million and $8.50 million, respectively. The Company believes that the remaining asset held-for-sale in Thailand will be disposed of during 2005.

Item 5. Operating and Financial Review and Prospects.

A. Operating Results

The information required is contained in the Consolidated Statements of Operations of the Annual Report to Shareholders, and is incorporated herein by reference.

B. Liquidity and Capital Resources

The information required is contained in the Operating and Financial Review and Prospects of the Annual Report to Shareholders, and is incorporated herein by reference.

C. Research and Development, Patents and Licenses

The Company actively monitors trends in the United States and Europe in relation to changes in product features, consumer preferences, and the impact of environmental laws and regulations on the disposable diaper industry. Although the Company does not devote substantial expenditure to research and development, it constantly seeks to improve its products by substitution of materials and components, and of product features, to systematically improve the performance of its diapers for better absorbency and improved leakage protection. In particular, the Company monitors world-wide developments in various raw material components to enable the Company to take advantage of the latest developments, and in certain cases the Company has worked closely with suppliers to pioneer the use of such materials in the manufacture of disposable diapers.

D. Trend Information

1. Industry Trends

The Company believes that the most significant industry trends are:

• fluff wood pulp costs and other raw material costs increased in 2004. It is anticipated that these raw material costs will continue to increase in 2005. The Company’s gross profit margin may be adversely affected if selling prices are not adjusted or if such adjustments significantly trails the cost increases;

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• increasing demand for cloth-like breathable back-sheet, elasticated ear patch with mechanical closure system, and thin absorbent core products, which the Company is meeting through machine modifications and product development effort;

• the domination of industry leaders in most of the Company’s markets pressures retailers’ margins. The Company is finding it more difficult to respond to highly competitive market conditions.

The Company is unable to predict whether the industry trends noted above would have a material effect on its future financial condition or results of operations and, if so, whether such an effect will be positive or negative.

2. Inventory Practice and Order Backlog

The disposable diaper industry is generally characterized by prompt delivery by manufacturers and rapid movement of the product through retail outlets. The lead-time between placing an order and shipment to the local customer averages five to ten days. The Company maintains varying levels of raw materials and finished products inventory depending on lead-time and shipping schedules. The Company’s inventory levels generally vary between three to eight weeks. Due to the short lead-time between order and delivery of products, the Company does not maintain a significant backlog.

E. Off Balance Sheet Arrangements

Not applicable.

F. Contractual Obligations

As of the year ended December 31, 2004, the Company’s contractual obligations and commitments were summarized as follows:

	Payment due by year
	Total		2005		2006		2007		2008		2009 and thereafter
	(Dollars in thousands)
Short-term borrowings	$	19,111	$	19,111	$	—	$	—	$	—	$	—
Long-term debt		32,772		6,099		7,079		3,079		12,500		4,015
Operating leases		6,483		2,510		1,965		1,071		468		469
Purchase of license use right		500		500		—		—		—		—
Joint venture investment		606		606		—		—		—		—
Investment in PRC diaper plant		1,057		1,057		—		—		—		—
Capital expenditures		595		595		—		—		—		—
Interest payment obligations		5,100		1,568		1,288		1,094		919		231
Accrued raw materials purchase obligations		6,512		6,512		—		—		—		—
Total	$	72,736	$	38,558	$	10,332	$	5,244	$	13,887	$	4,715

Over the last few years, the Company’s cash requirements have been primarily provided by internally generated funds and bank borrowings. In the opinion of the Company, the cash on hand of $16.5 million plus expected cash flow

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from operating activities is sufficient to fund its liquidity, contractual obligations and commitment needs for the next twelve months. However, the Company may require additional borrowings in order to finance expansion, capital expenditure, other investments or other business requirements. Additional information on short-term borrowings, long-term debt and commitments and contingencies is set out in Notes 14, 15 and 17 of the Notes to Consolidated Financial Statements of the Annual Report to Shareholders.

In April 2003, the Company entered into a joint venture agreement with Mitsubishi Corporation and Japan Absorbent Technology Institute of Japan to establish a manufacturing facility in Shanghai, PRC. The joint venture will engage in manufacturing disposable hygiene related products. The Japanese joint venture partners will provide the proprietary patents, related technology and certain raw materials. The invested capital of the investment is $5.0 million and the Company owns a 75% interest in the joint venture company. The Company is accounting for the operations of the joint venture on a consolidated basis of accounting.

In 2003, the Company acquired a land use right for approximately 130,000 square feet of land for 50 years in Waigaoqiao, Shanghai for $1.2 million and commenced construction of the manufacturing equipment for the joint venture investment. The Company paid for the manufacturing equipment from an equipment loan of $11.7 million (see Note 15 of the Notes to Consolidated Financial Statements of the Annual Report to Shareholders) and its working capital in 2004. The Company commenced the building construction in 2004, the total remaining capital commitment is $606,000 as of December 31, 2004.

In August 2001, the Company signed a license agreement to purchase a license use right for $2.5 million from the Japanese joint venture partners for the right to manufacture and use technology know-how and distribute and sell the products in certain territories for a 20 years period from the first payment in 2002. Royalty payments on products manufactured and sold by the joint venture are also required. As of year ended December 31, 2004, the Company has paid a total of $2.0 million deposit for the license rights and recorded this amount as other assets in the consolidated balance sheet. The remainder of $500,000 will be paid in 2005. Amortization of the license use right is based on the remaining life span of 20 years commencing from the date of the first royalty payment. As of December 31, 2004, no amortization has been provided.

For the entire joint venture investment project in Shanghai, the Company has committed a maximum of $20.25 million in the investment. The Company has fulfilled its obligation of $15.2 million for the necessary capital expenditure in respect of land use right, building construction, manufacturing equipment and license use right of the project in 2004.

At December 31, 2004 the Company has commitment of $257,000 for the construction of a building in Thailand and a $191,000 commitment for acquisition of spare parts in the United States. The Company has a commitment to the government of the PRC to invest a total of $3.0 million in its wholly owned PRC subsidiary for the construction of a manufacturing facility in Shanghai. The Company’s remaining requirement under this commitment at December 31, 2004 is $1.1 million. The Shanghai facility is expected to be completed in 2005.

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Item 6. Directors, Senior Management and Employees.

A. Directors and Senior Management

The directors and executive officers of the Company are:

Name	Age	Present position
Brandon Wang	59	Director, Chairman of the Board and President
Johnny Tsui	64	Director, Vice President and Secretary
Patrick Tsang	59	Director and Vice President
Terence Leung	54	Director and Vice President
Peter Chang	58	Director, Vice President, and Chief Financial Officer
Owen Price	78	Director
Anil Thadani	59	Director

Brandon Wang is married to Eileen Wang-Tsang, who is Patrick Tsang’s sister. Peter Chang is married to Brandon Wang’s sister.

Brandon Wang founded the Company in Hong Kong in 1973 and has been a director and the Company’s Chairman and Chief Executive Officer since that time. Mr. Wang is a graduate of St. Francis Xavier’s College in Kowloon, Hong Kong.

Johnny Tsui helped Brandon Wang establish the Company in 1973 and has served as a director and Vice President of the Company since that time. In September 1995, he was appointed as Secretary of the Company. He has also served as Chief Operating Officer of the Company’s Asian operations since 1991.

Patrick Tsang has been a director of the Company since 1980, and was appointed a Vice President in January 1992. He was Secretary of the Company from March 1992 to September 1995. In 1988, he started up the Company’s Australian operations. Since July 1993 he has also served as Chief Operating Officer of the Company’s European operations. Mr. Tsang has a Ph.D. in Engineering from the University of London. He also attended a Management Science course at Imperial College, London.

Terence Leung was the Company’s Chief Financial and Accounting Officer from 1988 to 2001. He was appointed a director in 1991 and a Vice President in January 1992. Before joining the Company in 1978, Mr. Leung worked as an accountant with several major trading corporations in Hong Kong. Mr. Leung is a chartered public accountant in the United Kingdom and Hong Kong.

Peter Chang was the Chief Operating Officer of the Company’s U.S. operations from 1988 to 2001. Mr. Chang became a director in 1991 and a Vice President in January 1992 and currently serves as Chief Financial Officer and Chairman of the Company’s North American operations. Prior to joining the Company, Mr. Chang held various engineering and management positions with major U.S. airlines, based in New York. Mr. Chang has a Master’s Degree in Operations Research from Kansas State University. Mr. Chang was appointed as Chief Financial Officer on January 17, 2004.

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Owen Price became a director in April 1994. In 1993, he retired as the Managing Director of Dairy Farm International Holdings Limited which he joined in 1974. Prior to that time, he had 27 years experience with a large Australian retailer, Woolworths Ltd., where he started as an Executive Trainee and worked his way to become Chief Executive in 1971. He has served on a number of retail councils in different countries and has been an adviser to the Australian government on trade matters. He is a director of numerous companies in the Asia-Pacific region including three other listed public companies: Dairy Farm International Holdings Limited, Cycle And Carriage Limited (alternate director), and The Hour Glass Limited.

Anil Thadani advises the Company on financial matters, corporate strategy and development, and was a director of the Company from 1989 until April 1995, when he resigned as a result of his interest in the going private transaction. He was re-elected to the Board in September 1995. Mr. Thadani is the Chairman of Symphony Capital Partners (Asia) Limited (formerly Schroder Capital Partners (Asia) Limited), a direct investment company, which he founded in July 1992 in joint venture with the Schroders Group of the United Kingdom. Prior to this, he was the Managing Director and a founding partner of Arral & Partners Limited, a private investment company based in Hong Kong. He is also a director of numerous companies, some of which are public listed companies in Singapore, Thailand and India. Mr. Thadani has a Master’s Degree in Chemical Engineering from the University of Wisconsin, Madison, and an M.B.A. from the University of California at Berkeley.

OTHER KEY MANAGEMENT PERSONNEL

In addition to the above-named officers and directors, the following persons hold key management positions with the Company:

George Jackson was appointed to the position of Chief Executive Officer of the Company’s North American operations in March 2001. Prior to that, Mr. Jackson was Chief Executive of the Company’s Australian operation from mid 1997 to 2001. Mr. Jackson joined the Company in 1987 and prior to his transfer to Australia, he was the National Sales Manager with the Company’s U.S. operations. Prior to joining the Company, he held various management positions in accounting and manufacturing with Weyerhaeuser Company. He holds a B.A. degree in Business Administration – Accounting (1977) from the University of Washington, Seattle, WA.

Patrick Wong was promoted in 2001 to Chief Executive Officer of the Company’s South East Asian region. Mr. Wong graduated from Centro Escolar University (Philippines) as a Doctor of Dentistry in 1982. He started his career in sales and marketing in 1984 as a detailman in the pharmaceutical industry in Hong Kong. In 1990, Mr. Wong worked for U.S. Secure Co. Ltd., a Hong Kong company engaged in the marketing of disposable adult diapers in Hong Kong. Mr. Wong joined the Company’s Hong Kong operation in 1993 as Marketing Manager (Asia Pacific) for Thailand, Philippines and Indonesia markets. He was promoted to Executive Director of DSG International (Thailand) Ltd. in 1994 and transferred to Thailand in the same year for the establishment of the Company’s Thailand operation. From 1997 to 2001, he worked for the Company’s Hong Kong operation to establish its Health Care Division.

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Steven Pankow has been the Executive Vice President of Sales & Marketing for the U.S. operations since 2001. Mr. Pankow served as Vice President of Sales & Marketing for the U.S. operations from 1987 until 2001. Prior to joining the Company, Mr. Pankow held a number of sales management positions with major companies including Johnson & Johnson, Inc. and Duracell, Inc. He has more than 28 years experience in the sales and marketing of consumer products. Mr. Pankow has a B.A. degree in business management from Northeastern Illinois University in Chicago.

B. Compensation

In 2004 the aggregate remuneration paid by the Company and its subsidiaries to all directors and senior managers of the Company listed in this Form 20-F report as a group (12 persons) for services in all capacities was approximately $7,241,664.

C. Board Practices

All directors are elected for a one-year term at the Annual Meeting of the shareholders. The appointment of all officers is subject to the discretion of the Board of Directors.

The Executive Committee of the Board of Directors consists of Brandon Wang, Johnny Tsui, Patrick Tsang, Terence Leung and Peter Chang. The Executive Committee has authority to take any action, other than appointment of auditors, election and removal of directors and appointment of officers, which can be taken only by the Board of Directors.

Neither the Company nor any of its subsidiaries provide post-retirement benefits for directors upon termination of employment.

During 2004, the Company’s Audit Committee consisted of Anil Thadani, and Owen Price. Mr. Thadani is qualified and has been designated as the committee’s financial expert. Mr. Thadani and Mr. Price are considered independent as defined in Rule 10A-3b(1)(i) of the Securities Exchange Act of 1934. The principal functions of the Audit Committee are (i) to select and to engage the independent auditors to be employed by the Company; (ii) to consult with the independent auditors with regard to the plan of audit; (iii) to review, in consultation with the independent auditors, their audit report or proposed audit report; (iv) to consult with the independent auditors with regard to the adequacy of the Company’s internal accounting controls, and (v) to approve the audit fees and any non-audit services performed by the independent auditors. The Company’s Audit Committee met five times in 2004.

Pursuant to Section 406 of the Sarbanes-Oxley Act, the Company adopted a code of ethics during 2002. A copy of this code of ethics is attached as Exhibit 10.1 to this Form 20-F in the form of the “Company’s Business Code of Conduct Policy”. This policy covers all of the Company’s employees and in particular has been adopted for senior financial officers, including its principal financial officer and any persons performing similar functions.

During 2004, the Audit Committee approved the compensation for Brandon Wang, Chairman and Chief Executive Officer of the Company.

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D. Employees

The Company had a total of approximately 1,576 full time employees at its manufacturing facilities as of December 31, 2004:

	2004	2003	2002
North America	339	457	543
Asia	1,179	1,042	1,005
Europe	33	31	44
Shanghai, PRC joint venture	25	—	—
Total	1,576	1,530	1,592

The Company does not have a significant number of temporary employees.

The Company considers its relationships with its employees to be good in all of its plants, and none of the Company’s plants has ever experienced any material work stoppage.

The Company believes that all of its manufacturing facilities are in compliance with applicable occupational, health and safety legislation.

E. Share Ownership

For information concerning the beneficial ownership of the Company’s Ordinary Shares by Directors and Senior Management and major shareholders, see Item 7 of this Report.

During March 2002, the Company filed a Form S-8 Registration Statement for 1,500,000 shares on March 21, 2002 establishing an Equity Participation Plan (the “Option Plan”). On March 19, 2003, the Company granted the executive directors and senior management 1,175,000 restricted shares and 175,000 options to purchase shares of the Company under this Option Plan.

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Item 7. Major Shareholders and Related Party Transactions.

A. Major Shareholders

As of December 31, 2004, the total number of record holders was 28, of which 17, representing 30.67% of the Company’s Ordinary Shares, were in the United States.

The Company is not owned or controlled by another corporation or by any foreign government. The following table sets forth information regarding beneficial ownership of the Ordinary Shares of the Company by each person who on December 31, 2004 is known by the Company to own 5% or more of the Company’s outstanding Ordinary Shares and by all directors and officers as a group.

Name of beneficial owner	Ordinary shares beneficially owned
	Number		Percent
10% or more shareholders (Brandon Wang)	3,321,680	(1)	45.76	%
Directors and officers as a Group (7 persons)	4,788,680	(1)	65.98	%
Johnny Tsui	434,000		5.98	%
Peter Chang	324,000		4.46	%
Patrick Tsang	322,000		4.44	%
Terence Leung	317,000		4.37	%
Anil Thadani	70,000		0.96	%
Owen Price	—		—

⁽¹⁾ Includes 140,580 Ordinary Shares owned by Brandon Wang’s wife, Eileen Wang, as to which he disclaims beneficial ownership.

Brandon Wang and four other members of Management own more than 50% of the Company’s outstanding Ordinary Shares and, acting together, are able to control the election of the Board of Directors, and thus the direction and future operations of the Company, including decisions regarding acquisitions and other business opportunities, the declaration of dividends and the issuance of additional Ordinary Shares and other securities, in each case without the supporting vote of any other shareholder of the Company. In addition, Brandon Wang is a controlling shareholder of the Company and thus may be deemed to be a parent of the Company under the rules and regulations of the Securities Exchange Act of 1934.

The Company knows of no arrangements the operation of which may at a subsequent date result in a change in control of the Company.

B. Related Party Transactions

The following table sets forth the aggregate amount of loans made by the Company to Brandon Wang, the founder, principal shareholder and Chief Executive Officer of the Company and to a trust of which he is a beneficiary since January 1, 1996:

	Loan balance at beginning of year		Loans extended		Loans repaid		Balance at end of year
	(dollars in thousands)
Year ended December 31, 2004	$	—	$	—	$	—	$	—
Year ended December 31, 2003	$	8,551	$	—	$	8,551	$	—
Year ended December 31, 2002	$	10,744	$	1,868	$	4,061	$	8,551

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As of December 31, 2004, the Company had a payable balance of $37,000 to Mr. Brandon Wang, Chief Executive Officer. This payable amount was classified as other current liabilities. The Company repaid $1.2 million to Mr. Brandon Wang during 2004.

During 2003, Mr. Brandon Wang, the Company’s Chief Executive Officer, and a Trust controlled by him repaid the entire shareholder loan, which had an outstanding balance of $8.6 million on December 31, 2002. To repay the shareholder loan, Mr. Wang used funds from a shareholder dividend paid by the Company in March 2003, shares sold back to the Company and net proceeds from the sale of his London residence.

On March 19, 2003, 375,000 restricted shares were granted to Mr. Wang under the Company’s Equity Participation Plan. These restricted Ordinary Shares were considered bonus shares that had a six-month vesting period from the date of grant. After expiration of the vesting period on September 23, 2003, Mr. Wang sold these restricted Ordinary Shares back to the Company at the prevailing market price of $7.01 per share. Mr. Wang received payment of $5.00 per share ($1.875 million) at the time of the share repurchase. The Company has a remaining balance of $754,000 due Mr. Wang on the 375,000 restricted Ordinary Shares of $2.01 per share as of year ended December 31, 2003.

On March 20, 2003, the Board of Directors of the Company authorized the purchase of the London residence of Mr. Wang, for its fair market value of $12.3 million as determined by an independent appraiser. The net proceeds of this transaction of $5.7 million was used by Mr. Wang to repay a portion of the shareholder loan due to the Company. The Board of Directors authorized Mr. Wang and his wife’s use and lease of this London property from the Company at a market rate of $36,000 per month.

In 2004 and 2003, the Company received a rental income of $432,000 and $216,000, respectively, from Mr. Brandon Wang and his wife on the use and lease of the London property.

During 2003 and 2002, Mr. Wang and a trust controlled by him repaid $8.6 million and $4.1 million, respectively, to the Company. In 2002, the Company advanced $1.9 million to Mr. Wang and to a trust of which he is a beneficiary. This advance was made under a loan and security agreement in which the Company agreed to make loans to Mr. Wang from time to time, subject to any limit on such loans which may be imposed by the Board of Directors. The loans were repayable on demand evidenced by promissory notes bearing interest at a rate equal to 1.5% over LIBOR or such other rate that the Board of Directors and the borrower shall agree in writing. Interest of $81,000 and $230,000 was charged on these advances in 2003 and 2002, respectively.

As a result of these series of transactions and the remaining payable balance of $754,000 due to shares repurchased from Mr. Wang, the Company had a balance of $1.2 million payable to Mr. Wang and a Trust controlled by him as of December 31, 2003.

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In 2004, certain directors and key employees of the Company purchased shares of the Company’s Thailand subsidiary at amounts below market value. The Company recognized $2.0 million of compensation expense related to this transaction.

1. Interest of Experts Counsel

Not applicable.

Item 8. Financial Information.

A. Consolidated Statements and Other Financial Information

Our Consolidated Financial Statements are set forth under Item 18.

DIVIDENDS AND DIVIDEND POLICY

The Company announced on March 21, 2003 the payment of a 70-cent dividend which related to the receipt of proceeds in connection with the sale of the Australian subsidiaries to shareholders of record on April 11, 2003. The dividend was paid on April 25, 2003. The Company did not pay any dividends in 2002 and 2001.

It is the Company’s general policy to determine the actual annual amount of future dividends based upon the Company’s growth during the preceding year. Future dividends will be in the form of cash or stock or a combination of both. There can be no assurance that any dividend on the Ordinary Shares will be declared, or if declared, what the amounts of dividends will be or whether such dividends, once declared, will continue for any future period.

LEGAL PROCEEDINGS

The Company and its subsidiaries are, from time to time, involved in routine legal matters incidental to their business. The Company settled the R&L lawsuit and the Rhonda Tracy claim for $4.2 million and $375,000 in April and March 2002, respectively. The Company is currently not defending itself in any significant litigation matters. Although it cannot be certain, in management’s opinion, none of the legal proceedings in which the Company is currently involved, individually or in the aggregate, is expected to have a material adverse effect on the Company’s business, financial condition or results of operation.

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B. Significant Changes

The information required is contained in Notes 3, 4 and 17 of the Notes to Consolidated Financial Statements of the Annual Report to Shareholders, and is incorporated herein by reference.

Item 9. Stock Price History.

A. Listing Details

The Company’s Ordinary Shares are listed on the NASDAQ National Market System under the trading symbol DSGIF, and are not listed for trading in any foreign trading market.

ORDINARY SHARE PRICE:

	2004		2003		2002		2001		2000
High	$	7.700	$	8.250	$	4.220	$	7.906	$	7.000
Low		2.610		3.390		1.110		3.450		4.000

	2005				2004				2003
Quarter	High		Low		High		Low		High		Low
First	$	5.400	$	4.000	$	7.700	$	4.500	$	5.980	$	3.390
Second		—		—		5.430		2.750		6.060		3.500
Third		—		—		3.740		2.750		8.000		4.260
Fourth		—		—		4.870		2.610		8.250		4.200

	May 2005		Apr 2005		Mar 2005		Feb 2005		Jan 2005		Dec 2004
High	$	7.749	$	4.730	$	5.400	$	5.250	$	4.999	$	4.870
Low		4.010		4.010		4.050		4.100		4.000		2.610

B. Plan of Distribution

Not applicable.

Item 10. Other Information.

A. Share Capital

The Company’s authorized share capital consists of 20,000,000 Ordinary Shares, $0.01 par value per share. At May 31, 2005, there were 7,258,316 Ordinary Shares of the Company outstanding, all of which were fully paid.

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B. Memorandum and Articles of Association

The following is a brief description of the rights of holders of fully paid Ordinary Shares. This description does not purport to be complete and is qualified in its entirety by reference to the Memorandum and Articles of Association of the Company, which have been previously filed as an exhibit, and to the relevant provisions of the British Virgin Islands International Business Companies Act.

1. General

All of the issued Ordinary Shares are credited as fully paid and non-assessable, except that a share issued for a promissory note or other written obligation for payment of a debt may be subject to forfeiture, and accordingly no further contribution of capital may be required by the Company from holders of Ordinary Shares. Under British Virgin Islands (“BVI”) law, non-residents of the BVI may freely hold, vote and transfer their Ordinary Shares in the same manner as BVI residents.

2. Dividends

Holders of Ordinary Shares are entitled to participate in the payment of dividends in proportion to their holdings. The Board of Directors may declare and pay dividends in respect of any accounting period out of the profits legally available for distribution. Dividends, if any, will be paid in U.S. dollars.

The Company’s dividend policy will depend on the Company’s earnings, capital requirements, financial condition and other factors considered relevant by the Board of Directors. For a discussion of taxation of dividends, see “Taxation”.

The Company announced on March 21, 2003 the payment of a 70-cent dividend in relation to the sale of the Australian subsidiaries to shareholders of record on April 11, 2003. The dividend was paid on April 25, 2003.

3. Voting Rights

In order to avoid certain adverse U.S. income tax consequences to the Company, the voting rights of any shareholder who holds more than 10% of the Company’s outstanding shares will be suspended as to shares held by such shareholder in excess of 10% of the Company’s outstanding shares (“Excess Shares”). Excess Shares are not counted as voting shares for purposes of establishing a quorum at shareholders’ meetings. However, the Board of Directors has discretion to exempt any such Excess Shares from these restrictions if it is satisfied, on the basis of evidence and assurances acceptable to it, that the holding of shares in excess of 10% of the Company’s outstanding shares by such shareholder will not result in the Company being classified as a controlled foreign corporation (“CFC”), foreign personal holding company (“FPHC”) or personal holding company (“PHC”) within the meaning of the U.S. Internal Revenue Code (“Code”). See “Taxation”; “Restrictions on Transfer and Voting; Redemption of Ordinary Shares”.

Every shareholder who is present in person or by proxy at a meeting of the Company shall have one vote for each Ordinary Share of which he is the holder. A poll may be demanded by the chairman of the meeting, or by any shareholder present in person or by proxy.

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The Articles of Association of the Company make no provision for cumulative voting. Accordingly, the controlling shareholders have a sufficient number of Ordinary Shares to elect all of the Company’s directors.

4. Restrictions on Transfer and Voting; Redemption of Ordinary Shares

The Company’s Memorandum and Articles of Association contain certain provisions which are intended to avoid situations in which the Company may be classified as a CFC, FPHC or PHC. See “Taxation”. These provisions are intended only to avoid the adverse U.S. income tax consequences which would result from such classification.

The following is a summary of the relevant provisions of the Memorandum and Articles:

(i) Restricted Transfers of Ordinary Shares. The Board of Directors may, but is not obliged to, refuse to register the transfer of any of the Ordinary Shares of the Company if, in the opinion of the Board, such transfer might cause the Company to be classified as a CFC, FPHC or PHC.

(ii) Restrictions on Voting Rights. In the event that any person holds more than 10% of the Company’s outstanding shares, any shares in excess of 10% of the Company’s outstanding shares shall be “Excess Shares”, which shall not be entitled to any voting rights and shall not be considered voting shares for purposes of establishing a quorum. However, the Board of Directors may exempt any such Excess Shares from these restrictions if it is satisfied, on the basis of evidence and assurances acceptable to it, that the holding of shares in excess of 10% of the Company’s outstanding shares by such shareholder will not result in the Company being classified as a CFC, FPHC or PHC. In addition, these restrictions on voting rights do not apply to shares acquired in a cash tender offer for all outstanding shares of the Company where a majority of the outstanding shares of the Company are duly tendered and accepted pursuant to such cash tender offer.

(iii) Disclosure of Certain Information to the Company. Any person who directly owns 5% or more of the Company’s outstanding shares is required to file with the Company, within 60 days of the end of the Company’s taxable year (which is currently the calendar year) and prior to any transfer of shares by or to such person, an affidavit setting forth the number of shares (1) owned directly by such person or by a nominee of such person, and (2) owned indirectly or constructively by such person by reason of the attribution rules of Sections 542, 544 and 958 of the Code or by reason of application of the attribution rules of Rule 13(d) of the U.S. Securities Exchange Act of 1934 (“Exchange Act”). The affidavit filed with the Company must set forth all the information required to be reported (1) in returns of shareholders required to be filed under U.S. Income Tax Regulations Section 1.6035-1 (including shareholder related information for inclusion in IRS Form 5471), and (2) in reports required to be filed under Section 13(d) of the Exchange Act. All shares held by any person who fails to comply with this reporting requirement shall be deemed Excess Shares and shall be subject to the voting restrictions and redemption provisions described herein.

(iv) Redemption of Ordinary Shares. The Company may, in the discretion of the Board of Directors, redeem

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any Excess Shares at a price equal to (1) the average of the high and low sales price of the shares on the last business day prior to the redemption date on the principal national securities exchange on which such shares are listed or admitted to trading, or (2) if the shares are not listed or admitted to trading, the average of the highest bid and lowest asked prices on such last business day as reported by the National Quotation Bureau Incorporated or similar organization selected from time to time by the Company, or (3) if not determinable as aforesaid, as determined in good faith by the Board of Directors.

The directors of the Company, in a meeting held on January 6, 1992, resolved that the principal shareholder, Brandon Wang, is exempt from the foregoing restrictions. The directors have also approved exemption of certain institutional shareholders from the foregoing restrictions as the Board was satisfied that such exemption would not have any of the adverse tax consequences described above.

5. Rights of Shareholders under British Virgin Islands Law may be less than in U.S. Jurisdictions

The Company’s corporate affairs are governed by its Memorandum and Articles of Association and by the International Business Companies Act of the British Virgin Islands. Principles of law relating to such matters as the validity of corporate procedures, the fiduciary duties of Management and the rights of the Company’s shareholders may differ from those that would apply if the Company were incorporated in a jurisdiction within the United States. The rights of shareholders under British Virgin Islands law are not as clearly established as the rights of shareholders under legislation or judicial precedent in existence in most U.S. jurisdictions. Thus, the public shareholders of the Company may have more difficulty in protecting their interests in the face of actions by the Board of Directors or the principal shareholders than they might have as shareholders of a corporation incorporated in a U.S. jurisdiction. In addition, it is unlikely that the courts of the British Virgin Islands would enforce, either in an original action or in an action for enforcement of judgments of U.S. courts, liabilities which are predicated upon the securities laws of the United States. See “Description of Securities”.

6. Directors

Under the Company’s Articles of Association, the subscribers to the Memorandum of Association must appoint the first directors, and thereafter the directors may be appointed by the shareholders, or by the directors to fill a vacancy or as an addition to the existing directors. Directors may be removed, with or without cause, by a resolution of the shareholders of the Company, or with cause by a resolution of the other directors.

7. Powers of Directors

The business and affairs of the Company is managed by the directors of the Company who exercise all such powers of the Company as are not by the Act or by the Memorandum or the Articles required to be exercised by the members of the Company, subject to any delegation of such powers as may be prescribed by a resolution of members; but no requirement made by a resolution of members shall prevail if it be inconsistent with the Articles nor shall such requirement invalidate any prior act of the directors which would have been valid if such requirement had not been made.

The directors may, by a resolution of directors, appoint any person, including a person who is a director, to be an officer or agent of the Company. The resolution of directors appointing an agent may authorize the agent to appoint one or more substitutes or delegates to exercise some or all of the powers conferred on the agent by the Company.

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Every officer or agent of the Company has such powers and authority of the directors, including the power and authority to affix the Seal, as are set forth in the Articles or in the resolution of directors appointing the officer or agent, except that no officer or agent has any power or authority with respect to the matters requiring a resolution of directors under the Memorandum, the Articles, or the Act.

The continuing directors may act notwithstanding any vacancy in their body, save that if their number is reduced to their knowledge below the number fixed by or pursuant to these Articles as the necessary quorum for a meeting of directors, the continuing directors or director may act only for the purpose of appointing directors to fill any vacancy that has arisen or for summoning a meeting of members.

The directors may, by resolution of directors exercise all the powers of the Company to borrow money and to mortgage or charge its undertakings and property or any part thereof, to issue debentures, debenture stock and other securities whenever money is borrowed, or as security for any debt, liability or obligation of the Company or of any third party.

All cheques, promissory notes, drafts, bills of exchange and other negotiable instruments and all receipts for moneys paid to the Company, shall be signed, drawn, accepted, endorsed or otherwise executed, as the case may be, in such manner as shall from time to time be determined by resolution of directors.

The Company may determine by resolution of directors to maintain at its registered office a register of mortgages, charges and other encumbrances in which there shall be entered the following particulars regarding each mortgage, charge and other encumbrance: (a) the sum secured; (b) the assets secured; (c) the name and address of the mortgagee/chargee or other encumbrancer; (d) the date of creation of the mortgage, charge or other encumbrance; and (e) the date on which the particulars specified above in respect of the mortgage, charge or other encumbrance are entered in the register.

The Company may further determine by a resolution of directors to register a copy of the register of mortgages, charges or other encumbrances with the Registrar of Companies.

8. Quorum

The quorum required to constitute a valid general meeting of shareholders consists of shareholders present in person or by proxy holding at least a majority of all issued Ordinary Shares entitled to vote. If a meeting is adjourned for lack of quorum, it will stand adjourned to the next business day at the same time and place or to such other day and at such other time and place as the directors may determine, and if at the adjourned meeting there are present within one hour from the time appointed for the meeting at least one-third of the shares entitled to vote at the meeting, the shareholder or shareholders present shall be a quorum. However, a meeting convened on the requisition of the shareholders shall be dissolved if a quorum is not present at the first meeting.

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9. Resolutions

Resolutions may be adopted at shareholders’ meetings by the affirmative vote of a simple majority of the Ordinary Shares entitled to vote thereon.

Certain actions may be taken by a resolution of the directors. Such actions include an amendment of the Company’s Memorandum and Articles of Association, an increase or reduction in the Company’s authorized capital, and a change in the Company’s name.

10. Rights in a Winding-up

Holders of Ordinary Shares are entitled to participate in proportion to their holdings in any distribution of assets after satisfaction of liabilities to creditors in a winding-up.

11. Authorized but Unissued Shares

Under the Company’s Memorandum and Articles of Association, there are 12,741,684 authorized but unissued Ordinary Shares as of year ended December 31, 2004. Those additional authorized but unissued Ordinary Shares may be utilized for a variety of corporate purposes, including future public or private offerings to raise additional capital or for facilitating corporate acquisitions. The Company issued 1,175,000 shares pursuant to the Equity Participation Plan (see Note 19 of the Notes to Consolidated Financial Statements of the Annual Report to Shareholders), then repurchased and cancelled 905,800 shares during 2003. The Company does not currently have any plans to issue additional Ordinary Shares.

12. Transfers of Ordinary Shares

The Company’s Memorandum and Articles of Association do not restrict the transferability of fully paid Ordinary Shares, except that the Board of Directors may refuse to register the transfer of any of the Ordinary Shares if, in the opinion of the Board, such transfer might result in the Company becoming a CFC, FPHC or PHC. See “Restrictions on Transfer and Voting; Redemption of Ordinary Shares”.

13. New Issues of Ordinary Shares

Under the Company’s Articles of Association, the Board of Directors is authorized to exercise the power of the Company to offer, allot, grant options over or otherwise dispose of all of the remaining unissued Ordinary Shares of the Company, which comprise 12,741,684 Ordinary Shares as of December 31, 2004. The Board of Directors may, without further shareholder action, increase the number of authorized shares of the Company.

In addition the Board of Directors may, without further shareholder action, designate any of the authorized but unissued Ordinary Shares as preferred shares by amending the Company’s Memorandum of Association. Upon filing such

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amendment with the BVI Registrar of Companies, the Board of Directors would have authority to fix the dividend rights and rates, voting rights, redemption provisions and liquidation preference, all of which may take precedence over comparable rights of the existing Ordinary Shares.

In March 2002, the Company registered under the Securities Exchange Act of 1933 1,500,000 Ordinary Shares under its Equity Participation Plan (the “Option Plan”).

The Company issued 1,175,000 Ordinary Shares in 2003, see Note 19 of the Notes to Consolidated Financial Statements of the Annual Report to Shareholders.

14. Merger; Dissenters’ Rights

BVI law provides for mergers whereby there occurs either an absorption by one company of another company and the simultaneous dissolution of the other company, or the formation of a new company that absorbs two companies and the automatic dissolution of both absorbed companies. BVI law provides for compulsory acquisition or appraisal of the interests of a shareholder who objects to the transfer of the ownership or assets of a company.

Under section 83 of the BVI International Business Companies Act, a shareholder of a company incorporated under the Act has the right to object to a proposed merger of the Company. If the shareholder complies fully with the requirements of section 83 and the merger is approved by a majority of shareholders, the dissenting shareholder may require the Company to pay fair value (as agreed or appraised) for his shares.

Pursuant to section 83 (11) of the Act, a shareholder who chooses to enforce dissenting shareholders’ rights may not enforce other remedial rights to which he might otherwise be entitled by virtue of his holding shares, except that the shareholder shall retain the right to institute proceedings to obtain relief on the ground that the merger is illegal.

15. Joint Shareholders

If two or more persons who hold shares jointly are present at a meeting in person or by proxy they must vote as one. Dividends and notices may be paid or sent, in the case of joint holders, to any one of the persons named as joint shareholders in the register of members.

16. Fiduciary Responsibilities

Under U.S. law majority and controlling shareholders generally have certain “fiduciary” responsibilities to the minority shareholders. Shareholder action must be taken in good faith and actions by controlling shareholders which are obviously unreasonable may be declared null and void. BVI law protecting the interests of minority shareholders may not be as protective in all circumstances as the law protecting minority shareholders in U.S. jurisdictions.

While BVI law does permit a shareholder of a BVI company to sue its directors derivatively (i.e., in the name of

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and for the benefit of the Company) and to sue the Company and its directors for his benefit and for the benefit of others similarly situated, the circumstances in which any such action may be brought, and the procedures and defenses that may be available in respect of any such action, may result in the rights of shareholders of a BVI company being more limited than those of shareholders in a U.S. company.

17. Indemnification of Officers and Directors

Under its Memorandum and Articles of Association, the Company is authorized to indemnify any person who is made or threatened to be made a party to a legal or administrative proceeding by virtue of being a director, officer or agent of the Company, provided such person acted in the best interests of the Company and, in the case of a criminal proceeding, such person had no reasonable cause to believe that his conduct was unlawful. The Company is obliged to indemnify any director, officer or agent of the Company who was successful in any proceeding against reasonable expenses incurred in connection with the proceeding, regardless of whether such person met the standard of conduct described in the preceding sentence.

18. Transfer Agent and Registrar

Mellon Investor Services, LLC serves as the Transfer Agent and Registrar for the Ordinary Shares.

C. Material Contracts

The following summarizes each material contract, other than contracts entered into in the ordinary course of business, to which the Company or any subsidiary of the Company is a party, for the two years immediately preceding the filing of this report, and which are filed as Exhibits hereto:

Loan and Security Agreement between Associated Hygienic Products LLC as borrower and Foothill Capital Corporation as lender dated March 14, 2001 and as amended under which the lender agrees to make a term loan, a capital expenditure line and revolver advances to the borrower up to $32.975 million. See “Dependent Patents, Licenses and Contracts” in Item 4.B.6. and Notes 14 and 15 of the Notes to Consolidated Financial Statements of the Annual Report to Shareholders.

Sale and Purchase Agreement between DSG International Limited and certain of its subsidiaries (the “Seller”) and Castle Harlan Australian Mezzanine Partners Pty. Limited (the “Purchaser”), the Purchaser agrees to purchase and the Seller agrees to sell its Australian subsidiaries. The gross value of the transaction was A$53 million (approximately $29.6 million). The transaction closed on December 6, 2002.

D. Exchange Controls

There are no exchange control restrictions on payment of dividends, interest, or other payments to non-resident holders of the Company’s securities or on the conduct of the Company’s operation in Hong Kong, where the Company’s

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principal executive offices are located or the British Virgin Islands, where the Company is incorporated. Other jurisdictions in which the Company conducts operations may have various exchange controls and the Company believes that such controls will not have a material effect on the Company’s liquidity or cash flow.

E. Taxation

The following discussion is a summary of certain anticipated U.S. federal income tax and BVI tax consequences of ownership of Ordinary Shares. The discussion does not address all possible tax consequences relating to ownership of Ordinary Shares and does not purport to describe the tax consequences applicable to all categories of owners, some of which may be subject to special rules. In particular, the discussion does not address the tax consequences under state, local and other national (e.g., non-U.S. and non-BVI) tax laws. Accordingly, each shareholder should consult its own tax advisor regarding the particular tax consequences to it of its ownership of the Ordinary Shares.

This summary is based upon current laws and regulations and relevant interpretations of these laws and regulations, all of which are subject to change, possibly with retroactive effect. We cannot assure you that a later change in law will not significantly alter the tax considerations that we describe in this summary. We have not requested a ruling from the Internal Revenue Service with respect to any of the United States federal income tax consequences described herein. As a result, there can be no assurance that the Internal Revenue Service will not disagree with or challenge any of the conclusions described below.

1. United States Federal Income Taxation

The following is a summary of the material United States federal income tax consequences, as of the date of this document, of the ownership of our Ordinary Shares by shareholders who are “United States persons” and who hold such Ordinary Shares as capital assets, as determined under applicable United States tax rules (“U.S. Investors”). Under the Internal Revenue Code of 1986, as amended (the “Code”), a shareholder is a “United States person” if such shareholder is:

• a citizen or resident of the United States;

• a corporation created or organized in or under the laws of the United States or any political subdivision thereof;

• an estate, the income of which is subject to United States federal income taxation regardless of its source; or

• a trust that is subject to the supervision of a court within the United States and the control of one or more United States persons or that has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.

This summary does not address the United States federal income tax consequences applicable to shareholders that are subject to special treatment under the United States federal income tax laws, including shareholders that are:

• dealers in securities or currencies;

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• traders in securities that elect to use a mark-to-market method of accounting for your securities holdings;

• financial institutions;

• insurance companies;

• tax-exempt organizations;

• persons liable for alternative minimum tax;

• persons holding Ordinary Shares as part of a hedging, integrated or conversion transaction, constructive sale or straddle;

• persons owning, actually or constructively, 10% or more of our voting stock or 10% or more of the voting stock of any of our non-United States subsidiaries (a “10% Shareholder”), or

• persons whose functional currency is not the United States dollar.

If a partnership holds Ordinary Shares, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. Partners of partnerships that hold Ordinary Shares should consult their own tax advisors concerning the particular United States federal income tax consequences to them of the ownership and disposition of Ordinary Shares.

The gross amount of distributions received with respect to Ordinary Shares by a U.S. Investor will generally be treated as dividend income to such shareholder if the distributions are made from the Company’s current or accumulated earnings and profits, calculated according to United States federal income tax principles. Such income will be includible in the U.S. Investor’s gross income on the day such distribution is actually or constructively received. A U.S. Investor that is a corporation will not be entitled to claim a dividend received deduction (generally allowed to United States corporations in respect of dividends received from other United States corporations) with respect to distributions received with respect to the Ordinary Shares.

Certain dividends received from a foreign corporation before January 1, 2009 by a U.S. Investor that is an individual with respect to shares that are readily tradable on an established securities market in the United States may be subject to reduced rates of taxation. The Company believes that its Ordinary Shares, which are listed on the NASDAQ, are readily tradable on an established securities market in the United States. There can be no assurance that our Ordinary Shares will continue to be readily tradable on an established securities market in later years. Individuals that do not meet a minimum holding period requirement during which they are not protected from this risk of loss or that elect to treat the dividend income as “investment income” pursuant to section 163(d)(4) of the Code will not be eligible for the reduced rates of taxation regardless of the trading status of our Ordinary Shares. U.S. Investors that are individuals should consult their own tax advisors regarding the application of these rules in their particular circumstances.

A U.S. Investor that sells or otherwise disposes of Ordinary Shares will recognize capital gain or loss in an amount equal to the difference between the amount realized for the shares and such shareholder’s adjusted tax basis such shares (generally the cost of obtaining such shares reduced by an previous distributions by the Company that are not characterized as dividends under the rules described above). For foreign tax credit limitation purposes, this gain or loss will generally be treated as United States source. U.S. Investors that are individuals may be eligible for reduced rates of taxation if the Ordinary Shares being sold or otherwise disposed of have been held for more than one year. The ability to deduct capital losses is subject to limitations.

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Various provisions contained in the Code impose special taxes in certain circumstances on non-U.S. corporations and their shareholders. The following is a summary of certain provisions which could have an adverse impact on the Company and the U.S. Investors:

a. Personal Holding Companies

Sections 541 through 547 of the Code relate to the classification of certain corporations (including foreign corporations) as personal holding companies (“PHCs”) and the consequent taxation of such corporations on certain of their U.S.-sourced income (including certain types of foreign sourced income which are effectively connected with the conduct of a U.S. trade or business) to the extent amounts at least equal to such income are not distributed to their shareholders. A PHC is a corporation (i) more than 50% of the value of the stock of which is owned, directly or indirectly, by five or fewer individuals (without regard to their citizenship or residence), and (ii) which, if a foreign corporation, receives 60% or more of such U.S.-related gross income, as specially adjusted, from certain passive sources (such as dividends, interest, royalties or rents). If the Company is classified as a PHC, a tax will be levied at the rate of 15% on the Company’s undistributed U.S. taxable income.

While more than 50% of the Ordinary Shares may be treated as owned (either directly or indirectly) by five or fewer individuals, the Company intends to cause its indirect U.K. subsidiary, the owner of the U.S. branch, together with such corporation’s immediate U.K.-resident parent corporation, to distribute any amounts which would otherwise be characterized as “undistributed personal holding company income” in the hands of either corporation with the intent that such distributions would cause such distributed amounts to lose their character as “United States source” taxable income subject to the PHC tax.

b. Foreign Personal Holding Companies

Prior to the effective date of their repeal by the American Jobs Creation sections 551 through 558 of the Code related to foreign personal holding companies (“FPHCs”) and imputed undistributed income of certain foreign corporations to U.S. persons who are shareholders of such corporations. Prior to such repeal, which was effective with repect to the Company for tax years beginning on and after January 1, 2005, and which was effective for tax years of U.S. Investors ending on and after such date foreign corporation was classified as a FPHC if (i) five or fewer individuals, who were U.S. citizens or residents, directly or indirectly owned more than 50% of the corporation’s stock (measured either by voting power or value) (the “shareholder test”) and (ii) the Company received 60% or more of its gross income (regardless of source), as specially adjusted, from certain passive sources (the “income test”).

The Company believes that it has not been a FPHC for any taxable year since its formation through the effective date of the Jobs Act’s repeal of the FPHC regime because for each such year either or both of the income test and the shareholder test were not met.

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c. Passive Foreign Investment Companies

Sections 1291 through 1297 of the Code relate to passive foreign investment companies (“PFICs”) and impose an interest charge on “excess distributions” made by a PFIC. A foreign corporation is a PFIC if (i) 75% or more of its gross income for the taxable year is passive income as defined under Section 954(c) of the Code (the “passive income test”), or (ii) 50% or more of the average value (or adjusted tax basis if the corporation is a CFC) of the assets held by the corporation during the taxable year consist of assets that produce or are held for the production of passive income (the “passive asset test”). Certain look-through rules take into account the assets and activities of related corporations from which the foreign corporation either receives income or in which it holds an interest. Although a determination whether a corporation is a PFIC is made annually, in general, once a corporation has been classified as a PFIC, it cannot thereafter lose its status as a PFIC.

A distribution from a PFIC will generally be characterized as an excess distribution to the extent such distribution, when combined with all other distributions received by the U.S. Holder in such taxable year, exceeds 125% of the average distributions received by such shareholder in the three preceding taxable years (or its holding period if shorter). Once the amount of the excess distribution is determined, it is allocated ratably to all days in the shareholder’s holding period for the shares of the PFIC. Amounts allocated to the current year or a year prior to the date upon which the corporation was a PFIC are included in the shareholder’s income as ordinary income. Amounts allocated to prior years in which the corporation was a PFIC are subject to the highest rate of tax for the year to which allocated, and each of the resulting amounts of tax is subject to an interest charge as if it were an underpayment of taxes for such tax year.

The Company does not believe that it should, in the current year or any prior year, be classified as a PFIC. Under Section 1296(c) of the Code for purposes of determining PFIC status, a foreign corporation is deemed to hold its proportionate share of the assets and to receive directly its proportionate share of the income of its subsidiaries in which it owns 25 percent or more of the stock (determined by value). The Company, through its more than 25 percent owned subsidiaries, is engaged in substantial manufacturing activities and holds few assets (and receives little income) which would be classified as passive assets or would be classified as passive income under the applicable authorities.

d. United States Information Reporting and Backup Withholding

In general, unless a shareholder is an exempt recipient such as a corporation, information reporting will apply to dividends paid in respect of the Ordinary Shares or the proceeds received on the sale, exchange or redemption of those Ordinary Shares paid to a shareholder within the United States and, in some cases, outside of the United States. Additionally, if a shareholder fails to provide such shareholder’s taxpayer identification number, or fails either to report in full dividend and interest income or to make certain certifications, such shareholder will be subject to “backup withholding” at a 28% rate. Any amounts withheld under the backup withholding rules will be allowed as a refund or a credit against such shareholder’s United States federal income tax liability, provided that such shareholder furnishes the required information to the United States Internal Revenue Service.

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2. British Virgin Islands Taxation

Under the laws of the BVI as currently in effect, a holder of Ordinary Shares who is not a resident of the British Virgin Islands is exempt from BVI income tax on gains realized during that year on sale or disposal of such shares; the British Virgin Islands does not impose a withholding tax on dividends paid by the Company.

There are no capital gains, gift or inheritance taxes levied by the British Virgin Islands. In addition, the Ordinary Shares are not subject to any transfer taxes, stamp duties or similar charges in the BVI.

There is no income tax treaty or convention currently in effect between the United States and the British Virgin Islands, nor is any such treaty or convention currently being negotiated.

F. Dividends and Paying Agents

Mellon Investor Services, LLC serves as the Company’s Dividend Disbursing Agent.

G. Statement by Experts

Not applicable.

H. Documents on Display

The Annual Report on Form 20-F of DSG International Limited as filed with the Securities and Exchange Commission and Exhibits thereto and documents referenced therein will be made available upon written request to the Company’s Principal Executive Office.

Item 11. Quantitative and Qualitative Disclosures about Market Risk.

A. Currency Fluctuation

1. Exchange Rate Information

The Consolidated Financial Statements of the Company are prepared in U.S. dollars. The financial statements of foreign subsidiaries are translated into U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52.

The Pound Sterling, Euro, Singapore dollar, Thai Baht, and Indonesian Rupiah are convertible into U.S. dollars at freely floating rates. The Hong Kong dollar and Malaysian Ringgit are pegged to and allowed to fluctuate within a narrow range against the value of the U.S. dollar. There are currently no restrictions on the flow of such currencies, except Renminbi and Malaysian Ringgit, between such countries and the United States.

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Fluctuations in the value of foreign currencies cause U.S. dollar translated amounts to change in comparison with previous periods and, accordingly, the Company cannot quantify in any meaningful way, the effect of such fluctuations upon future income. This is due to the number of currencies involved, the constantly changing exposure in these currencies, and the fact that all foreign currencies do not react in the same manner against the U.S. dollar.

The Company is unable to predict whether the trends noted above would have a material effect in its future financial condition or results of operations and, if so, whether such an effect will be positive or negative.

2. Exchange Rate Fluctuation

	2004			2003
	High	Low	Average	High	Low	Average
First quarter
Australian dollar	1.32	1.29	1.30	1.70	1.64	1.67
Malaysian Ringgit	3.80	3.80	3.80	3.80	3.80	3.80
Singapore dollar	1.69	1.67	1.68	1.77	1.73	1.75
Thai Baht	39.38	39.08	39.19	42.95	42.76	42.84
Indonesian Rupiah	8,587.00	8,441.00	8,491.67	8,908.00	8,876.00	8,896.33
Swiss Franc	1.28	1.25	1.26	1.37	1.35	1.36
Pound Sterling	0.55	0.54	0.54	0.64	0.61	0.63
Euro	0.82	0.80	0.80	0.93	0.92	0.93
Hong Kong dollar	7.80	7.78	7.79	7.80	7.80	7.80
Renminbi	8.28	8.28	8.28	8.28	8.28	8.28
Second quarter
Australian dollar	1.44	1.37	1.40	1.61	1.50	1.55
Malaysian Ringgit	3.80	3.80	3.80	3.80	3.80	3.80
Singapore dollar	1.71	1.69	1.70	1.77	1.73	1.75
Thai Baht	40.73	39.84	40.32	42.90	41.39	42.10
Indonesian Rupiah	9,415.00	8,661.00	9,095.33	8,675.00	8,279.00	8,413.00
Swiss Franc	1.29	1.25	1.26	1.36	1.30	1.34
Pound Sterling	0.56	0.54	0.55	0.63	0.61	0.61
Euro	0.83	0.82	0.82	0.90	0.85	0.87
Hong Kong dollar	7.80	7.79	7.80	7.80	7.80	7.80
Renminbi	8.28	8.28	8.28	8.28	8.28	8.28
Third quarter
Australian dollar	1.42	1.39	1.41	1.54	1.48	1.51
Malaysian Ringgit	3.80	3.80	3.80	3.80	3.80	3.80
Singapore dollar	1.71	1.69	1.70	1.76	1.74	1.75
Thai Baht	41.49	41.09	41.30	42.04	40.19	41.13
Indonesian Rupiah	9,328.00	9,168.00	9,222.00	8,535.00	8,389.00	8,476.33
Swiss Franc	1.28	1.26	1.27	1.40	1.33	1.36
Pound Sterling	0.56	0.55	0.55	0.63	0.60	0.62
Euro	0.83	0.81	0.82	0.91	0.87	0.88
Hong Kong dollar	7.80	7.78	7.79	7.80	7.78	7.79
Renminbi	8.28	8.28	8.28	8.28	8.28	8.28
Fourth quarter
Australian dollar	1.33	1.28	1.30	1.41	1.34	1.38
Malaysian Ringgit	3.80	3.80	3.80	3.80	3.80	3.80
Singapore dollar	1.66	1.63	1.64	1.74	1.70	1.72
Thai Baht	40.85	38.89	39.71	39.94	39.66	39.84
Indonesian Rupiah	9,290.00	9,018.00	9,132.67	8,537.00	8,465.00	8,499.00
Swiss Franc	1.19	1.13	1.15	1.34	1.24	1.29
Pound Sterling	0.54	0.52	0.53	0.59	0.56	0.58
Euro	0.78	0.73	0.75	0.86	0.80	0.83
Hong Kong dollar	7.78	7.78	7.78	7.77	7.76	7.76
Renminbi	8.28	8.28	8.28	8.28	8.28	8.28

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3. Forward-Looking Statements

Certain written and oral statements made by the Company and its management may be considered “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995, including statements made in this Annual Report on Form 20-F, public releases of information and other filings with the Securities and Exchange Commission. Generally, words such as “anticipate”, “estimate”, “will”, “project”, “expect”, “believe” and similar expressions identify forward-looking statements. All forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience or our present expectations. Therefore, caution should be taken not to place undue reliance on any such forward-looking statements since such statements speak only as of the date when made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Such forward-looking statements are subject to certain risks, uncertainties and assumptions, including without limitation to those identified below. Should one or more of these risks or uncertainties materialize, or should any of the underlying assumptions prove incorrect, actual results of current and future operations may vary materially from those anticipated, estimated or projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their respective dates.

B. Foreign Currency Risk

As of December 31, 2004, the Company had no open forward contracts or option contracts. The Company’s cash on hand as of December 31, 2004 was $16,493,000 of which $7,825,000 equivalent was held in various foreign currencies, such as Hong Kong dollar, Renminbi, Thai Baht, Malaysian Ringgit, Indonesian Rupiah, Singapore dollar, Euro and Pound Sterling. The U.S. dollar equivalents of the cash in foreign currencies may vary subject to exchange rate fluctuation.

The Company may elect to hedge the foreign currency risk or review the hedging strategy as and when required and the Company cannot be assured that it will not suffer losses in the future as a result of the hedging activities.

C. Interest Rate Fluctuations

The Company’s interest expenses and income are sensitive to change in interest rates. The Company had short-term debts and long-term debts of $51,883,000 as of December 31, 2004, bearing various rates of interest, any fluctuation in the interest rate will have direct impact on the Company’s interest expenses.

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The Company will be exposed to interest rate fluctuations on any borrowings under the various loan facilities and any change in interest rate could affect its results of operations and cash flows. The potential effect of a hypothetical 0.5% increase in interest rate for year 2004 outstanding indebtedness would be a reduction in net income of approximately $259,000.

Item 12. Description of Securities Other than Equity Securities.

Not applicable.

PART II

Item 13. Defaults, Dividend Arrearages and Delinquencies.

At December 31, 2002, the Company’s U.S. operation was not in compliance with the fiscal year ended audited financial statements delivery time period covenants. This violation was waived by the Senior Lender on March 28, 2003.

In 2002, the Company’s Wisconsin operation was not in compliance with the requirement to file its audited financial statements within 120 days to the finance company and the existing covenant violation was subsequently waived.

The Company also violated the covenant of the Senior Lender Loan requiring the submission of audited financial statements within 90 days of December 31, 2002. The Senior Lender issued a waiver with respect to this violation.

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.

Not applicable.

Item 15. Controls and Procedures.

A. Evaluation of disclosure controls and procedures

Within the 90 days prior to the date of this annual report on Form 20-F, we evaluated the effectiveness of the design and operation of our disclosure and procedures (“disclosure controls”), and our internal controls and procedures for financial reporting (“internal controls”). Disclosure controls mean those controls and other procedures that are designed for the purpose of ensuring that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, such as this annual report, is recorded, processed, summarized and reported within the time periods specified in the SEC’s

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rules and forms. Internal controls are procedures designed for the purpose of providing reasonable assurance that our transactions are properly authorized, our assets are safeguarded against unauthorized or improper use and our transactions are properly recorded and reported, all to permit the preparation of our financial statements in conformity with generally accepted accounting principles. This evaluation was performed under the supervision and with the participation of management including our Chief Executive Officer and Chief Financial Officer.

Immediately following the signature pages of this annual report are “certifications” of our Chief Executive Officer and Chief Financial Officer, which are required to be furnished by SEC rules adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. The information discussed in this section of our annual report relates to the evaluations of disclosure controls and internal controls referenced in these certifications and should be read in conjunction with these certifications.

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal controls will prevent or detect all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the reality of resource constraints; accordingly the benefits of controls must be considered relative to their costs.

Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and possible misstatements due to fraud or error, if any, within our company have been detected. Among the inherent limitations in controls are the potential for erroneous judgments and decisions or simple errors or mistakes in the chain of recording, processing, summarizing or reporting information. Additionally, controls can be circumvented by the intentional acts of individuals or multiple persons acting in concert, or by management override. The design of any system of controls also is based in part on assumptions about the likelihood of future events, and we can give no assurance that our controls as designed will succeed in achieving their stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

Although concurring with the Company’s financial statement for 2004, our independent registered public accounting firm Deloitte & Touche LLP, identified certain items described as “reportable conditions” and recommended implementation of improved financial controls. The management is taking appropriate actions to correct deficiencies in internal control over financial reporting and will employ additional resources to enable the Company to comply with the new internal control over financial reporting certification requirement which will be effective as of December 31, 2006 pursuant to Section 404 of the Sarbanes-Oxley Act of 2002.

In accordance with SEC requirements, our Chief Executive Officer and Chief Financial Officer note that, since the date of their above-referenced evaluation, otherwise than as discussed above, there have been no significant changes in our internal controls or in other factors that could significantly affect our internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

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Based on the evaluation discussed above, our Chief Executive Officer and Chief Financial Officer have concluded that, subject to the disclosures and limitations noted above, our disclosure controls are effective to timely alert management, including the Chief Executive Officer and Chief Financial Officer, to material information relating to its consolidated subsidiaries, required to be included in the Company’s reports filed under the Securities Exchange Act of 1934.

B. Change in internal controls

There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect internal controls subsequent to the date the Company carried out this evaluation.

Item 16. [Reserved]

Item 16A. Audit Committee Financial Expert.

The Company’s Board of Directors determined that one member of the Audit Committee, Mr. Anil Thadani, an independent executive non-director, qualifies as “Audit Committee Financial Expert” as defined by Item 401 (h) of Regulation S-Km adopted pursuant to the Securities Exchange Act of 1934. Mr. Thadani is the Chairman of Symphony Capital Partners (Asia) Limited (formerly Schroder Capital Partners (Asia) Limited), a direct investment company, which he founded in July 1992 in joint venture with the Schroders Group of the United Kingdom. Prior to this, he was the Managing Director and a founding partner of Arral & Partners Limited, a private investment company based in Hong Kong. He is also a director of numerous companies, some of which are public listed companies in Singapore, Thailand and India. Mr. Thadani has a Master’s Degree in Chemical Engineering from the University of Wisconsin, Madison, and an M.B.A. from the University of California at Berkeley.

The other member of the audit committee, Mr. Owen Price is an independent non-executive director.

Item 16B. Code of Ethics.

The Company has adopted a Business Code of Conducts and Complaint Policies in the Company.

Item 16C. Principal Accountant Fees and Services.

Deloitte & Touche LLP served as our independent registered public accounting firm in the years ended December 31,

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2004 and 2003 while Deloitte Touche Tohmatsu, Hong Kong served as our independent registered public accounting firm in the year ended December 31, 2002, for which the audited financial statements appear in this 20-F report and Annual Report to Shareholders. The auditor is elected annually at the Annual General Meeting. The Audit Committee will propose in the Annual General Meeting convene on November 16, 2005 that Deloitte & Touche LLP be elected as the auditors for 2005.

The following tables set forth the aggregate fees for professional services and other services rendered by Delotte & Touche LLP and Deloitte Touche Tohmatsu to the Company in 2004 and 2003. All these fees incurred in 2004 were approved by Audit Committee.

	For the years ended December 31,
	2004		2003
Audit fees (1)	$	755,534	$	559,777
Audit related fees (2)		64,749		—
Tax fees (3)		196,646		196,885
Other fees (4)		—		7,680
Total	$	1,016,929	$	764,342

⁽¹⁾ Audit fees consist of fees billed for the annual audit of the Company’s consolidated financial statements and statutory financial statements of the Company’s subsidiaries. They also include fees billed for other audit services that only the independent registered public accounting firm reasonably can provide and attestation services relating to the review of documents filed with the SEC.

⁽²⁾ Audit related fees consist of fees billed for proposed initial public offering in Stock Exchange of Thailand of the Company’s Southeast Asian group of companies.

⁽³⁾ Tax fees include fees billed for tax compliance services, including the preparation of original and amended tax returns and claims for tax refund; tax consultations, tax advisory on transfer pricing and requests for rulings or technical advice from tax authorities; and tax planning services.

⁽⁴⁾ All other fees include business advisory service fees.

The Audit Committee is responsible, among other matters, for the oversight of the independent auditors subject to the relevant regulation of the SEC. The Audit Committee has adopted a policy regarding approval of audit and permissible non-audit services provided by the independent auditors.

Requests or applications to provide services that require specific approval by the Audit Committee are submitted to the Audit Committee by both the independent auditors and the Chief Financial officer.

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Item 16D. Exemptions from the Listing Standards for Audit Committee.

Not applicable.

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

Not applicable.

PART III

Item 17. Financial Statements.

Financial statements are presented in Item 19A.

Item 18. Financial Statements.

The information required by Item 18 is contained in Item 19A.

Item 19. Financial Statements and Schedules and Exhibits.

A. Financial Statements

The following financial statements are contained in the Annual Report to Shareholders at the pages referred to below, which pages are incorporated herein by reference:

	Page
Management Report	25
Report of independent registered public accounting firm	26
Consolidated Balance Sheets as of December 31, 2004 and 2003	27-28
Consolidated Statements of Operations and Comprehensive Income for the three years ended December 31, 2004	29-30
Consolidated Statements of Cash Flows for the three years ended December 31, 2004	31-32
Consolidated Statements of Shareholders’ Equity for the three years ended December 31, 2004	33
Notes to Consolidated Financial Statements	34-60

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B. Financial Statement Schedule

No financial statement schedules are provided because the information is not required or is contained in the Notes to Consolidated Financial Statements of the Annual Report to Shareholders.

C. Exhibit Index

Exhibit Number	Description
4.2	Twelfth Amendment to Loan Agreement between Associated Hygienic Products LLC and Wells Fargo Foothill, Inc. (formerly known as Foothill Capital Corporation) dated December 28, 2004
4.3	Press Release issued on Form 6-K filed December 22, 2004
4.4	Loan Agreement between Disposable Soft Goods Limited and Diamond Lease (Hong Kong) Limited, Orix Asia Limited, Tokyo Leasing (Hong Kong) Limited dated December 20, 2004
4.5	Eleventh Amendment to Loan Agreement between Associated Hygienic Products LLC and Wells Fargo Foothill, Inc. (formerly known as Foothill Capital Corporation) dated November 26, 2004
4.6	Loan Facility of THB67 million offered by Bank Thai (Public) Co. Ltd. to DSG International (Thailand) Ltd as at November 26, 2004
4.7	Loan Facility of THB243 million offered by Bank Thai (Public) Co. Ltd. to DSG International (Thailand) Ltd. as at November 23, 2004
4.8	Tenth Amendment to Loan Agreement between Associated Hygienic Products LLC and Wells Fargo Foothill, Inc. (formerly known as Foothill Capital Corporation) dated May 17, 2004
4.9	Machinery Loan Facility of THB200 million offered by Bank Thai (Public) Co. Ltd. to DSG International (Thailand) Ltd. as at April 27, 2004
4.10	Construction Loan Facility of THB120 million offered by Bank Thai (Public) Co. Ltd. to DSG International (Thailand) Ltd. as at April 27, 2004
4.11	Ninth Amendment to Loan Agreement between Associated Hygienic Products LLC and Wells Fargo Foothill, Inc. (formerly known as Foothill Capital Corporation) dated March 29, 2004
4.12	Eighth Amendment to Loan Agreement between Associated Hygienic Products LLC and Wells Fargo Foothill, Inc. (formerly known as Foothill Capital Corporation) dated October 15, 2003, (incorporated by reference included as Exhibit 4.1 with Form 20-F filed June 25, 2004)
4.13	Seventh Amendment to Loan Agreement between Associated Hygienic Products LLC and Wells Fargo Foothill, Inc. (formerly known as Foothill Capital Corporation) dated June 19, 2003, (incorporated by reference included as Exhibit 4.2 with Form 20-F filed June 25, 2004)
10.1	The Company’s Audit Committee Policy for Handling Financial Report Process Complaints Policy No. I-DSGILAF-003-101003, (incorporated by reference included as Exhibit 10.1 with Form 20-F filed June 25, 2004)

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12.1	Certification by the Company’s Chief Financial Officer as adopted pursuant to ¨302 of the Sarbanes-Oxley Act of 2002
12.2	Certification by the Company’s Chief Executive Officer as adopted pursuant to ¨302 of the Sarbanes-Oxley Act of 2002
13.1	Certification by the Company’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to ¨906 of the Sarbanes-Oxley Act of 2002
13.2	Certification by the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to ¨906 of the Sarbanes-Oxley Act of 2002
15.1	Computation of Net Income Per Ordinary Share
15.2	2004 Annual Report to Shareholders
15.3	Consent of Independent Registered Public Accounting Firm

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SIGNATURES

Pursuant to the requirement of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 20-F and has duly caused the Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized, in Duluth, Georgia, on June 27, 2005.

DSG INTERNATIONAL LIMITED
By	/s/ PETER CHANG
	Peter Chang
	Chief Financial Officer

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EX-4.2

EXHIBIT 4.2

TWELFTH AMENDMENT TO LOAN AGREEMENT

This TWELFTH AMENDMENT TO LOAN AGREEMENT (this “Amendment”) is entered into as of December 28, 2004, among ASSOCIATED HYGIENIC PRODUCTS LLC, a Delaware limited liability company (“Borrower”), the Lenders signatory hereto, and WELLS FARGO FOOTHILL, INC. (formerly known as Foothill Capital Corporation), a California corporation, in its capacity as administrative agent (“Agent”) for the Lenders.

WITNESSETH:

WHEREAS, Borrower, the Lenders and Agent have entered into that certain Amended and Restated Loan and Security Agreement dated as of March 14, 2001, as amended by that certain First Amendment to Loan Agreement effective as of May 28, 2001, that certain Second Amendment to Loan Agreement effective as of July 5, 2001, that certain Third Amendment and Waiver to Loan Agreement dated as of September 10, 2001, that certain Fourth Amendment to Loan Agreement dated as of December 19, 2001, that certain Fifth Amendment to Loan Agreement dated as of April 17, 2002, that certain Sixth Amendment to Loan Agreement dated as of November 14, 2002, that certain Seventh Amendment to Loan Agreement dated as of June 19, 2003, that certain Eighth Amendment to Loan Agreement dated as of October 15, 2003, that certain Ninth Amendment to Loan Agreement dated as of March 29, 2004, that certain Tenth Amendment to Loan Agreement dated as of May 17, 2004, and that certain Eleventh Amendment to Loan Agreement dated as of November 26,2004 (as amended and as the same may hereafter be modified, amended, restated or supplemented from time to time, the “Loan Agreement”; all capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement), pursuant to which the Lenders have agreed to make loans and other financial accommodations to Borrower from time to time; and

WHEREAS, Borrower has requested that Agent and the Lenders permit a payment of accrued loan interest, royalties and other fees by Borrower to Disposable Soft Goods (UK) Plc (“DSG Plc”) in the amount of $1,538,60255 (the “DSG Plc Payment”); and

WHEREAS, Agent and the Lenders have agreed to (a) consent to the DSG Plc Payment and (b) amend the Loan Agreement on the terms and conditions provided herein;

NOW THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows;

1. Amendments to Loan Agreement.

(a) Section 1.1 of the Loan Agreement, “Definitions”, is here by amended and modified by amending and restating the definition of “Subordination Agreement” in its entirety as follows:

““Subordination Agreement” means, individually and collectively, (a) that certain Subordination Agreement dated of even date herewith, among DSG, Borrower and Agent relating to the Subordinated Note A, (b) that certain Subordination Agreement dated of even date herewith, among DSG Holdings (UK), Borrower and Agent relating to the Subordinated Note B, and (c) any other subordination agreement entered into in connection with Subordinated Note A, Subordinated Note A-2, Subordinated Note A-3, Subordinated Note A-4, Subordinated Note A-5 or Subordinated Note B from time to time, all in form and substance satisfactory to Agent.”

(b) Section 1.1 of the Loan Agreement, “Definitions”, is hereby further amended and modified by adding the definition “Subordinated Note A-5” in the appropriate alphabetical order:

““Subordinated Note A-S” means the indebtedness of Borrower to DSG Plc, evidenced by that certain promissory note executed by Borrower and payable to the order of DSG Plc dated as of January 5, 2005, in the original principal amount of $1,024,709.30, in form and substance satisfactory to Agent.”

(c) Section 6 of the Loan Agreement, “Affirmative Covenants”, is hereby amended and modified by adding the following Section to the end of such Section:

“6.19 Twelfth Amendment Fee. No later than January 5, 2005, pay to Agent, for the benefit of the Lenders on a pro-rata basis, an amendment fee in the amount of $15,000, which fee shall be fully earned on December 28, 2004, and non-refundable when paid.”

(d) Section 7.1 of the Loan Agreement, “Indebtedness”, is hereby amended and modified by amending and restating clause (d) of such Section in its entirety as follows:

(d) Indebtedness evidenced by (i) Subordinated Note A-2 (as such term is defined in the Subordination, Waiver and Consent Agreement dated as of September 11, 2001 among Borrower, Agent and DSG Plc) and Subordinated Note B and (ii) Subordinated Note 3, Subordinated Note A-4 and Subordinated Note A-5, so long as Subordinated Note 3, Subordinated Note A-4 and Subordinated Note A-5 are each subject to a Subordination. Agreement duly executed by DSG Plc and Borrower and in fu1l force and effect,”

(e) Section 7.8 of the Loan Agreement, ““Payments, Prepayments and Amendments”, is hereby amended and modified by amending and restating clause (a) of such Section in its entirety as follows:

‘“(a) Make any payments of principal of, or interest or fees on, Subordinated Note A-2, Subordinated Note B, Subordinated Note A-3, Subordinated Note A-4 or Subordinated Note A-5; provided, however, that:

(i) Borrower may refinance and pay in full the Subordinated Note A-2, with the proceeds of new subordinated debt provided by an Affiliate of Borrower on terms and conditions, and subject to a Subordination Agreement and other documents, in form and substance satisfactory to Agent;

(ii) Borrower may make regularly scheduled payments of principal on each of Subordinated Note A-3, Subordinated Note A-4 and Subordinated Note A-5 if (A) no Event of Default has occurred and is continuing, and (B) Borrower has demonstrated to the satisfaction of Agent that, after giving effect to each such payment, Excess Availability (after subtracting the amount of any payables of Borrower which are more than 60 days past due) is $10,000,000 or more; and

(iii) Borrower may make regularly scheduled payments of interest on each of Subordinated Note A-2, Subordinated Note A-3, Subordinated Note A-4 and Subordinated Note A-5 if (A) no Event of Default has occurred and is continuing, and (B) Borrower has demonstrated to the satisfaction of Agent that, after giving effect to each such payment, Excess Availability (after subtracting the amount of any payables of Borrower which are more than 60 days past due) is $2,000,000 or more;

notwithstanding the foregoing, however, in the event Excess Availability (after subtracting the amount of any payables of Borrower which are more than 60 days past due) is less than $2,000,000 at any time, Borrower may not make any regularly scheduled payments of interest on Subordinated Note A-2, Subordinated Note A-3, Subordinated Note A-4 or Subordinated Note A-5 after such event unless and until Borrower has demonstrated to the satisfaction of Agent that Borrower has maintained Excess Availability (after subtracting the amount of any payables of the Borrower which are more than 60 days past due) of $2,000,000 or more for a period of 90 consecutive days after such event.”

2. Consent. Agent and the Lenders hereby consent to a payment of accrued loan interest, royalties and other fees by Borrower to DSG Plc in the amount of $1,538,602.55 on December 29, 2004.

3. No Other Amendments or Waivers. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Agent or the Lenders under the Loan Agreement or any of the other Loan Documents, nor constitute a waiver of any provision of the Loan Agreement or any of the other Loan Documents. Except for the amendments and consent set forth above, the text of the Loan Agreement and all other Loan Documents shall remain unchanged and in full force and effect and Borrower hereby ratifies and confirms its obligations thereunder. This Amendment shall not constitute a modification of the Loan Agreement or any of the other Loan Documents or a course of dealing with Agent or the Lenders at variance with the Loan Agreement or the other Loan Documents such as to require further notice by Agent or the Lenders to require strict compliance with the terms of the Loan Agreement and the other Loan Documents in the future, except as expressly set forth herein. Borrower acknowledges and expressly agrees that Agent and the Lenders reserve the right to, and do in fact, require strict compliance with all terms and provisions of the Loan Agreement and the other Loan Documents. Borrower has no knowledge of any challenge to Agent’s or any Lenders’ claims arising under the Loan Documents, or to the effectiveness of the Loan Documents.

4. Conditions Precedent to Effectiveness. This Amendment shall become effective as of the date hereof when, and only when, Agent shall have received:

(a) counterparts of this Amendment duly executed and delivered by Borrower and the Lenders; and

(b) such other information, documents, instruments or approvals as Agent or Agent’s counsel may reasonably require.

5. Representations and Warranties of Borrower. Borrower represents and warrants as follows:

(a) Borrower is a limited liability company organized, validly existing and in good standing under the laws of the jurisdiction indicated at the beginning of this Amendment and all other jurisdictions in which the failure to be so qualified reasonably could be expected to constitute a Material Adverse Change;

(b) The execution, delivery, and performance by Borrower of this Amendment and the Loan Documents to which it is a party, as amended hereby, are within Borrower’s limited liability company powers, have been duly authorized by all necessary limited liability company action and do not and will not (i) violate any provision of federal, state, or local law or regulation applicable to Borrower, the Governing Documents of Borrower, or any order, judgment, or decree of any court or other Governmental Authority binding on Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of Borrower, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of Borrower, other than Permitted Liens, or (iv) require any approval of Borrower’s members or any approval or consent of any Person under any material contractual obligation of Borrower;

(c) The execution, delivery, and performance by Borrower of this Amendment and the Loan Documents to which it is a party, as amended hereby, do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other Person;

(d) This Amendment and each other Loan Document to which Borrower is a party, and all other documents contemplated hereby and thereby, when executed and delivered by Borrower will be the legally valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally; and

(e) No Default or Event of Default exists.

6. Counterparts. This Amendment may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which, taken together, shall constitute one and the same agreement. In proving this Amendment in any judicial proceedings, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom such enforcement is sought. Any signatures delivered by a party by facsimile transmission shall be deemed an original signature hereto.

7. Reference to and Effect on the Loan Documents. Upon the effectiveness of this Amendment, on and after the date hereof each reference in the Loan Agreement to “this Agreement,” “hereunder,” “hereof” or words of like import referring to the Loan Agreement, and each reference in the other Loan Documents to “the Loan Agreement” “thereunder,” “thereof” or words of like import referring to the Loan Agreement, shall mean and be a reference to the Loan Agreement as amended hereby.

8. Costs, Expenses and Taxes. Borrower agrees to pay on demand all costs and expenses in connection with the preparation, execution, and delivery of this Amendment, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for Agent with respect thereto and with respect to advising Agent as to its rights and responsibilities hereunder. Borrower hereby acknowledges and agrees

that Agent may, without prior notice to Borrower, charge such costs and fees to Borrower’s Loan Account pursuant to Section 2.6(d) of the Loan Agreement, which amounts shall-constitute. Advances under the Loan Agreement and shall accrue interest at the rate then applicable to Advances thereunder.

9. Governing Law. This Amendment shall be deemed to be made pursuant to the laws of the State of Georgia with respect to agreements made and to be performed wholly in the State of Georgia, and shall be construed, interpreted, performed and enforced in accordance therewith

10. Loan Document. This Amendment shall be deemed to be a Loan Document for all purposes.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the day and year first written above.

BORROWER:	ASSOCIATED HYGIENIC PRODUCTS LLC
	By:	/s/ Owen Connelly
	Name:	Owen Connelly
	Title:	Vice President Finance & MIS
AGENT and LENDER:	WELLS FARGO FOOTHILL, INC.
	as Agent and a Lender
	By:	/s/ Kristy S. Louck
	Name:	Kristy S. Louck
	Title:	Vice President

SUBORDINATION AGREEMENT (Disposable Soft Goods (UK) Plc)

THIS SUBORDINATION AGREEMENT (this “Agreement”) dated as of January 5, 2005, is made and entered into by and among WELLS FARGO FOOTHILL, INC. (formerly FOOTHILL CAPITAL CORPORATION), a California corporation, in its capacity as administrative agent for the Lender Group (as defined in the Loan Agreement, defined below) (the “Agent”), DISPOSABLE SOFT GOODS (UK) PLC, a public limited company organized under the laws of England (the “Subordinated Lender”), and ASSOCIATED HYGIENIC PRODUCTS LLC, a Delaware limited liability company (the “Borrower”).

WITNESSTH:

WHEREAS, the Borrower has issued in favor of the Subordinated Lender that certain subordinated and unsecured non-negotiable promissory note in the principal amount of $1,024,709.30 dated as of the date hereof (as amended, restated or replaced from time to time with the Agent’s consent, “Note A-5” and together with any other documents executed in connection therewith or relating thereto, including any refinancing or modification, amendment, supplement or restatement of any of the foregoing with the Agent’s consent, are collectively referred to as the “Subordinated Loan Documents”; all indebtedness under the Subordinated Loan Documents, including, without limitation, principal, interest, fees, costs, expenses and any indemnification and contribution claims, are referred to herein as the “Subordinated Debt”);

WHEREAS, the Borrower, the Agent and the other members of the Lender Group are parties to that certain Amended and Restated Loan and Security Agreement dated as of March 14, 2001, as amended by that certain First Amendment to Loan Agreement, that certain Second Amendment to Loan Agreement, that certain Third Amendment to Loan Agreement, that certain Fourth Amendment to Loan Agreement, that certain Fifth Amendment to Loan Agreement, that certain Sixth Amendment to Loan Agreement, that certain Seventh Amendment to Loan Agreement, that certain Eighth Amendment to Loan Agreement, that certain Ninth Amendment to Loan Agreement, that certain Tenth Amendment to Loan Agreement, that certain Eleventh Amendment to Loan Agreement and that certain Twelfth Amendment to Loan Agreement, on or prior to the date hereof (as the same may be further amended, restated, supplemented or otherwise modified from time to time, the “Loan Agreement”), whereby the Borrower is indebted to the Lender Group for certain extensions of credit outstanding from time to time (all such indebtedness including principal, interest, fees, costs, expenses and other sums chargeable to the Borrower by the Agent (including interest, fees, costs and expenses accruing after an Insolvency Proceeding (as hereafter defined) commences regardless of whether such interest, fees, costs and expenses are deemed allowed or recoverable in any Insolvency Proceeding) together with any modification, amendment, refinancing or supplement thereto, and any other obligations of the Borrower to the Agent and the other members of the Lender Group are hereinafter referred to as the “Senior Debt”);

WHEREAS, as security for the payment of all liabilities and obligations due under the Senior Debt, the Borrower, pursuant to the Loan Agreement and the other Loan Documents, has granted to the Agent a first lien and unconditional security interest in and to all of the assets of the Borrower (collectively, said interests in and assets of the Borrower are referred to herein as the “Collateral;” and, collectively said liens and security interests of the Agent are referred to herein as the “Senior Lien”);

WHEREAS, as part of the consideration for the Lender Group’s (x) extension of credit to the Borrower pursuant to the Loan Agreement and (y) consent to the incurrence of the Subordinated Debt, the Subordinated Lender has agreed, among other things, subject to the terms and provisions of this Agreement, (i) to subordinate the Subordinated Debt to the Senior Debt, (ii) that the Subordinated Debt shall remain unsecured, and (iii) except as otherwise provided herein, to forebear from exercising any creditor’s remedy or taking any action against the Borrower to enforce the Borrower’s obligations to the Subordinated Lender pursuant to Note A- 5, the Subordinated Loan Documents, or any other document, instrument or agreement evidencing the Subordinated Debt.

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants herein contained, and for other good and valuable consideration, the parties hereto hereby agree that each capitalized term used herein and not defined herein shall have the meaning ascribed thereto in the Loan Agreement, and further agree as follows:

1. Subordinated Lender Debt Unsecured. The Borrower and the Subordinated Lender hereby agree that the Subordinated Debt shall be unsecured, and the Subordinated Lender agrees that if at any time the Subordinated Lender shall be in possession of any assets or properties of the Borrower, the Subordinated Lender shall hold such assets or properties in trust for the Agent so long as any Senior Debt remains unpaid and until all commitments of the Lender Group to make loans and extend credit under the Loan Agreement (the “Commitments”) are terminated.

2. Subordination of Subordinated Debt.

(a) The Subordinated Lender hereby subordinates any and all claims now or hereafter owing to it by the Borrower under the Subordinated Debt to any and all Senior Debt (including, without limitation, interest, fees, costs or other payments on the Senior Debt paid or accrued after the commencement of an Insolvency Proceeding and whether or not such claims are deemed allowed or recoverable in any Insolvency Proceeding, and payment of or for adequate protection pursuant to any Insolvency Proceeding), and agrees that, except as set forth in Section 2(b) below, all Senior Debt shall be paid in full in cash and the Commitments shall be terminated before any payment may be made on the Subordinated Debt, whether of principal or interest or other indebtedness or other obligations.

(b) At all times prior to the payment in full in cash of the Senior Debt (as evidenced by the cancellation of the Loan Agreement by the Agent) and the termination of the Commitments, the Subordinated Lender agrees not to accept any payment of the Subordinated Debt (from the Borrower or otherwise) nor make any transfer to third parties not party to this Agreement or take any other action designed to secure, indirectly, from the Borrower any payment on account of the Subordinated Debt without the express, prior written consent of the Agent, and the Subordinated Lender agrees to pay over to the Agent any funds that may be received by it from the Borrower as a prepayment or repayment at any time on account of principal, interest, fees or otherwise on the Subordinated Debt; provided, however, that the Borrower may make (i) regularly scheduled payments of principal on Note A-5 if (A) no Event of Default has occurred and is continuing, and (B) the Borrower has demonstrated to the satisfaction of the Agent that, after giving effect to each such payment, Excess Availability (after subtracting the amount of any payables of the Borrower which are more than 60 days past due) is $10,000,000 or more, and (ii) the Borrower may make regularly scheduled payments of interest on Note A-5 if (A) no Event of Default has occurred and is continuing, and (B) the Borrower has demonstrated to the satisfaction of the Agent that, after giving effect to each such payment, Excess Availability (after subtracting the amount of any payables of the Borrower which are more than 60 days past due) is $2,000,000 or more; notwithstanding the foregoing, however, in the event

Excess Availability (after subtracting the amount of any payables of the Borrower which are more than 60 days past due) is less than $2,000,000 at any time, the Borrower may not make any regularly scheduled payments of interest on Note A-5 after such event unless and until the Borrower has demonstrated to the satisfaction of the Agent that the Borrower has maintained Excess Availability (after subtracting the amount of any payables of the Borrower which are more than 60 days past due) of $2,000,000 or more for a period of 90 consecutive days after such event. Notwithstanding anything to the contrary contained herein, and subject to the provisions of the Loan Agreement (including, without limitation, Article 7 thereof), the Borrower may refinance and pay in full Note A-5 with the proceeds of new subordinated debt provided by an Affiliate of the Borrower (“Replacement Subordinated Debt”) with the prior written consent of the Agent, on terms and conditions acceptable to the Agent, and subject to a subordination agreement in form and substance similar to this Agreement and other documents, in form and substance satisfactory to the Agent. In case any funds shall be paid or delivered to the Subordinated Lender in violation of this paragraph, such funds shall be held in trust by the Subordinated Lender for and immediately paid and delivered to the Agent (in the form received endorsed over to the Agent). The Subordinated Lender further agrees not to sell, assign, transfer or endorse any Subordinated Debt to anyone except subject to the terms and conditions of this Agreement.

(c) The Subordinated Lender agrees that the priority of the Senior Debt set forth above shall continue during any insolvency, receivership, bankruptcy, dissolution, liquidation, or reorganization proceeding, or in any other proceeding, whether voluntary or involuntary, by or against the Borrower, under any bankruptcy or insolvency law or laws, federal or state relating to the relief of debtors of any jurisdiction, whether now or hereafter ill effect, and in any out-of-court composition, assignment for the benefit of creditors, readjustment of indebtedness, reorganization, extension or other debt arrangement of any kind (collectively, an “Insolvency Proceeding”). In the event of any payment, distribution, division or application, partial or complete, voluntary or involuntary, by operation of law or otherwise, of all or any part of the property, assets or business of the Borrower, or the proceeds thereof, or any securities of the Borrower, to the Subordinated Lender, by reason of any liquidation, dissolution or other winding up of the Borrower or its business or by reason of any sale or Insolvency Proceeding, then any such payment or distribution of any kind or character, whether in cash, property or securities, which, but for the subordination provisions of this Section 2, would otherwise be payable or deliverable upon or in respect of the Subordinated Debt, shall instead be paid over or delivered directly to the Agent, for application to the payment of the Senior Debt, to the extent necessary to make payment of the Senior Debt remaining unpaid after giving effect to any concurrent payment or distribution to the Agent, and no holder of the Subordinated Debt shall receive any such payment or distribution or any benefit therefrom to such extent until the Senior Debt has been fully paid in cash and the Commitments have been terminated after which such payments or distributions may be applied to payment of the Subordinated Debt.

3. Forbearance from Exercise of Certain Remedies. Until the Senior Debt has been paid in full in cash and the Commitments have been terminated, the Subordinated Lender shall not (a) take any action or exercise any remedy against the Borrower to enforce the Subordinated Debt; or (b) take any action or exercise any remedy against any guarantor of or pledgor securing the Senior Debt in order to collect any of the Subordinated Debt; or (c) commence, or join with any other creditor of the Borrower in commencing, any bankruptcy, reorganization or Insolvency Proceeding against the Borrower; or (d) take any action or exercise any remedy against any property or assets of any guarantor of or pledgor securing the Senior Debt. The Subordinated Lender understands and agrees that the Agent shall have the right, but shall have no obligation, to cure any default under the Subordinated Debt without the prior written consent of the Subordinated Lender. Notwithstanding anything contained in this Agreement to the contrary, in no

event shall the Subordinated Lender be entitled to receive and retain any securities, equity or otherwise, or other consideration provided for in (i) a plan of reorganization or otherwise in connection with any bankruptcy or Insolvency Proceeding or (ii) any other judicial or nonjudicial proceeding for the liquidation, dissolution or winding up of the Borrower or the assets or properties of the Borrower, in any case unless the Senior Debt is paid in full in cash and the Commitments are terminated.

4. Agent’s Authority to Act. For so long as any of the Senior Debt shall remain unpaid, the Agent shall have the right to act as attorney-in-fact for the Subordinated Lender and other holders of the Subordinated Debt for the purposes specified herein and the Subordinated Lender hereby irrevocably appoints the Agent as the Subordinated Lender’s true and lawful attorney, with full power of substitution, in the name of the Subordinated Lender or in the name of holders of the Subordinated Debt, for the use and benefit of holders of the Senior Debt without notice to the holders of Subordinated Debt or any of their representatives, successors or assigns, to perform the following acts, at the option of the holders of the Senior Debt, at any meeting of creditors of the Borrower or in connection with any Insolvency Proceeding:

(a) if a proper claim or proof of debt in respect of the Subordinated Debt has not been filed in the form required in any such Insolvency Proceeding at least ten (10) business days prior to the expiration of the time for filing such claims, to file an appropriate claim for and on behalf of the holders of Subordinated Debt;

(b) to collect any assets of the Borrower distributed, divided or applied by way of dividend or payment, or any securities issued, on account of the Subordinated Debt and to apply the same, or the proceeds of any realization upon the same that the Agent in its discretion elects to effect, to the Senior Debt until all of the Senior Debt (including, without limitation, all interest and other payments accruing or paid on the Senior Debt after the commencement of any bankruptcy, reorganization, insolvency, receivership or Insolvency Proceeding at the rate specified in the Senior Debt) has been paid in full in cash, rendering any surplus to the holders of Subordinated Debt if and to the extent permitted by law; and

(c) to take generally any action in connection with any such Insolvency Proceeding either in its own name or in the name of the Subordinated Lender (including without limitation voting on any plan of reorganization) that the holders of Subordinated Debt would be authorized to take, but for this Subordination Agreement, in the event that the Agent believes such action is reasonably necessary to protect its interests and the other members of the Lender Group’s interests in the Senior Debt and under this Agreement and after first giving the Subordinated Lender five (5) days’ written notice of its intent to take such action (to the extent such notice is practicable), provided that the Agent agrees to permit the Subordinated Lender to take action on the Subordinated Lender’s own behalf in connection with any such Insolvency Proceeding as may be necessary to reasonably protect the Subordinated Lender’s interests, as long as such action is not contrary to or in conflict with the actions and interests of the Agent and is always in second position to the Senior Debt. In no event shall the holders of the Senior Debt be liable to the Subordinated Lender or any other holders of the Subordinated Debt for any failure to prove the Subordinated Debt, to exercise any right with respect thereto or to collect any sums payable thereon. A distribution made under this Subordination Agreement to holders of Senior Debt that otherwise would have been made to holders of Subordinated Debt is not, as between the Borrower, its other creditors and holders of Subordinated Debt, a payment by the Borrower on the Senior Debt, it being understood that the provisions of this Agreement are solely for the purpose of defining the relative rights of the holders of Subordinated Debt, on the one hand, and the holders of Senior Debt on the other hand. The Subordinated Lender represents that the Subordinated Lender is the sole holder of the Subordinated Debt and, except upon satisfaction of the conditions set forth in Section 15 hereto, shall not assign, participate, pledge, encumber or transfer the Subordinated Debt or any interest therein until the Senior Debt is repaid in full in cash and the Commitments are terminated.

5. Duration and Termination. This Agreement shall constitute a continuing agreement of subordination, and shall remain in effect until indefeasible payment in full in cash of the Senior Debt and termination of the Commitments. The holders of Senior Debt may, without notice to the Subordinated Lender or the other holders of Subordinated Debt, extend or continue credit and make other financial accommodations to or for the account of the Borrower in reliance upon this Agreement. The obligations of the Subordinated Lender and the other holders of Subordinated Debt under this Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Debt is rescinded or must otherwise be restored or returned by a holder of Senior Debt by reason of any bankruptcy, reorganization, arrangement, composition or Insolvency Proceeding or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any substantial part of its property, or otherwise, all as though such payment had not been made.

6. Subordinated Lender’s Waivers. All of the Senior Debt shall be deemed to have been made or incurred in reliance upon this Agreement. The Subordinated Lender expressly waives all notice of the acceptance by the Agent of the subordination and other provisions of this Agreement and all other notices not specifically required pursuant to the terms of this Agreement whatsoever, and the Subordinated Lender expressly consents to reliance by the Agent and the other members of the Lender Group, upon the subordination and other agreements as herein provided. The Subordinated Lender agrees that neither the Agent nor any other members of the Lender Group have made warranties or representations with respect to the due execution, legality, validity, completeness or enforceability of the Loan Agreement and other Loan Documents or the collectability of the obligations thereunder, that the Agent shall be entitled to manage and supervise its loans in accordance with applicable law and its usual practices, modified from time to time as it deems appropriate under the circumstances, and that the Agent shall not have any liability to the Subordinated Lender for, and the Subordinated Lender waives any claim (except with respect to willful misconduct) which the Subordinated Lender may now or hereafter have against the Agent arising out of (i) any and all actions which the Agent takes or omits to take (including, without limitation, actions with respect to the creation, perfection or continuation of liens or security interests in the Senior Debt, actions with respect to the occurrence of an Event of Default, actions with respect to the foreclosure upon, sale, release, or depreciation of, or failure to realize upon, the Collateral and actions with respect to the collection of any claim for all or any part of the Senior Debt from any account debtor, guarantor or any other party) with respect to the documents regarding the Senior Debt or any other agreement; related thereto or to the collection of the Senior Debt or the valuation, use, protection or release of the Collateral and/or other security for the Senior Debt, (ii) the Agent’s election, in any proceeding instituted under Chapter 11 of Title 11 of the United States Code (11 U.S.C. § 101 et seq.) (the “Bankruptcy Code”), of the application of Section 1111 (b)(2) of the Bankruptcy Code, and/or (iii) any making of loans to, or grant of a security interest under Section 364 of the Bankruptcy Code by, the Borrower as debtor or debtor-in-possession.

7. Waiver of Marshaling. The Subordinated Lender agrees that the Agent shall have no obligation to marshal any part of the Collateral or any such other property, instruments, documents, agreements or guaranties before enforcing its rights against any other part of the Collateral or its rights herein as against the Subordinated Lender.

8. No Contest of Security Interest. The Subordinated Lender shall not contest the validity, perfection or enforceability of any lien or security interest granted to the Agent by Borrower, and the Subordinated Lender agrees to cooperate in the defense of any action contesting the validity, perfection or enforceability of such liens or security interests.

9. Subordination Not Affected. Etc. Nothing in this Agreement shall be construed as affecting or in any way limiting the extension of new or additional financial accommodation by the Agent and the other members of the Lender Group to the Borrower and the terms and conditions hereof shall apply to such new and additional financial accommodations. Notwithstanding the preceding sentence or anything contained in this Agreement to the contrary, none of the provisions of this Agreement shall be deemed or construed to constitute a commitment or an obligation on the part of the Agent or any other member of the Lender Group to make any future loans, advances or other extensions of credit or financial accommodation to the Borrower. The Subordinated Lender understands and agrees that all accrued interest, charges, expenses, attorneys’ fees and other liabilities and obligations under the Loan Agreement shall constitute part of the Senior Debt, and nothing in this Agreement shall be construed as affecting or in any way limiting any indulgence granted by the Agent with respect to any existing, financial accommodation to the Borrower. The subordinations effected, and the rights created, hereby shall not be affected by (a) any amendment of or any addition of or supplement to any instrument, document or agreement relating to the Senior Debt, (b) any exercise or non-exercise of any right; power or remedy under or in respect of the Senior Debt or any instrument, document or agreement relating thereto, (c) the release, sale, exchange or surrender, in whole or in part, of any part of the Collateral or any additional collateral to which the Agent may become entitled, (d) any release of any guarantor of or pledgor securing the Senior Debt or any security for such pledge or guaranty, or (e) any waiver, consent, release, indulgence, extension, renewal, modification, delay or other action, inaction or omission in respect of the Senior Debt or any instrument, document or agreement relating thereto or any security therefor or pledge or guaranty thereof, whether or not the Subordinated Lender shall have had notice or knowledge of any of the foregoing and regardless of whether the Subordinated Lender shall have consented or objected thereto. Any provision of any document, instrument or agreement evidencing, securing or otherwise relating to the Subordinated Debt purporting to limit or restrict in any way the Borrower’s ability to enter into any agreement with the Agent to amend or modify any document, instrument or agreement evidencing, securing or otherwise relating to the Senior Debt shall be deemed of no force or effect until the Senior Debt has been repaid in full in cash or otherwise satisfied and the Commitments have been terminated or the Loan Agreement has otherwise been terminated by the Agent.

10. Legend. The Subordinated Lender will cause Note A-5 and any other agreements, notes, or other instruments from time to time evidencing the Subordinated Debt or any part thereof to contain a specific statement thereon to the effect that the indebtedness evidenced thereby is subject to the provisions of this Agreement, and the Borrower agrees to the foregoing.

11. Voided Payments. To the extent that the Borrower makes any payment on the Senior Debt which, within twelve (12) months of the date of such payment, is subsequently invalidated, declared to be fraudulent, avoidable or preferential, set aside or is required to be repaid to a trustee, receiver, the estate of the Borrower or any other party under any bankruptcy act, state or Federal law, common law or equitable cause (such payment being hereinafter referred to as a “Voided Payment”), then to the extent of such Voided Payment that portion of the Senior Debt which had been previously satisfied by such Voided Payment shall be revived and continue in full force and effect as if such Voided Payment had never been made. In the event that a Voided Payment is sought to be recovered from the Agent or any other member of the Lender Group, an “Event of Default” under the Loan Agreement shall be deemed to have occurred and to be continuing from the date of such recovery from the Agent of such Voided Payment until the full amount of such Voided Payment is fully and finally restored to the Agent or such member of the Lender Group and until such time the provisions of this Agreement shall be in full force and effect.

12. Violation of Agreement by Borrower. The Borrower hereby consents to this Agreement, agrees to abide by the terms hereof, agrees to make no payments or distributions contrary to the terms and provisions hereof and to do every act and thing necessary to carry out such terms and provisions. The Borrower agrees that should it make any payment in contravention of any provision of this Agreement the maturity of said Senior Debt may be accelerated in accordance with the terms of the Loan Agreement.

13. Immediate Effect. This Agreement shall be effective immediately upon its execution by each of the parties hereto, and there are no conditions precedent or subsequent to the effectiveness of this Agreement.

14. Inducement. As part of the consideration for the Agent and the other members of the Lender Group’s extension of credit to the Borrower, which the Subordinated Lender and the Borrower acknowledge that the Agent and the other members of the Lender Group would be willing to continue to do without this Agreement, the Subordinated Lender agrees, among other things, (i) that the Subordinated Debt is and shall remain unsecured, (ii) to subordinate the Subordinated Debt to the Senior Debt, and (iii) to forebear from exercising any creditor’s remedy or taking any action against the Borrower upon any of its obligations to the Subordinated Lender until the Senior Debt has been paid in full in cash and termination of the Commitments.

15. Successors and Assigns; Continuing Effect, etc. This Agreement is being entered into for the benefit of, and shall be binding upon, the Agent and the other members of the Lender Group, the Subordinated Lender, the Borrower and their respective heirs, executors, personal representatives, successors and assigns, as applicable. The Agent and the other members of the Lender Group may assign or participate out to other parties any portion of their interests under the Senior Debt and no such assignee or participant shall be required to become a signatory hereto. Any assignee or transferee of the Subordinated Lender shall execute and deliver to the other parties hereto an agreement pursuant to which they will become parties hereto as fully as if they were signatories hereto and providing for the effectiveness of this Agreement as to such transferee or assignee and other parties. This Agreement shall be a continuing agreement, shall be irrevocable and shall remain in full force and effect so long as any of the Senior Debt or the Subordinated Debt is outstanding and so long as the Loan Agreement has not been terminated and the Commitments remain in place.

16. Notification of Defaults. The Subordinated Lender shall give written notice to the Agent of a default or an event of default by the Borrower under the Subordinated Debt. The Subordinated Lender understands that, subject to any grace or cure period under the Subordinated Lender’s agreements with the Borrower, any default by the Borrower under the Subordinated Debt is, automatically, an event of default of the Borrower under the Senior Debt. Nothing in this Agreement shall be interpreted to limit or restrict the right of the Agent and the Subordinated Lender to waive any default under their respective documents, and the Subordinated Lender agrees that any waiver by the Subordinated Lender will be in writing and provided to the Agent.

17. Notices. Any notices, consents, requests, demands and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to be given to any party or parties (a) upon delivery to the address of the party or parties set forth below if delivered in person or by courier or if sent by certified or registered mail (return receipt requested), or (b) upon dispatch if transmitted by telecopy or other means of facsimile transmission, in any case to the party or parties at the telecopy numbers set forth below:

If to Borrower:	ASSOCIATED HYGIENIC PRODUCTS LLC
	2805 Peachtree Industrial Blvd, Suite 211
	Duluth, Georgia 30097
	Attn: Mr. Peter Chang
	Telecopy No. (678) 957-9985

	With a copy to:
	PILLSBURY WINTHROP, LLP
	50 Fremont Street, 5th Floor
	San Francisco, California 94105
	Attn: Robert E. Sullivan, Esq.
	Telecopy No. (415) 983-1200
If to the Subordinated Lender:	Disposable Soft Goods (UK) Plc
	Boythorpe Works
	Chesterfield, Derbyshire S40 1YG
	United Kingdom
	Attn: Patrick Tsang
	Telecopy No. (011-44-124) 6274-773
If to the Agent:	Wells Fargo Foothill, Inc
	2450 Colorado Avenue
	Suite 3000 W
	Santa Monica, California 90404
	Attn: Business Finance Division Manager
	Telecopy No. (310) 453-7413
	With a copy to:
	Wells Fargo Foothill, Inc
	400 Northpark Town Center
	1000 Abernathy Road, N.E., Suite 1450
	Atlanta, Georgia 30328
	Attn: Business Finance Division Manager
	Telecopy No. (710) 508-1370
	and a copy to:
	Paul, Hastings, Janofsky & Walker LLP
	600 Peachtree Street, N.E.
	Suite 2400
	Atlanta, Georgia 30308-2222
	Attn: Jesse H. Austin, III, Esq.
	Telecopy No. (404) 815-2424

Any party hereto may designate any other address or telecopy number, as applicable, to which any notices or other communications shall be given by notice duly given hereunder; provided, however, that any such notice of other address or telecopy number shall be deemed to have been given hereunder only when actually received by the party to which it is addressed.

18. Amendments; Modifications. This Agreement may not be modified, altered or amended except by an agreement in writing executed by all of the parties hereto.

19. Amendment of Note and Subordinated Loan Documents. Neither the Subordinated Lender nor the Borrower shall (a) modify, alter or amend any payment, amount, or payment term of Note A-5, whether of principal or interest, or any provision of the Subordinated Loan Documents or other document, instrument or agreement evidencing the Subordinated Debt affecting payment thereof, whether of principal or interest, (b) modify, alter or amend any other term of Note A-5 or any provision of the other Subordinated Loan Documents or other document, instrument or agreement evidencing the Subordinated Debt, in any manner adverse to either the Borrower or the Agent, and (c) grant (in the case of the Borrower) or receive (in the case of the Subordinated Lender) any collateral or other security of any nature to secure the Subordinated Debt.

20. Cost and Expenses of Enforcement. The Subordinated Lender agrees to pay all costs, legal-expenses and attorneys’, paralegals’ and other professionals’ fees of every kind, paid or incurred by the Agent in enforcing its rights hereunder against the Subordinated Lender, including, but not limited to, litigation instituted in a State or Federal Court, as hereinafter provided (including proceedings under the Bankruptcy Code) in enforcing this Agreement, promptly on demand of the Agent or other person paying or incurring the same.

21. TO INDUCE THE AGENT AND THE OTHER MEMBERS OF THE LENDER GROUP TO AFFORD FINANCIAL ACCOMMODATIONS TO THE BORROWER, THE SUBORDINATED LENDER IRREVOCABLY AGREES THAT ALL ACTIONS ARISING DIRECTLY OR INDIRECTLY AS A RESULT OR IN CONSEQUENCE OF THIS AGREEMENT SHALL BE INSTITUTED AND LITIGATED ONLY IN COURTS HAVING SITUS IN THE CITY OF ATLANTA, GEORGIA, AND THE SUBORDINATED LENDER HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION AND VENUE OF ANY STATE OR FEDERAL COURT LOCATED AND HAVING ITS SITUS IN SAID CITY AND STATE. THE SUBORDINATED LENDER HEREBY WAIVES ANY OBJECTION BASED ON FORUM NONCONVENIENS, AND THE SUBORDINATED LENDER HEREBY WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS. THE PARTIES CONSENT THAT ALL SUCH SERVICE OF PROCESS MAY BE MADE BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, DIRECTED TO THE AGENT OR THE SUBORDINATED LENDER AT THE RESPECTIVE ADDRESSES SET FORTH HEREIN IN THE MANNER PROVIDED BY APPLICABLE STATUTE, LAW, RULE OF COURT, OR OTHERWISE.

22. THE SUBORDINATED LENDER WAIVES EVERY DEFENSE, CAUSE OF ACTION, COUNTERCLAIM OR SETOFF, WHICH THE SUBORDINATED LENDER MAY NOW HAVE, OR HEREAFTER MAY HAVE, TO ANY ACTION BY THE AGENT IN ENFORCING THIS AGREEMENT AND RATIFIES AND CONFIRMS WHATEVER THE AGENT MAY DO PURSUANT TO THE TERMS HEREOF AND AGREES THAT THE AGENT SHALL NOT BE LIABLE FOR ANY ERRORS OF JUDGMENT OR MISTAKE OF FACT OR LAW EXCEPT FOR WILLFUL MISCONDUCT OF THE AGENT. THE AGENT AND THE SUBORDINATED LENDER, AND EACH ONE OF THEM, KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE IRREVOCABLY, TO THE EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT EITHER ONE OF THEM OR ANY MAY HAVE TO TRIAL BY JURY WITH RESPECT TO ANY LEGAL PROCEEDING BASED HEREON, OR ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT AND ANY AGREEMENT CONTEMPLATED TO BE EXECUTED IN CONJUNCTION HEREWITH OR ANY COURSE OF CONDUCT OR COURSE OF DEALING, IN WHICH THE AGENT AND THE SUBORDINATED LENDER ARE ADVERSE PARTIES. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE LENDER GROUP TO MAKE LOANS TO THE BORROWER.

23. Governing Law, Benefit of Agreement. This Agreement shall be governed by and construed in accordance with the internal laws of the State of Georgia. All of the understandings,

agreements, covenants and representations contained herein are solely for the benefit of the Agent and the other members of the Lender Group and the Subordinated Lender, and there are no other persons who are intended to be benefited in any way whatsoever by this Agreement.

24. Severability. In the event any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect by a court of competent jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision hereof, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.

25. Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. Delivery of an executed counterpart of this Agreement by facsimile transmission shall be as effective as delivery of a manually executed counterpart hereof.

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IN WITNESS WHEREOF, The parties hereto have caused this Agreement to be executed and delivered under seal as of the date first above written in Atlanta, Georgia.

EXECUTED as a deed by	)
DISPOSABLE SOFT GOODS	)
(UK) PLC., a public limited	)
company organized under the laws	)
of England acting by:	)

Director: /s/ Peter Chang
Director/Secretary:
WELLS FARGO FOOTHILL INC., a California corporation, as Agent and a Lender
By:	/s/ Kristy Loucks
Its:	Vice President
ASSOCIATED HYGIENIC PRODUCTS LLC, a Delaware, limited liability company
By:	/s/ Owen Connelly
Its:	Vice President Finance & MIS

THIS SUBORDINATED AND UNSECURED NON-NEGOTIABLE PROMISSORY NOTE IS SUBJECT TO THE PROVISIONS OF THAT CERTAIN SUBORDINATION AGREEMENT BY AND AMONG BORROWER, HOLDER AND AGENT, A COPY OF WHICH IS ATTACHED HERETO AS EXHIBIT A.

US$1,024,709.30	January 5, 2005
	Duluth, Georgia

- SUBORDINATED NOTE A-5 - -

SUBORDINATED AND UNSECURED

NON-NEGOTIABLE PROMISSORY NOTE

FOR VALUE RECEIVED, ASSOCIATED HYGIENIC PRODUCTS LLC, a Delaware limited liability company having its principal offices at 4455 River Green Parkway, Duluth, Georgia 30096 (“Borrower”), hereby promises to pay to DISPOSABLE SOFT GOODS (UK) PLC, a public limited company organized under the laws of England having its principal offices at Boythorpe Works, Chesterfield, Derbyshire S40 1YG, United Kingdom (“Holder”), the principal sum of One Million Twenty-Four Thousand Seven Hundred Nine and 30/100 Dollars ($1,024,709.30), together with interest, in accordance with the terms hereof. Principal hereof shall be payable on (a) March 31, 2005, in the amount of Three Hundred Fifty Thousand Dollars ($350,000), (b) June 30, 2005, in the amount of Three Hundred Fifty Thousand Dollars ($350,000), and (c) September 30,2005, in the amount of Three Hundred Twenty-Four Thousand Seven Hundred Nine and 30/100 Dollars ($324,709.30). Interest hereon (a) shall accrue during each Interest Period on the unpaid outstanding principal amount hereof at the Prime Rate plus two percent (2.00%), (b) shall be calculated based on a year of three hundred sixty five or three hundred sixty six (365/366) days as the case may be, and (c) shall be payable in arrears on each Payment Date. Interest on this Promissory Note shall be payable in respect of the principal amount borrowed hereunder for the first day of such borrowing, but not for the day on which such principal amount is repaid.

“Agent” shall mean Wells Fargo Foothill, Inc. (formerly known as Foothill Capital Corporation), a California corporation, as administrative agent to the Lender Group under the Loan Agreement, together with its successors and assigns.

“Business Day” shall mean a day on which banks are not required or authorized to close in New York, New York.

“Commitments” shall have the meaning afforded such term in the Subordination Agreement.

“Interest Period” shall mean the period commencing on (and including) the date hereof or the last day of the next preceding Interest Period, as the case may be, and ending on (but excluding) the next succeeding Payment Date; provided, however, that (i) if a Payment Date is not a Business Day, the relevant date for purposes of this definition shall be the immediately, succeeding Business Day and (ii) subject to (i) above, any Interest Period that would otherwise end after the Maturity Date shall end on the Maturity Date.

“Lender Group” shall mean the banks signatory to the Loan Agreement as lenders.

“ Loan Agreement” shall mean that certain Amended and Restated Loan and Security Agreement dated as of March 14, 2001, by and among Borrower, Agent and the Lender Group, as

amended by that certain First Amendment to Loan Agreement, that certain Second Amendment to Loan Agreement, that certain Third Amendment to Loan Agreement, that certain Fourth Amendment to Loan Agreement, that certain Fifth Amendment to Loan Agreement, that certain Sixth Amendment to Loan Agreement, that certain Seventh Amendment to Loan Agreement, that certain Eighth Amendment to Loan Agreement, that certain Ninth Amendment to Loan Agreement, that certain Tenth Amendment to Loan Agreement, that certain Eleventh Amendment to Loan Agreement and that certain Twelfth Amendment to Loan Agreement and as the same may be further amended, restated, supplemented or otherwise modified from time to time after the date hereof.

“Maturity Date” shall mean September 30, 2005.

“Payment Date” shall mean March 31, 2005, June 30, 2005 and September 30, 2005.

“Prime Rate” shall mean for each Interest Period, the rate per annum (rounded upward to the nearest 1/100 of 1% per annum), equal to the rate of interest published in the “Money Rates” section of The Wall Street Journal as the “prime rate” determined 1 Business Day prior to the commencement of such Interest Period for a period equal to such Interest Period.

“Senior Debt” shall have the meaning afforded such term in the Subordination Agreement.

“Subordination Agreement” shall mean that certain Subordination Agreement by and among Borrower, Agent and Holder, a copy of which is attached hereto as Exhibit A, together with any amendments thereto.

Subject to the Subordination Agreement, this Promissory Note may be prepaid in whole or in part at any time and from time to time upon not less than one Business Day’s notice to Holder without premium or penalty.

Borrower waives, to the extent that it may lawfully do so, presentment, protest, and all notices of whatever kind (other than demand for payment as provided for herein and the right to return of this Promissory Note marked “cancelled” against payment in full of all amounts due hereunder) in connection with payment of this Promissory Note. Borrower agrees that, once all Senior Debt has been paid and all Commitments have terminated, the entire principal amount and any accrued but unpaid interest may at any time and for any reason and no reason, in Holder’s sole discretion, be declared to be immediately due and payable, and further agrees, on demand, to pay interest, to the extent permitted by applicable law, on all overdue amounts of principal and interest hereunder at the rate provided for herein.

All amounts payable hereunder shall be paid in lawful currency of the United States of America. This Promissory Note may not be pledged, sold, assigned, or hypothecated without the prior written consent of the Borrower, which consent shall not be unreasonably withheld. This Promissory Note shall be governed by, and construed and interpreted in accordance with, the laws of the State of Georgia.

[Remainder of page intentionally left blank.]

IN WITNESS WHEREOF, Borrower has caused this Promissory Note to be executed by its duly authorized officer as of the date first above written.

BORROWER:
ASSOCIATED HYGIENIC PRODUCTS LLC, a
Delaware limited liability company
By:	/s/ Owen Connelly
Name:	Owen Connelly
Its:	Vice President Finance & MIS

EX-4.3

EXHIBIT 4.3

DSG INTERNATIONAL LIMITED ANNOUNCES

SOUTHEAST ASIA REORGANIZATION

Duluth, Georgia, December 22, 2004 DSG International Limited (NASDAQ: DSGIF) announced today that it had reorganized its operating companies in Indonesia, Malaysia and Singapore as subsidiaries of DSG International (Thailand) Ltd. (“DSG Thailand”). DSG Thailand today filed a registration statement and draft prospectus (the “Thai Filing Documents”) with the Securities Exchange Commission of Thailand (“SEC”) and the Stock Exchange Thailand (“SET”) proposing a public offering and listing of shares of DSG Thailand on the SET. The number of shares to be offered and the offering price will be set at a later point in time. According to the Thai SEC regulations, the Thai Filing Documents will become effective after 30 days from the date they were filed provided that (i) the Thai SEC must have found the information contained therein satisfactory and (ii) the final number of shares to be offered and the offering price are set and submitted to the Thai SEC.

DSG International Limited and its predecessors have been in the business of manufacturing and distributing disposable diapers since 1973. With manufacturing plants in Ohio and Washington, the Company also maintains manufacturing operations in Hong Kong, Great Britain, China, Thailand, Indonesia and Malaysia. Additionally, the Company distributes its products throughout Asia, North America and Europe. The Company produces private label disposable diapers, adult incontinence products and training pants at certain of its operations. Its best selling brands include “Fitti®”, “Pet Pet®”, “Cosifits®”, “Baby Love®”, “Babyjoy®”, “Dispo 123^™”, “Handy^™”, “Certainty®”, “Merit®” and “Drypers®”.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995

This news release may contain forward-looking statements or predictions. These statements represent our judgment as of this date and are subject to risks and uncertainties that could cause actual results or events to differ materially from those expressed in such forward-looking statements. Potential risks and uncertainties are discussed in depth in DSG International Limited filings with the SEC, copies of which may be accessed through the SEC’s World Wide Web site at http://www.sec.gov.

EX-4.4

Exhibit 4.4

DATED the 20^th day of December 2004

DISPOSABLE SOFT GOODS LIMITED

as Borrower

and

DIAMOND LEASE (HONG KONG) LIMITED

ORIX ASIA LIMITED

TOKYO LEASING (HONG KONG) LIMITED

as Lenders

******************************

LOAN AGREEMENT

******************************

FRED KAN & CO.

SOLICITORS

HONG KONG

Ref. No.: H27106/GEN/FL-WU/WU

THIS AGREEMENT              is made this 20^th day of December 2004

BETWEEN:-

(1) DISPOSABLE SOFT GOODS LIMITED , a company incorporated under the laws of Hong Kong whose registered office is situated at 17^th Floor, Watson Centre, 16-22 Kung Yip Street, Kwai Chung, New Territories, Hong Kong (“Borrower”); and

(2) The following parties (collectively “Lenders” and severally “Lender”) :

(a) DIAMOND LEASE (HONG KONG) LIMITED, a company incorporated under the laws of Hong Kong whose registered office is situate at Room 402 Far East Finance Centre, 16 Harcourt Road, Hong Kong;

(b) ORIX ASIA LIMITED, a company incorporated under the laws of Hong Kong whose registered office is situate at 30^th Floor, United Centre, 95 Queensway, Hong Kong; and

(c) TOKYO LEASING (HONG KONG) LIMITED, a company incorporated under the laws of Hong Kong whose registered office is situate at Room 1901, MassMutual Tower, 38 Gloucester Road, Wanchai, Hong Kong.

WHEREAS :-

The Lenders have agreed to grant to the Borrower a loan facility in the total principal amount of Japanese Yen 1,200,000,000.00 subject to the terms and conditions hereinafter contained.

NOW IT IS AGREED as follows :-

1. DEFINITIONS

1.01 In this Agreement, the following expressions, except where the context otherwise requires shall have the following meaning :-

“Affiliate” means in relation to a company, any other company which is its Subsidiary or holding company or a fellow Subsidiary of any such holding company and “Affiliates” shall be construed accordingly;

“Assignment of Procurement and Supply Contract” means the assignment of the rights and benefits of the Procurement and Supply Contract by the Borrower in favour of the Lenders substantially in the form appearing in Schedule 1;

“Availability Period” means the period commencing from the date of this Agreement to and inclusive of 20^th January 2005;

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“Borrowed Moneys” in relation to a person means :-

(a) any indebtedness for moneys borrowed by that person;

(b) any liability under any acceptance or credit opened on behalf of that person;

(c) any liability under any bill of exchange or promissory note on which that person is liable as drawer, acceptor, endorser or otherwise;

(d) any liability under any debenture, bond, note or loan stock whatsoever issued by that person;

(e) indebtedness in respect of any premium payable to any Government or regulatory body by that person in respect of any property;

(f) any liability in respect of any arrangement or commitment (whether in the form of a guarantee, indemnity, security or otherwise) entered into by that person which is designed to assure against loss by any creditor of any third party to whom any indebtedness or other liability of that third party of any of the kinds referred to in paragraphs (a) to (e) above is owed;

“Business Day” means a day on which licensed banks in Hong Kong and Japan are open for business in Hong Kong and Japan, but always excluding Saturdays and “Business Days” shall be construed accordingly;

“BVI” means British Virgin Islands;

“Certified Copy” means a copy certified by a director or the secretary of any of the Covenantors, as being a true and complete copy of an original then currently in full force and effect and “Certified Copies” shall be construed accordingly;

“Covenantors” means the Borrower, the Guarantors and any other party providing security under the Security Documents and “Covenantor” means any of them;

“Diamond Lease” means Diamond Lease (Hong Kong) Limited, being one of the Lenders;

“Diamond Lease Loan Agreement” means the loan agreement dated 9^th October 2003 entered into between the Borrower and Diamond Lease regarding a term loan facility of JPY900,000,000;

“Dispose” means to make any sale, assignment, exchange, transfer, concession, loan, lease, surrender of lease, tenancy, licence, direct or indirect reservation, waiver, compromise, release, dealing with or in or granting of any option, right of first refusal or other right or interest whatsoever or any agreement for any of the same;

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“Drawing” means the drawing of the full principal amount of Japanese Yen 1,200,000,000.00 under the Facility;

“Drawdown Date” means the date on which the Facility is deemed to have been drawn pursuant to Clause 5.01;

“DSG International” means DSG International Limited, an international business company incorporated under the laws of British Virgin Islands;

“DSG International Guarantee” means the corporate guarantee to be provided by DSG International to secure 75% of the Secured Indebtedness and substantially in the form set out in Schedule 2;

“Encumbrance” refers to any mortgage, charge, pledge, lien (other than a lien arising by statute or operation of law), assignment, or other encumbrance, priority or security interest, deferred purchase, title retention, leasing, sale-and-repurchase or sale-and-leaseback arrangement whatsoever over or in any property, assets or rights or interest of whatsoever nature and includes any agreement for any of the same.

“Event of Default” means any one of the events of default mentioned in Clause 13.01;

“Facility” means the facility to the aggregate extent of Japanese Yen One Billion and Two Hundred Million (JPY 1,200,000,000.00) to be afforded to the Borrower under the terms hereof;

“Guarantors” means DSG International and Mitsubishi and “Guarantor” means any of them;

“Hong Kong” means the Hong Kong Special Administrative Region of the People’s Republic of China;

“Interest Determination Date” means the date on which the Facility shall be deemed to have been drawn by the Borrower pursuant to Clause 5.01;

“Installment Payment Date” means a date on which any quarterly installment payable under Clause 7.01 shall be paid in accordance with the provisions thereof;

“JPY” or “Japanese Yen” means the lawful currency of Japan;

“5-year JPY Swap Rate” arithmetic means of the 5-year JPY Swap rates which appear at or about 11:00 a.m. Hong Kong time, on the relevant Interest Determination Date on page 61793 of the Moneyline Telerate Service quoted by Diamond Lease;

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“Letter of Acknowledgement” means a letter of acknowledgement (in Chinese) in such form and substance as shall be prescribed by the Lenders to be executed by Shanghai DSG MegaThin, acknowledging the assignment under the Assignment of Procurement of Supply Contract and the rights of the Lenders thereunder;

“Loan” means the aggregate principal amount to be advanced pursuant to the Facility and for the time being outstanding;

“Mitsubishi” means Mitsubishi Corporation, a company organized and existing under the laws of Japan;

“Mitsubishi Guarantee” means the corporate guarantee to be provided by Mitsubishi in favour of the Lenders to secure 25% of the Secured Indebtedness in such form and substance as shall be agreed between the Lenders and Mitsubishi;

“Notice of Drawing” means the notice of drawing to be given by the Borrower to the Lenders in substantially the same form as appearing in Schedule 3;

“Potential Default” means any event or circumstances which would (with the expiry of a grace period, the giving of notice, the making of any determination under Clause 13.01 or any combination of any of the foregoing) be an Event of Default;

“Procurement and Supply Contract” means a procurement and supply contract dated 18 August 2003 for MegaThin Project at Shanghai PRC made between Shanghai DSG MegaThin and the Borrower (as amended by an Amendment Agreement to Procurement and Supply Contract dated 20^th December 2004 made between Shanghai DSG MegaThin and the Borrower);

“PRC” means the People’s Republic of China;

“Secured Indebtedness” means the Loan together with all interest accrued thereon and all other sums and costs whatsoever which may from time to time be or become due and payable by the Covenantors pursuant to the Security Documents;

“Security Documents” means this Agreement, the Assignment of Procurement and Supply Contract, the DSG International Guarantee and the Mitsubishi Guarantee and any further documents which may have been or may hereafter be entered into as security for the Secured Indebtedness and “Security Document” means any of above documents;

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“Shanghai DSG MegaThin” means Shanghai DSG MegaThin Company Limited, a company organized and existing under the laws of PRC;

“Subsidiary” means and has the same meanings as defined in the Companies Ordinance (Cap.32 of the Laws of Hong Kong);

“Taxes” means all present and future taxes levies imposts duties fees charges or withholdings of whatever nature and wherever levied charged or assessed, together with any interest thereon and any penalties in respect thereof.

“Toyo Engineering” means Toyo Engineering Corporation, a company organized and existing under the laws of Japan;

“Toyo Engineering Procurement Contract” means a procurement and supply contract dated 18 August 2003 for MegaThin Project at Shanghai PRC made between Toyo Engineering and the Borrower.

1.02 The headings in this Agreement are inserted for convenience only and shall be ignored in construing this Agreement. Unless the context otherwise requires, words denoting the singular number only shall include the plural and vice versa. The words “written” and “in writing” include printing, engraving, lithography or other means of visible reproduction.

1.03 Reference in this Agreement to :-

(1) an “agreement” also includes a concession, contract, deed, franchise, licence, treaty or undertaking and any waiver or release (in each case, whether oral, written, implied or by operation of law);

(2) the “assets” of any person shall be construed as a reference to the whole or any part of its business, undertaking, property, assets, rights and revenues (including any right to receive revenues);

(3) a “consent” also includes an approval, authorisation, exemption, filing, licence, order, permission, recording or registration, and references to “obtaining consents” shall be construed accordingly;

(4) a “directive” includes any present or future directive, regulation, request, requirement, or credit restraint programme (in each case, whether or not having the force of law);

(5) “law” includes common or customary law and any constitution, decree, judgment, legislation, order, ordinance, regulation, statute, treaty or other legislative measure, in each case of any jurisdiction whatever (and “lawful” and “unlawful” shall be construed accordingly);

(6) “month” means a period calculated from any specified day to and including the day numerically corresponding to such specified day (or, if there shall be no day numerically corresponding to such specified day, the last day) in the relevant subsequent calendar month;

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(7) a “person” includes any individual, company, corporation, firm, partnership, joint venture, association, organisation or trust (in each case, whether or not having separate legal personality) and references to any of the same shall include a reference to the others;

(8) provisions of statutes, any law, directive or agreement shall be to the same as from time to time re-enacted, amended or modified (as the case may be) and without prejudice to any provision in this Agreement concerning the same;

(9) Clauses and Schedules are references to clauses of and schedules to this Agreement;

(10) a sub-clause and a paragraph is, unless otherwise stated, a reference to the relevant sub-clause and paragraph of the Clause and sub-clause in which the reference appears;

(11) any party to the Security Documents or to any other agreement shall be to it and its permitted successors, assigns and personal representatives; and

(12) any collective definition shall be to the persons or things comprising it as a whole or to any one or more of them.

2. THE FACILITY

2.01 Subject to the terms of this Agreement, the Lenders hereby agree to make available to the Borrower the Facility in the aggregate principal amount of Japanese Yen One Billion and Two Hundred Million (JPY 1,200,000,000.00).

2.02 Each Lender shall, subject to the provisions of this Agreement participate in the Facility to the extent of the maximum amount as set opposite its name in Schedule 4.

2.03 The rights and obligations of each Lender under this Agreement are several. Failure of a Lender to perform its obligations under this Agreement shall neither:

(a) result in any other Lenders incurring any liability whatsoever; nor

(b) relieve the Borrower or any other Lenders from their respective obligations under this Agreement;

and each Lender shall be entitled to enforce its rights under the Security Documents separately and independently.

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2.04 The Lenders shall advance its committed participation in the Facility to the Borrower in the manner set out in Clause 2.05.

2.05 Each Lender (excluding Diamond Lease) shall after the receipt by it of the Notice of Drawing pursuant to Clause 4.01(i) and in any event not later than 11 a.m. (Hong Kong time) on the day on which the Facility shall be drawn as specified in the Notice of Drawing remit to Diamond Lease in immediately available fund its committed participation in the Facility in the following manner or in such other manner as shall be direct by Diamond Lease:

(*) Diamond Lease’s JPY account:

Bank	:	The Bank of Tokyo-Mitsubishi Limited, Tokyo Head Office
Swift Code	:	BOTKJPJT
For A/C of	:	The Bank of Tokyo-Mitsubishi Limited, Hong Kong
A/C No.	:	315-0168009
In favour of	:	Diamond Lease (Hong Kong) Limited
A/C No.	:	80837000249

and Diamond Lease shall apply the same together with its committed participation in the Facility as follows :

(a) as to the sum of JPY900,000,000 by paying the same to Diamond Lease in full discharge of the outstanding principal and interests (if any) due from the Borrower to Diamond Lease under the Diamond Lease Loan Agreement; and

(b) as to the remaining sum of JPY300,000,000 by paying the same to Toyo Engineering in discharge of the total amount due from the Borrower to Toyo Engineering under the Toyo Engineering Procurement Contract:

The Borrower hereby irrevocably authorizes the relevant Lender to make remittance to Diamond Lease in the manner prescribed under this Clause 2.05 for the purpose of the Drawing and the obligations of the relevant Lender in making its participation in the Facility shall be deemed to have been performed after such remittance.

3. PURPOSE OF THE FACILITY

3.01 The Facility shall be used by the Borrower:

(a) as to JPY 900,000,000 to discharge the outstanding principal and interests (if any) under the Diamond Lease Loan Agreement; and

(b) as to the remaining JPY 300,000,000 to make payment to Toyo Engineering under the Toyo Engineering Procurement Contract

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4. AVAILABILITY

4.01 The Facility will become available to the Borrower (on and subject to the terms and conditions of this Agreement) when the Lenders shall have received and found satisfactory in form and substance :-

(a) Certified Copies of the Business Registration Certificate, Certificate of Incorporation and Memorandum and Articles of Association of each Covenantor (excluding Mitsubishi); and

(b) a Certified Copy of a resolution of the board of directors of the Borrower approving and authorising:-

(1) the acceptance of the Facility and the borrowing of the full amount available thereunder;

(2) a director or directors to sign on behalf of the Borrower this Agreement and the Assignment of Procurement and Supply Contract;

(3) a director to give all notice, instruction, and communications required or permitted to be given by or on behalf of the Borrower under or for the purposes of this Agreement or any of the Security Documents to which the Borrower is a party;

(4) a director of the Borrower to provide to the Lenders a director’s certificate certifying the composition of the board and shareholders of the Borrower in such form and substance as the Lenders shall require;

(c) a Certified Copy of a resolution of the board of directors of DSG International approving and authorizing:

(1) the DSG International Guarantee;

(2) a director to execute the DSG International Guarantee and to affix the common seal of DSG International thereon;

(3) a director to give all notice, instruction, and communications required or permitted to be given by or on behalf of DSG International under or for the purposes of the DSG International Guarantee;

(4) a director of DSG International to provide to the Lenders a director’s certificate certifying the composition of the board of the shareholders of DSG International in such form and substance as the Lenders shall require;

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(d) the Assignment of Procurement and Supply Contract duly executed by the Borrower;

(e) Letter of Acknowledgement duly executed by Shanghai DSG MegaThin;

(f) DSG International Guarantee duly executed by DSG International;

(g) Mitsubishi Guarantee duly executed by Mitsubishi;

(h) director’s certificates referred in paragraphs (b)(4) and (c)(4) above respectively;

(i) not less than three (3) Business Days before the proposed Drawing the Notice of Drawing duly signed by the Borrower;

(j) Certified copy the Procurement and Supply Contract (both the Chinese and English versions);

(k) Certified copy of the Certificate of good standing of DSG International;

(l) any other documentation and/or legal opinions as shall in the absolute discretion of the Lenders deem necessary to secure the Secured Indebtedness and to perfect the security herein provided;

(m) the sum of JPY 12,000,000.00 being the management fee payable to Diamond Lease as arranger of the Facility pursuant to Clause 15.01.

4.02 Any part of the Facility not drawn on the last Business Day of the Availability Period shall be cancelled and shall not thereafter be made available to the Borrower.

5. DRAWING

5.01 Subject to :-

(a) the conditions set out in Clause 4.01 having been satisfied;

(b) no Event of Default having occurred and no event having occurred which, with the giving of notice and/or the lapse of time and/or upon the fulfillment of any other condition, would constitute an Event of Default; and

(c) all the representations and warranties contained in Clause 10 being true, correct and fully observed as though the same had been made as of the Drawdown Date;

the Borrower may on any Business Day during the Availability Period make Drawing of the whole amount available under the Facility and the Lenders shall advance the loan in the principal amount of JPY 1,200,000,000.00 in one lump sum to the Borrower in the manner set out in Clause 2.05.

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The Facility shall be deemed to have been fully drawn by the Borrower and advanced by the Lenders to the Borrower upon application of the same by Diamond Lease in the manner set out in Clause 2.05(a) and (b).

6. INTEREST

6.01 The Borrower shall pay interest on the Loan at the rate equal to 5-year JPY Swap Rate plus a margin of 4.5% per annum.

6.02 Interest shall be calculated on the basis of actual days elapsed over a year of 365 days and shall be paid in Japanese Yen in the manner set out in Clause 7.01.

7. REPAYMENT

7.01 Unless previously repaid pursuant to Clause 8.01, Clause 13 or Clause 14, the Loan and the interests payable pursuant to Clause 6 shall, subject as otherwise provided in this Agreement, be repaid on amortization basis by 20 equal quarterly installments payable as follows :-

(a) the first installment shall be on the first Business Day (“First Installment Payment Date”) immediately following the expiration of 3 months from the Drawdown Date;

(b) each subsequent installment shall be paid on the day numerically corresponding to the First Installment Payment Date in the last month of each successive quarter and if :-

(i) there shall be no such day numerically corresponding to the First Installment Payment Date, the relevant installment payment date shall be the last day of the relevant month; and/or

(ii) if a installment payment date falls on a day which is not a Business Day, the relevant installment shall be paid on the immediate preceding Business Day.

7.02 Each Lender shall provide the Borrower with its own calculation of the amount of each quarterly installment payable pursuant to Clause 7.01 in connection with its actual participation in the Facility and the Borrower shall on the due day of each quarterly installment and in the manner prescribed under Clause 9.01 pay to each Lender the amount of the quarterly installment as shall be provided by such Lender pursuant to this Clause.

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8. PREPAYMENT

8.01 Notwithstanding Clause 7.01, the Borrower shall have the right, subject to payment of a prepayment fee as provided in Clause 8.02, to repay the Loan together with all accrued interests in full at any time after the expiry of twelve (12) months after the Drawdown Date by giving the Lenders not less than fifteen (15) days’ prior written notice, in which case the Borrower shall pay the accrued interests up to and including the date of repayment. The notice once given shall be irrevocable and the Borrower shall be obliged to repay the Loan and the accrued interests on the day specified for repayment in the notice given by the Borrower pursuant hereto.

8.02 The Borrower shall on prepayment pursuant to Clause 8.01 pay to the Lenders a prepayment fee of one quarter per cent. (0.25%) of the amount prepaid.

9. PAYMENT

9.01 All payments by the Borrower hereunder shall be made in immediately available funds in Japanese Yen to such bank account(s) in such location as specified by the relevant Lender from time to time and delivered to each Lender not later than 11:00 a.m. (Hong Kong time) on the day on which the relevant payment is due under the terms of this Agreement. All payments shall be free and clear of and without deduction for any present and future income, stamp and other taxes, levies, imposts, duties, charges, fees, deductions, withholdings, restrictions or conditions of any nature now or hereafter imposed by or within Hong Kong. Should any such payment be made subject to any such taxes or other levies as aforesaid, all such taxes and other levies as aforesaid shall be borne by the Borrower and the Borrower shall pay to the relevant Lender such additional amount as such Lender may require to enable such Lender to receive a net amount equal to the full amount payable hereunder.

9.02 When any payments under this Agreement would otherwise be due on a date which is not a Business Day, the due date for payment shall be the preceding Business Day.

9.03 If the Borrower fails to pay any sum under this Agreement when due, it shall pay interest on the amount from time to time outstanding in respect of that overdue sum for the period beginning on its due date and ending on the date of its receipt by relevant Lender (both before and after judgment) in accordance with Clause 9.04.

9.04 Interest payable under Clause 9.03 shall be the rate per annum (calculated over a year of 365 days) equal to the sum of 5% and the rate specified in Clause 6.

9.06 Any interest payable under Clauses 9.03 and 9.04 which is not paid when due in accordance therewith shall be added to the overdue sum and itself bear interest accordingly and compounded daily.

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10. REPRESENTATIONS AND WARRANTIES

10.01 The Borrower hereby represents and warrants to the Lenders jointly and each of them severally as follows :-

(a) each Covenantor is duly incorporated, in good standing and validly existing under the laws of the place of its corporation and has full power and authority to own its assets and to carry on its business;

(b) each Covenantor has full legal right, power and authority to execute and deliver the Security Documents to which it is a party and to undertake and perform the obligations and/or create the security on its part herein and/or therein provided for and to borrow the full amount available hereunder and has taken all necessary corporate and other action to authorise such execution and delivery and the performance of such obligations and/or the creation of such security and all borrowing hereunder;

(c) the Security Documents will, when executed and delivered, constitute valid and legally binding obligations of each of the Covenantors respectively enforceable in accordance with their respective terms (subject to the application of bankruptcy or other laws affecting creditors’ rights generally) and, upon such execution and delivery as aforesaid, the Security Documents will create valid and effective security and obligations in accordance with their respective terms;

(d) the execution, delivery and performance of the Security Documents do not and will not exceed any power granted to any of the Covenantors by or violate any provision of (1) any law or regulation or any order or decree or directive of any governmental authority, agency or court to which any of the Covenantors is subject or (2) the Memorandum and Articles of Association or bye-laws of any of the Covenantors or (3) any mortgage, charge, deed, contract or other undertaking or instrument to which any of the Covenantors is a party or which is binding upon it or any of its assets, and will not result in the creation or imposition of, or any obligation to create or impose, any mortgage (other than as disclosed to the Lender in writing prior to the date of this Agreement), charge, pledge, lien or encumbrance of any nature whatsoever on any of its assets or revenues;

(e) no consents, licences, approvals, authorisations or exemptions of any governmental or other regulatory authority, bureau or agency are required on the part of any of the Covenantors for or in connection with the validity, performance or enforceability of the Security Documents;

(f) no Event of Default has occurred and no event has occurred which, with the giving of notice and/or the lapse of time and/or upon the fulfillment of any other condition, would constitute an Event of Default;

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(g) none of the Covenantors is in breach of or in default under any law, directive or order applicable to it or under any agreement or other instrument (whether in relation to the Facility or the Loan or otherwise) to which it is a party or by which it or any of its properties or other assets may be bound or affected, breach of or default under which might materially and adversely affect the ability of any of them to perform their respective obligations under the Security Documents to which they are respectively parties;

(h) there are no proceedings pending before any court, tribunal, arbitrator, government agency or administrative body against or threatened against any of the Covenantors or any of its assets which if adversely determined could or might result in any material adverse change in the business or condition (financial or otherwise) of any of the Covenantors or the ability of any of the Covenantors to pay, if due, any sums and/or to perform any obligations required by the terms and conditions of the Security Documents;

(i) there will be no material change in the position of the Borrower as revealed or to be revealed in the financial information of the Borrower following provision of the same and all information provided or to be provided by any Covenantor to any of the Lenders is, or as the case may be, will be true and correct;

(j) the representations and warranties contained in the preceding sub-clauses will be true, correct and fully observed as though made on and as of the Drawdown Date and each Installment Payment Date with reference to facts and circumstances subsisting on each such date.

11. AFFIRMATIVE UNDERTAKINGS

11.01 The Borrower hereby covenants and undertakes with the Lenders jointly and each of them severally that while the Facility is available for drawing and for so long thereafter as the Loan or any other sum owing hereunder remains outstanding ::-

(a) it will forthwith notify the Lenders in writing of any litigation, arbitration or administrative proceedings which are brought against any Covenantor, or which, to the Borrower’s knowledge, is threatened;

(b) it will notify the Lenders in writing as soon as it becomes aware of the same of any occurrence which might adversely affect its ability or the ability of any of the parties to the Security Documents to perform its or their obligations under the Security Documents and, without prejudice to the generality of the foregoing, promptly notify the Lender of any Event of Default or any Potential Default;

(c) it will pay all stamp duties (if any) assessed to be payable on any of the Security Documents within the time prescribed for payment therefor;

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(d) it will comply, in all material aspects with the requirements of all applicable laws, directives, rules, regulations, orders and decrees of any administrative, governmental or judicial authority or organization or body;

(e) it will ensure that its obligations under this Agreement shall rank at least pari passu with the unsecured indebtedness and obligations of the Borrower;

(f) it will provide the Lenders promptly with all financial information relating to the Borrower as the Lenders may from time to time reasonably require and in particular the Borrower will (a) within ninety (90) days after the end of the first six (6) months of each accounting period, provide each Lender with copies of its unaudited financial statements for such six (6) months period and (b) within one hundred and twenty (120) days from the close of its financial year, provide each Lender with copies of its audited annual financial statement for such year;

(g) it will keep proper records and books of account in respect of its business and permit each Lender and/or any professional consultants appointed by such Lender at all reasonable times to inspect and examine the records and books of account of the Borrower on condition that, until such information shall have been disclosed to the public, such Lender shall only disclose the same to its professional advisers;

(h) the financial statements to be provided by the Borrower pursuant to sub-clause (f) shall be prepared in accordance with accounting principles and practices generally accepted in Hong Kong and except as otherwise indicated therein, based on accounting polices consistently applied;

(i) it will remain to be the wholly owned subsidiary of DSG International;

(j) procure that DSG International and Mitsubishi shall respectively maintain 75% and 20% direct or indirect shareholding, ownership or control in Shanghai DSG MegaThin;

(k) procure that there shall be no change in the senior management of DSG International, which will have a material adverse effect on the Borrower

(l) it will maintain its corporate existence and conduct its business in a proper and efficient manner and in compliance with all laws, regulations, authorizations, agreement and obligations applicable to it and pay all Taxes imposed on it when due;

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12. NEGATIVE UNDERTAKINGS

12.01 The Borrower undertakes and agrees with the Lenders jointly and each of them severally throughout the continuance of this Agreement and so long as any sum remains owing hereunder that the Borrower will not, unless the Lenders otherwise agree in writing :-

(a) merge or consolidate with any other entity or take any step with a view to dissolution, liquidation or winding-up;

(b) declare or pay any dividend or make any other income distribution to its shareholders if an Event of Default or Potential Default has occurred and has not been waived or remedied to the satisfaction of the Lenders;

(c) establish or acquire any subsidiary or invest in any other entity or provide financing to any person except by way of trade credit in the ordinary course of its business;

(d) sell, transfer or otherwise assign, deal with or dispose of all or any part of its business or its assets or revenues except for good consideration in the ordinary course of its business, whether by a single transaction or by a number of transactions whether related or not;

(e) make or grant any loan or advance or guarantee or in any other manner be or become directly or indirectly or contingently liable for any indebtedness or other obligation of any other person, except as may be necessary in the ordinary course of its business;

(f) create or attempt or agree to create or permit to arise or exist any Encumbrance over all or any part of the equipment and materials for the plant (being the subject matters covered by the Procurement and Supply Contract) except (i) any Encumbrance created under the Security Documents or (ii) any possessory lien arising by operation of law in the ordinary course of its business and not in connection with the borrowing or raising of money or credit;

(g) sell, transfer, assign or dispose of the equipment and materials for the plant (being the subject matters covered by the Procurement and Supply Contract) to any other party except for Shanghai DSG MegaThin; and

(h) enter into any agreement or obligation which might materially and adversely affect its financial or other condition.

13. EVENTS OF DEFAULT

13.01 Each of the following events shall be an Event of Default :-

(a) if any of the Covenantors shall fail to pay any principal, interest, or any other sum payable under any of the Security Documents on the date on

15

which the same is due and payable under any of the Security Documents, or in the case of any sum expressed to be payable on demand, forthwith upon any such demand for the payment thereof being made; or

(b) if any of the Covenantors shall fail to perform or observe any of their obligations, undertakings and agreements under any of the Security Documents; or

(c) if any representation, warranty or undertaking made or deemed to be made by any of the Covenantors under any of the Security Documents, or in any notice, certificate, instrument, document or statement contemplated hereby or thereby or made or delivered pursuant hereto or thereto is or proves to have been untrue or inaccurate in any respect; or

(d) if in respect of any of the Covenantors (1) any loan, guarantee, indemnity or other indebtedness or obligation for Borrowed Money shall become due prematurely by reason of a default in its obligations in respect of the same and the Lenders shall determine that in its opinion the occurrence of such event is material or (2) it shall fail to make any payment in respect of such loan guarantee, indemnity or other indebtedness or obligation for Borrowed Money on the due date for such payment, or (3) the security for any such loan, guarantee, indemnity or other indebtedness or obligation for Borrowed Money shall become enforceable; or

(e) if in respect of any of the Covenantors :-

(1) any order shall be made by a competent court or other appropriate authority or any resolution shall be passed for bankruptcy, liquidation, winding up or dissolution or for the appointment of a liquidator, receiver, trustee or similar official of it or of all or a substantial part of its or assets otherwise than (aa) for the purposes of amalgamation, merger or reconstruction, the terms of which have previously been approved by the Lenders or (bb) in the case only of any Subsidiary of any of the Covenantors, by way of a members’ voluntary winding up where the surplus attributable to the shareholders are distributed to such shareholders; or

(2) a distress or execution shall be levied or enforced upon or sued out against any of its chattels, properties, or assets and shall not be discharged or stayed or in good faith contested by action within thirty (30) days thereafter; or

(3) it shall stop payment to creditors generally or shall be unable to pay its respective debts within the meaning of any applicable legislation relating to insolvency, bankruptcy, liquidation or winding up, or (except in the case of an individual) shall cease

16

or threaten to cease substantially to carry on business (except for the purposes of amalgamation, merger or reconstruction the terms of which have been approved by the Lenders); or

(f) if it shall become impossible or unlawful in Hong Kong, for any of the Covenantors, or any of the parties (except the Lenders) to any of the Security Documents, to fulfill any of its undertakings or obligations contained in any of the Security Documents or in any other guarantee, security, instrument, agreement or document held by the Lenders as security for the Covenantors’ obligations hereunder or for the Lenders to exercise the rights or any of them vested in it under any of the aforesaid documents or otherwise; or

(g) if there shall occur a material adverse change in the business, assets, general condition or prospects of any of the Covenantors of the Security Documents which could materially affect the ability of any of the Covenantors to perform its or their obligations under any of the Security Documents; or

(h) if any event shall occur, which under the terms of the Security Documents, the Lenders shall be entitled to treat as if an Event of Default shall have occurred; or

(i) if any of the Security Documents or any provision thereof is not (or is claimed not to be) in full force and effect or if any Security Document or is terminated or jeopardized or becomes invalid or unenforceable or if there is any dispute regarding the same or if there is any purported termination of the same; or

(j) if any situation occurs which in the opinion of the Lender gives reasonable grounds to believe that a material adverse change in the business or financial condition or prospects of any Covenantor, any party to the Security Documents or holding company of such company has occurred or that the ability of such Covenantor or any such other party to perform its respective obligations hereunder or thereunder has been or will be materially and adversely affected; or

(k) any material consent, authorization, licence or approval (whether from the Government or any other authority or agency whether governmental or otherwise) required for or in connection with the Security Documents, is not given or not obtained within any applicable time limits or is revoked, withdrawn, terminated or changed or otherwise ceases to be in full force and effect.

13.02 The Borrower shall notify the Lenders forthwith in writing of any occurrence of an Event of Default or any event which, with the giving of notice and/or the lapse of time and/or upon the Lenders making any necessary certification and/or determination under Clause 13.01, might constitute an Event of Default.

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13.03 The Lenders may at any time after the happening of an Event of Default (whether or not any notice pursuant to Clause 13.02 shall have been given by any of the Covenantors), unless and until that Event of Default shall have been fully remedied to the satisfaction of the Lenders, by notice in writing to the Borrower declare that the Loan and all interest and other sums payable hereunder have become immediately due and payable, whereupon the same shall become immediately due and payable and the Facility shall automatically be cancelled.

14. CHANGES IN APPLICABLE LAW AND FORCE MAJEURE

14.01 If any Lender shall have determined that :-

(a) the introduction of, or a change in, any applicable law or directive or regulation or in the interpretation thereof by any governmental or other regulatory authority charged with the administration thereof or court of competent jurisdiction makes it unlawful for such Lender to advance or maintain the part of the Loan committed by it or any part thereof; or

(b) there shall have occurred a force majeure (including but without limitation, the occurrence of any event or series of events of a political, economic or military nature or any crisis of national or local effect) resulting or likely to result in the opinion of such Lender in a material adverse change in national or local political, economic or financial conditions or any change in market conditions which in the opinion of such Lender is likely materially and adversely to affect the commercial efficacy or otherwise make it inadvisable or inexpedient to maintain the part of the Loan committed by it or any part thereof;

such Lender shall forthwith give notice of such occurrence to the Borrower and such Lender’s obligations to make further advance under Drawing shall be cancelled and the Borrower shall forthwith prepay, irrespective of Clause 8 to such Lender the principal amount of the part of the Loan committed by such Lender together with accrued interest thereon and any other amounts due to such Lender under any of the Security Documents.

15. EXPENSES AND FEES

15.01 The Borrower shall on or before the proposed date for the Drawing as specified in the Notice of Drawing pay to Diamond Lease a non-refundable management fee in the sum of JPY 12,000,000.

15.02 The Borrower hereby undertakes to pay to each Lender on demand reasonable expenses (including, but not limited to, reasonable legal costs and disbursements) incurred by such Lender in connection with obtaining legal advice in connection with the legal feasibility of the Facility and all possible security therefor, the negotiation, preparation and execution of the Security Documents and all other documents referred to therein or otherwise in connection with the Facility whether or not the Facility is drawn down and shall

18

reimburse to each Lender on demand the expenses (including, without limitation, reasonable legal costs and disbursements) incurred by such Lender in protecting any of its rights or in suing for or recovering any sum due to such Lender thereunder or enforcing or realising any security under or referred to in the Security Documents.

15.03 Without prejudice to other provisions herein, the Borrower hereby undertakes to pay all stamp, documentary, registration and other like duties, taxes and fees, if any, to which any of the Security Documents or any other document referred to therein or any enforcement by the Lenders of their rights or security thereunder may be subject or given rise and shall indemnify the Lenders against any and all liabilities with respect to or resulting from any delay or omission on the part of the Borrower to pay any such duties, taxes or fees.

16. EVIDENCE

16.01 The entries made in accounts maintained by the Lenders in accordance with its usual practice shall, in the absence of manifest error, be conclusive evidence of the existence and amounts of the obligations of each of the Covenantors therein recorded.

16.02 A notice by the Lenders as to any sum payable to them under the Security Documents and any other certificate, determination, notification or opinion of the Lenders provided for in the Security Documents, shall be conclusive, save for manifest error.

17. WAIVER ETC.

17.01 Time shall in every respect be of the essence of this Agreement. The rights of any Lender under the Security Documents (whether arising under the Security Documents or under general law) shall not be capable of being waived or varied otherwise than by an express waiver or variation in writing. No failure or delay on the part of any Lender in exercising any right, power or privilege under the Security Documents and no course of dealing between the Covenantors or any of them and any Lender shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege under the Security Documents preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies in the Security Documents expressly provided are cumulative and not exclusive of any rights or remedies provided by law.

17.02 The terms and conditions of this Agreement and other Security Documents shall not be varied or amended unless with the written consent of all the Lenders.

17.02 This Agreement supersedes any previous agreement between the parties in relation to the Facility and each of the parties hereto acknowledges that it shall have no claim against any other party in respect of any agreement so superseded.

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18. ILLEGALITY

18.01 If at any time any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under the laws of any jurisdiction, neither the legality, validity and enforceability of the remaining provisions thereof nor the legality, validity or enforceability of such provision under the laws of any jurisdiction shall in any way be affected or impaired thereby.

19. COUNTERPARTS

19.01 This Agreement may be executed in any number of counterparts all of which taken together and when delivered to the Lenders shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing any such counterpart.

20. GOVERNING LAW

20.01 This Agreement shall be governed by and construed in accordance with the laws of Hong Kong and the parties hereto hereby submit to the non- exclusive jurisdiction of the Courts of Hong Kong. The submission of the Borrower to the jurisdiction of the Hong Kong Courts shall not restrict the right of the Lender to take proceedings against the Borrower in any other courts having, claiming or accepting jurisdiction over the Borrower or any of its assets, nor shall the taking of proceedings in any one or more jurisdiction preclude the taking of proceedings in any other jurisdiction whether concurrently or not.

21. NOTICE

21.01 Any notice or other communication to be given to the Borrower pursuant to this Agreement shall be in writing sent to :-

Address :	17th Floor, Watson Centre, 16-22 Kung Yip Street, Kwai Chung, New Territories, Hong Kong.
Fax No. :	(852) 2480 4491
Attn       :	Mr. Terence Leung

or such other address or facsimile number in Hong Kong as may be notified by the Borrower to other parties in the manner provided in this Clause 21.

21.02 Any notice or other communication to be given to Diamond Lease pursuant to this Agreement shall be in writing sent to :-

Address :	Room 402 Far East Finance Centre, 16 Harcourt Road, Hong Kong.
Fax No. :	(852) 2865 6471
Attn       :	Mr. Isao Someya

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or such other address or facsimile number in Hong Kong as may be notified by Diamond Lease to other parties in the manner provided in this Clause 21.

21.03 Any notice or other communication to be given to ORIX Asia Limited pursuant to this Agreement shall be in writing sent to :-

Address	:	30th Floor, United Centre, 95 Queensway, Hong Kong.
Fax No.	:	(852) 2527 9688
Attn	:	Mr. Masahito Ikeda

or such other address or facsimile number in Hong Kong as may be notified by ORIX Asia Limited to other parties in the manner provided in this Clause 21.

21.04 Any notice or other communication to be given to Tokyo Leasing (Hong Kong) Limited pursuant to this Agreement shall be in writing sent to :-

Address	:	Room 1901, MassMutual Tower, 38 Gloucester Road, Wanchai, Hong Kong.
Fax No.	:	(852) 2868 1515
Attn	:	Mr. Wataru Hamanaka

or such other address or facsimile number in Hong Kong as may be notified by Tokyo Leasing (Hong Kong) Limited to other parties in the manner provided in this Clause 21.

21.05 Any notice or other communication shall be deemed to have been received when left at the addresses mentioned in Clauses 21.01, 21.02, 21.03 and 21.04 as the case may be, or (if sent by facsimile transmission) on the next working day or (if sent by pre-paid post to the said address) on the expiry of 48 hours after posting.

22. SET OFF

22.01 Following an Event of Default, any Lender may without notice to the Borrower combine, consolidate or merge all or any of the Borrower’s accounts with, and liabilities to, that Lender and may set off or transfer any sum standing to the credit of any such accounts in or towards the satisfaction of any of the Borrower’s liabilities to that Lender under this Agreement, and may do so notwithstanding that the balances on such accounts and the liabilities may not be expressed in the same currency and each Lender is hereby authorized to effect any necessary conversion at the market rate of exchange then prevailing.

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23. ASSIGNMENT

23.01 This Agreement shall be binding upon and enure to the benefit of each party hereto and its successors and assigns.

23.02 The Borrower may not assign or transfer all or any of its rights, benefits and obligations hereunder.

23.03 Subject to Clause 23.05, each Lender may at any time after the Drawdown Date assign or transfer to one or more bank(s) or financial institution(s) all or any part of its rights and benefits under this Agreement (including but without limitation sub-mortgage or charge of all the securities or any part thereof herein) and all covenants, agreements, representations and warranties herein contained shall survive any assignments or transfer made pursuant to this Clause 21.03 and shall inure to the benefit of any such assignee.

23.04 Subject to Clause 23.05, a Lender may disclose to a potential assignee or transferee of any rights or benefits under this Agreement proposing to enter into contractual arrangements with such Lender in relation to this Agreement such information about the Covenantors as such Lender may consider appropriate.

23.05 A Lender may only exercise its rights under Clause 23.03 with the written consent of other Lenders and may only make disclosure pursuant to Clause 23.04 following such consent. Such Lender shall after written consent having been given by other Lenders, serve on the Borrower notice informing the Borrower of its intention to assign its rights and benefit pursuant to Clause 23.03.

24. LEGAL REPRESENTATION

24.01 The parties hereto hereby acknowledge that Messrs. Fred Kan & Co. represents only the Lenders in this Agreement and the subject matters herein. The Borrower shall seek independent legal advice in connection therewith.

25. CURRENCY RISK

25.01 If, under any applicable law, whether as a result of a judgment against the Borrower or the liquidation of the Borrower or for any other reason, any payment under or in connection with this agreement is made or is recovered in a currency (“Other Currency”) other than that in which it is required to be paid hereunder (“Original Currency”) then, to the extent that the payment to any Lender (when converted at the rate of exchange on the date of payment or, in the case of a liquidation, the latest date for the determination of liabilities permitted by the applicable law) falls short of the amount unpaid under this Agreement, the Borrower shall as a separate and independent obligation, fully indemnify that the Lender against the amount of the shortfall; and for the purposes of this Clause “rate of exchange” means the rate at which the Lender

22

concerned is able on the relevant date to purchase the Original Currency in Hong Kong with the Other Currency and shall incur any premiums and costs of exchange payable in connection with such purchase.

AS WITNESSES the hands of parties hereto the day and year first above written.

SIGNED by its director Johnny Tsui for and on behalf of the Borrower in the presence of :-	) ) ) ) )
WU WING KIT
Solicitor, Hong Kong SAR
Fred Kan & Co.
SIGNED by its director Hisakazu Taniguchi for and on behalf of the Diamond Lease in the presence of :-	) ) ) ) )
WU WING KIT
Solicitor, Hong Kong SAR
Fred Kan & Co.
SIGNED by its director	)	For and on behalf of
Giro Nanaka	)	ORIX Asia Limited
for and on behalf of ORIX Asia Limited in the presence of :-	) )
		Authorized Signature(s)
WU WING KIT
Solicitor, Hong Kong SAR
Fred Kan & Co.

23

SIGNED by its director Haruo Nakamura for and on behalf of Tokyo Leasing (Hong Kong) Limited in the presence of :-	) ) ) ) ) )
WU WING KIT
Solicitor, Hong Kong SAR
Fred Kan & Co.

24

Schedule 1

DATED the    day of

DISPOSABLE SOFT GOODS LIMITED

as Assignor

and

DIAMOND LEASE (HONG KONG) LIMITED

ORIX ASIA LIMITED

TOKYO LEASING (HONG KONG) LIMITED

as Assignee

*************************************************************

ASSIGNMENT OF PROCUREMENT AND SUPPLY CONTRACT

*************************************************************

FRED KAN & CO.

SOLICITORS

HONG KONG

Sch1

THIS ASSIGNMENT            is made this     day of

BETWEEN :-

(1) DISPOSABLE SOFT GOODS LIMITED , a company incorporated under the laws of Hong Kong whose registered office is situated at 17^th Floor, Watson Centre, 16-22 Kung Yip Street, Kwai Chung, New Territories, Hong Kong (“Assignor”); and

(2) The following parties (collectively “Assignees” and severally “Assignee”) :

(a) DIAMOND LEASE (HONG KONG) LIMITED, a company incorporated under the laws of Hong Kong whose registered office is situate at Room 402 Far East Finance Centre, 16 Harcourt Road, Hong Kong;

(b) ORIX ASIA LIMITED, a company incorporated under the laws of Hong Kong whose registered office is situate at 30^th Floor, United Centre, 95 Queensway, Hong Kong; and

(c) TOKYO LEASING (HONG KONG) LIMITED, a company incorporated under the laws of Hong Kong whose registered office is situate at Room 1901, MassMutual Tower, 38 Gloucester Road, Wanchai, Hong Kong.

WHEREAS :-

Under the terms of a loan agreement (“Loan Agreement”) of even date and made between the parties hereto in the same order, the Lenders have agreed to grant to the Assignor a term loan facility in the total amount of Japanese Yen 1,200,000,000 upon such terms and conditions as therein described (“Facility”) and it is a condition precedent of the grant of the Facility that the Assignor enter into this Assignment.

NOW IT IS AGREED as follows :-

1. DEFINITIONS

1.01 Except where otherwise provided herein, expressions used herein shall have the same meanings as used in the Loan Agreement.

1.02 In this Assignment :

“Procurement and Supply Contract” means the procurement and supply contract dated 18 August 2003 for MegaThin Project at Shanghai PRC made between Shanghai DSG MegaThin and the Assignor (as amended by an Amendment Agreement to Procurement and Supply Contract dated 20^th December 2004 made between Shanghai DSG MegaThin and the Assignor);

“Receivables” means all amounts, consideration, payment (including but without limitation deposits, premium or other down payments, if any) and

Sch1-1

benefit, whether in cash or in kind, present and future, receivable by or on behalf of the Assignor from time to time under the Procurement and Supply Contract and all rights and claims relating thereto and shall include the rights, benefit and entitlement to and ownership of the equipment, machinery and plant being the subject matters under the Procurement and Supply Contract;

“Shanghai DSG MegaThin” means Shanghai DSG MegaThin Company Limited, a company organized and existing under the laws of PRC.

1.03 Clause 1.02 and 1.03 of the Loan Agreement shall be deemed to be incorporated herein mutatis mutandis.

2. ASSIGNMENT AND RIGHTS OF ASSIGNEES

2.01 As security for the payment of the Secured Indebtedness, the Assignor hereby assigns to the Assignees all its right, title, interest and benefit to and in the Receivables.

2.02 The Assignees shall be entitled to the rights, title, interest and benefit assigned pursuant to Clause 2.01 in proportion to the actual amount of their respective participation of the Facility.

3. PROVISO FOR REDEMPTION

3.01 Upon full discharge of the Secured Indebtedness, the Assignees shall at the request and cost of the Assignor assign the subject matter of this Assignment to the Assignor or as the Assignor shall direct.

4. FURTHER SECURITY

4.01 The Assignor will forthwith upon being required by notice in writing by the Assignees so to do, and at the sole cost and expense of the Assignor execute, sign, deliver and do all such transfers, deeds, assurances, agreements, instruments and other acts or things as (and in such form as) the Assignees may require to perfect a legal or other assignment or charge in favour of the Assignees of all or any part of the Receivables as may be specified in such notice or for vesting or enabling the Assignees to vest the same in the Assignees or the Assignees’ nominee or in any purchaser or purchasers from the Assignee or from its nominee.

4.02 The Assignor shall at any time upon the written request of the Assignees give notice of this Assignment to Shanghai DSG MegaThin or in such other form as may be required by the Assignees and shall procure that Shanghai DSG MegaThin shall pay the Receivables to the Assignees and may require the Assignor to sign such notice and if the Assignor shall not so sign, the Assignees may, pursuant to the power of attorney granted to it in Clause 7.01, sign such notice as attorney for and in the name or otherwise on behalf of the Assignor.

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4.03 The parties hereto hereby agree that particulars of this Assignment shall be registered at the Companies Registry pursuant to Section 80 of the Companies Ordinance (Cap.32 of the Laws of Hong Kong).

5. REPRESENTATIONS, WARRANTIES AND UNDERTAKINGS

5.01 The Assignor hereby represents, warrants and undertakes with the Assignees as follows :-

(1) the Assignor will not exercise any right to set off its indebtedness to Shanghai DSG MegaThin against any part of the Receivables;

(2) no disputes or circumstances leading to any dispute have arisen in connection with the Procurement and Supply Contract and Shanghai DSG MegaThin has no claims against the Assignor under the Procurement and Supply Contract;

(3) it will not, while this Assignment is still in full force and effect, at any time assign, charge or otherwise dispose of, or agree to assign, charge or otherwise dispose of, all or any part of the Receivables than to the Assignees under this Assignment or otherwise in accordance with the provisions hereof;

(4) it will duly, promptly and diligently :-

(i) perform the obligations on its part contained in the Procurement and Supply Contract;

(ii) notify the Assignees of any default by the Assignor and/or Shanghai DSG MegaThin under the Procurement and Supply Contract; and

(iii) institute and maintain all such proceedings as may be necessary or expedient to preserve or protect the interests of the Assignor and the Assignees in the Procurement and Supply Contract;

(5) it will not grant or agree to any waiver or vary any terms of the Procurement and Supply Contract or release of any obligation on the part of Shanghai DSG MegaThin under the Procurement and Supply Contract without the prior written consent of the Assignees: and

(6) upon the occurrence of any Events of Default, it will procure that Shanghai DSG MegaThin shall pay all Receivables becoming due thereafter to the Assignees to discharge the Secured Indebtedness.

Sch1-3

6. ASSIGNEES NOT LIABLE TO PERFORM CONTRACTS

6.01 Notwithstanding anything herein contained, the Assignor shall remain liable under the Procurement and Supply Contract to perform all the obligations on its part to be performed thereunder and the Assignees shall not be under or required to assume any obligation or liability under the Procurement and Supply Contract by reason of this Assignment or anything arising herefrom and the Assignor shall indemnified and keep indemnified the Assignees upon demand against any such obligation or liability as aforesaid.

7. POWER OF ATTORNEY

7.01 The Assignor by way of security irrevocably appoints each Assignee severally to be the attorney of the Assignor (with full power of substitution) and in the Assignor’s name or otherwise on its behalf and as its act and deed to sign, seal, execute, deliver, perfect and do all deeds, agreements, instruments, acts and things which may be required or which the relevant Assignee may think expedient for carrying out any obligation imposed on the Assignor hereunder or for performing any sale, transfer, charge, dealing or other transaction by the relevant Assignee or for giving to the relevant Assignee the full benefit of this Assignment or otherwise expedient in connection herewith including, but without prejudice to the generality of the above, a notice to Shanghai DSG MegaThin pursuant to Clause 4.02.

8. BENEFIT OF ASSIGNMENT

8.1 This Assignment shall be binding upon and enure to the benefit of each Assignee and its successor(s) and assign(s) including any transferee from it.

8.2 The Assignor shall not assign or transfer all or any of its rights, benefits and obligations hereunder.

9. ADDITIONAL CLAUSES

9.01 Clauses 15 to 25 inclusive of the Loan Agreement shall be deemed to be incorporated in this Assignment mutatis mutandis.

IN WITNESS whereof this Assignment has been entered into on the day and year first above written.

SEALED with the Common Seal	)
of the Assignor and	)
SIGNED by	)
	)
in the presence of :-	)

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Schedule 2

Dated the     day of     

DSG INTERNATIONAL LIMITED

(“Guarantor”)

and

DIAMOND LEASE (HONG KONG) LIMITED

ORIX ASIA LIMITED

TOKYO LEASING (HONG KONG) LIMITED

(“Lender”)

GUARANTEE AND INDEMNITY

FRED KAN & CO.

SOLICITORS & NOTARIES

HONG KONG

Sch2

THIS GUARANTEE AND INDEMNITY is made this     day of

BY

DSG INTERNATIONAL LIMITED, a company incorporated under the laws of the British Virgins Islands and having its registered office at Craigmuir Chambers, Road Town, Tortola, British Virgin Islands (“Guarantor”)

IN FAVOUR OF

(2) The following parties (collectively “Lenders” and severally “Lender”) :

(a) DIAMOND LEASE (HONG KONG) LIMITED, a company incorporated under the laws of Hong Kong whose registered office is situate at Room 402 Far East Finance Centre, 16 Harcourt Road, Hong Kong;

(b) ORIX ASIA LIMITED, a company incorporated under the laws of Hong Kong whose registered office is situate at 30^th Floor, United Centre, 95 Queensway, Hong Kong; and

(c) TOKYO LEASING (HONG KONG) LIMITED, a company incorporated under the laws of Hong Kong whose registered office is situate at Room 1901, MassMutual Tower, 38 Gloucester Road, Wanchai, Hong Kong.

WHEREAS :-

Under the terms of a loan agreement (“Loan Agreement”) of even date and made between (1) Disposable Soft Goods Limited (“Borrower”) and (2) the Lenders, the Lenders have agreed to grant to the Borrower a term loan facility in the total amount of Japanese Yen 1,200,000,000 upon such terms and conditions as therein described (“Facility”) and it is a condition precedent of the grant of the Facility that the Guarantor enter into this Guarantee.

NOW THIS DEED WITNESSES and the Guarantor hereby agrees:

1 INTERPRETATION

1.1 Unless the context otherwise requires or unless otherwise defined in this Guarantee, words and expressions shall have the same respective meanings that are ascribed to them in the Loan Agreement.

1.2 In this Guarantee:

“Exchange Rate” means the rate for converting one currency into another currency which any relevant Lender determines to be prevailing in the relevant foreign exchange market at the relevant time, such determination to be conclusive on the Guarantor;

Sch2-1

“Maximum Liability” means an amount equivalent to 75% of all monies and liabilities which become due by the Covenantors to the Lenders under Clause 2.1 plus expenses of the Lenders in enforcing this Guarantee on a full indemnity basis; where liability is incurred in a currency different from the currency in which the Maximum Liability is stated and the equivalent of that liability in the currency in which the Maximum Liability is stated, calculated at the Exchange Rate, has increased since it was incurred, that increase shall be added to the Maximum Liability.

1.3 In this Guarantee:

(a) references to this Guarantee are to this Guarantee and Indemnity;

(b) references to this Guarantee and any provisions of this Guarantee or to any other document or agreement are to be construed as references to this Guarantee, those provisions or that document or agreement as is in force for the time being and as amended, varied, supplemental, substituted or novated from time to time;

(c) reference to any person are to be construed to include that person’s assigns or transferees or successors in title, whether direct or indirect.

2 GUARANTEE AND INDEMNITY

2.1 The Guarantor hereby irrevocably and unconditionally guarantees to pay to the Lenders on demand, and in the currency in which the same falls due for payment, all monies and liabilities which are now or at any time hereafter shall have been advanced to, become due, owing or incurred by the Covenantors to or in favour of the Lenders under or in connection with any of the Security Documents.

2.2 The Guarantor, as principal obligor and as a separate and independent obligation and liability from its obligations and liabilities under Clause 2.1, irrevocably and unconditionally agrees to indemnify the Lenders in full on demand against all losses, costs and expenses suffered or incurred by the Lenders arising from or in connection with the Lenders’ making available any of the facilities under the Security Documents.

2.3 The liability of the Guarantor under Clause 2.1 shall not exceed and shall be limited to the Maximum Liability.

2.4 The Guarantor hereby agrees to indemnify and keep indemnified the Lenders on demand by the Lenders against all losses, costs and expenses suffered or incurred by the Lenders in relation to this Guarantee.

2.5 The obligations of the Guarantor hereunder shall be a continuing security and shall cover and secure the ultimate balance of the Secured Indebtedness from time to time.

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3 LENDERS PROTECTIONS

3.1 The Guarantor acknowledges and agrees that this Guarantee is and at all times shall be a continuing security and shall extend to cover the ultimate balance due at any time from the Borrower to the Lenders under or in respect of any of the Security Documents.

3.2 The Guarantor acknowledges and agrees that none of its liabilities under this Guarantee shall be reduced, discharged or otherwise adversely affected by:

(a) any variation, extension, discharge, compromise, dealing with, exchange or renewal of any right or remedy which any Lender may now or hereafter have from or against any Covenantor and any other person in respect of any of the obligations and liabilities of any Covenantor and any other person under and in respect of the Security Documents; or

(b) any act or omission by any Lender or any other person in taking up, perfecting or enforcing any security or guarantee from or against any Covenantor and any other person; or

(c) any of the administration, insolvency, bankruptcy, liquidation, winding-up, incapacity, limitation, disability, the discharge by operation of law and any change in the constitution, name and style of any Covenantor and any other person; or

(d) any act or omission which would not have discharged or affected the liability of the Guarantor had it been a Borrower instead of guarantor or indemnitor or by anything done or omitted by any person which but for this provision might operate to exonerate or discharge the Guarantor or otherwise reduce or extinguish its liability under this Guarantee; or

(e) the enforcement or absence of enforcement of any provision of the Security Documents; or

(f) the illegality, invalidity or unenforceability of any defect in any provision of the Security Documents or any of the obligations of any Covenantor thereunder; or

(g) any party to any of the Security Documents not being bound by any of the same by reasons of failure to execute the same or otherwise.

3.3       (a)       The obligations and liabilities expressed to be undertaken by the Guarantor under this Guarantee are those of primary obligor and not merely as a surety.

(b) A Lender shall not be obliged before taking steps to enforce any of its rights and remedies under this Guarantee to take any action or obtain judgment against any Covenantor and any other person.

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3.4 The Guarantor warrants to the Lenders that it has not taken or received, and agrees not to take, exercise or receive the benefit of any security or other right or benefit from or against any Covenantor and any other person in respect of any liability of or payment by the Guarantor under this Guarantee or otherwise in connection with this Guarantee.

3.5 The Guarantor waives all rights of subrogation and agrees not to demand or accept repayment in whole or in part of any loans or advances then or thereafter due to the Guarantor from any of the Covenantors or to demand or accept any security in respect thereof or to assign the same or charge the same as security or to take any step to enforce any right against any of the Covenantors or to claim any set-off or counterclaim against any of the Covenantors or to claim for composition with any Lender or have the benefit of any share in any payment or composition from any of the Covenantors or in any guarantee or security now or hereafter held by any Lender.

3.6 The Guarantor declares that it has received no security for giving this Guarantee and Indemnity and agrees that should any such security be created while any Secured Indebtedness remains undischarged, any such security shall, unless otherwise agreed by the Lenders be held as security for the obligations of the Guarantor hereunder and shall forthwith be deposited with the Lenders accordingly. The Guarantor agrees that if default is made in observing the preceding provisions of this Clause 3.6, any security taken in contravention and all moneys at any time received in respect thereof shall be held in trust for the Lenders as security for the liability of the Guarantor to the Lenders hereunder.

3.7 The Lenders shall be entitled to the rights under this Guarantee in proportion to the actual amount of their respective participation of the Facility.

4 REPRESENTATIONS AND WARRANTIES

4.1 The Guarantor represents and warrants to the Lenders jointly and each of them severally that:-

(a) it is duly incorporated, in good standing and validly existing with its registered office at the address indicated above, is duly qualified and registered to do business and has full power, authority (corporate and otherwise) and legal right to own its assets and to carry on the business in which it is engaged;

(b) it has full power, authority (corporate and otherwise) and legal right to engage in the transactions contemplated by this Guarantee and to enter into and to exercise its rights and perform all its obligations under this Guarantee and has taken or obtained all necessary corporate and other action to authorize the execution and delivery thereof and the performance of all its obligations hereunder;

(c) this Guarantee constitutes valid and binding obligations on the Guarantor enforceable in accordance with its respective terms;

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(d) the obligations of the Guarantor under this Guarantee are, or when incurred will be, direct, unconditional, irrevocable and general obligations of the Guarantor and rank and will rank at least pari passu with all other direct or contingent unsecured liabilities of the Guarantor;

(e) neither the execution and delivery of this Guarantee nor the performance or observance by the Guarantor of any of its obligation or the exercise of any of its rights thereunder will:-

(i) conflict with any law or regulation, order or authorization or any agreement or other instrument or any obligation or duty applicable to the Guarantor or any of its assets^: or revenues; or

(ii) cause any limitation on any power of the Guarantor (whether imposed by its memorandum or articles of association or any law or regulation, order, agreement, instrument or otherwise) or upon the power of its board of directors to exercise any such power or any other limitation affecting the Guarantor to be exceeded;

(f) all authorizations required from any governmental or other authority or from any shareholders or creditors of the Guarantor (other than the Lenders) necessary for or in connection with the execution, delivery, performance, validity and enforceability of this Guarantee and all other documents and instruments to be delivered pursuant thereto, and all such authorizations necessary for or in connection with the execution, validity, performance and implementation of the Guarantee have been obtained and are in full force and effect;

(g) no litigation, arbitration or administrative proceeding before or of any court, tribunal, arbitrator or governmental authority is presently taking place, pending or to its knowledge (having made all reasonable enquiries) threatened against the Guarantor, or any of its properties or assets which would be material in relation to the validity, performance and implementation of this Guarantee;

(h) all information provided or to be provided by the Guarantor to any Lender shall be true and correct.

5 SUSPENSE ACCOUNT

Each Lender may place to the credit of a suspense account any monies received under or in connection with this Guarantee and may, at any time, apply any of such monies in or towards satisfaction of any of the Guarantor’s liabilities under Clause 2.1 as such Lender, in its absolute discretion, may from time to time determine.

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6 APPROPRIATION

The Guarantor shall not direct the application by any Lender of any sums received by such Lender from the Guarantor under this Guarantee.

7 NEW ACCOUNTS

(a) If this Guarantee ceases to be continuing for any reason whatsoever, then any Lender may open a new account or accounts in the name of the Borrower.

(b) If any Lender does not open a new account or accounts pursuant to clause 7(a), it shall nevertheless be treated as if it had done so at the time that this Guarantee ceases to be continuing (whether by determination, calling in, demand or otherwise) in relation to the Borrower.

(c) As from that time, all payments made to any Lender by or on behalf of the Borrower shall be credited or be treated as having been credited to the new account or accounts and shall not operate to reduce the amount for which this Guarantee is available at that time nor shall the liability of the Guarantor under this Guarantee in any manner be reduced or affected by any subsequent transactions, receipts or payments into or out of any such accounts.

8 DISCHARGE TO BE CONDITIONAL

Any release, discharge or settlement between the Guarantor and any Lender in relation to this Guarantee shall be conditional upon no right, security, disposition or payment to such Lender by any Covenantor and any other person being void, set aside or ordered to be refunded pursuant to any enactment or law relating to breach of duty by any person, bankruptcy, liquidation, administration, the protection of creditors or insolvency or for any other reason.

If any such right, security, disposition or payment is void or at any time so set aside or ordered to be refunded, the Lenders shall be entitled subsequently to enforce this Guarantee against the Guarantor as if such release, discharge or settlement had not occurred and any such security, disposition, or payment had not been made.

9 PAYMENT AND TAXES

(a) All sums payable by the Guarantor under this Guarantee shall be paid to the Lenders in full without;

(i) any set-off, condition or counterclaim whatsoever; and

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(ii) free and clear of any deduction or withholding whatsoever save only as may be required by law or regulation which in either case is binding on it.

(b) If any deduction or withholding is required by any law, practice or regulation (whether or not such practice or regulation has the force of law) in respect of any payment due from the Guarantor under this Guarantee or is in any event made, the relative sum payable by the Guarantor shall be increased so that, after making the minimum deduction or withholding so required, the Guarantor shall pay to the Lenders and the Lenders shall receive and be entitled to retain on the due date for payment a net sum at least equal to the sum which it would have received had no such deduction or withholding been required to be, or had in fact been, made.

10 DEMANDS AND NOTIFICATIONS BINDING

Any demand, notification or certificate given by any Lender specifying amounts due and payable under or in connection with any of the provisions of this Guarantee shall, in the absence of manifest error, be conclusive and binding on the Guarantor.

11 COSTS

The Guarantor shall, on demand by the Lenders and on a full indemnity basis, pay to each Lender the amount of all costs and expenses which such Lender incurs under or in connection with this Guarantee including costs of enforcing this Guarantee.

12 SET-OFF

Any Lender may, without notice to the Guarantor, apply any credit balance which is at any time held by any office or branch of such Lender for the account of the Guarantor in or towards satisfaction of any sum then due and payable from the Guarantor under this Guarantee.

13 ASSIGNMENT

13.1 Subject to Clause 13.3, each Lender may at any time after the Drawdown Date assign or transfer to one or more bank(s) or financial institution(s) all or any part of its rights and benefits under this Guarantee and all covenants, agreements, representations and warranties herein contained shall survive any assignments or transfer made pursuant to this Clause 13.1 and shall inure to the benefit of any such assignee.

13.2 Subject to Clause 13.3, a Lender may disclose to a potential assignee or transferee of any rights or benefits under this Guarantee proposing to enter into contractual arrangements with such Lender in relation to this Guarantee such information about the Covenantors as such Lender may consider appropriate.

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13.3 A Lender may only exercise its rights under Clause 13.1 with the written consent of other Lenders and may only make disclosure pursuant to Clause 13.2 following such consent. Such Lender shall after written consent having been given by other Lenders, serve on the Guarantor notice informing the Guarantor of its intention to assign its rights and benefit pursuant to Clause 13.1.

14. INDULGENCE

The security herein and the rights of any Lender hereunder shall not be discharged or in any way affected by any time, indulgence, waiver or consent at any time given to any Covenantor or any other person.

15 COMMUNICATIONS

Any demand or notice under this Guarantee shall be in writing signed by an officer or agent of the relevant Lender and (without prejudice to any other effective means of serving it) may be served on the Guarantor personally or by post and either by delivering it to any officer of the Guarantor at any place or by dispatching it addressed to the Guarantor at the Guarantor’s registered or principal office for the time being or a place of business of the Guarantor last known to such Lender. Any such demand or notice delivered personally shall be deemed to have been received immediately upon delivery. Any such deemed or notice sent by post shall be deemed to have been received at the opening of business in the intended places of receipt on the day following the day on which it was posted, even if returned undelivered.

16 PROCESS AGENT

16.1 The Guarantor hereby irrevocably appoints the Borrower as its agent for the service of process in Hong Kong in relation to any matter arising out of this Guarantee, service upon whom shall be deemed completed whether or not forwarded to or received by the aforesaid party. The Guarantor shall inform the Lenders in writing of any change in the address of the process agent within 28 days. If such process agent ceases to be able to act as such or have an address in Hong Kong, the Guarantor agrees to appoint a new process agent in Hong Kong and deliver to the Lenders within 28 days a copy of a written acceptance of appointment by the process agent, upon receipt of which such new appointment shall become effective for the purpose of this Guarantee.

16.2 Nothing in this Guarantee shall affect the right to serve process in any other manner permitted by law.

17 LAW AND JURISDICTION

17.1 This Guarantee is governed by and shall be construed in accordance with Hong Kong law.

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17.2 The Guarantor irrevocably agrees that the courts of Hong Kong are to have exclusive jurisdiction to settle any dispute which may arise out of or in connection with this Agreement.

17.3 The Guarantor irrevocably submits to the jurisdiction of such courts and waive any objection to proceedings in any such court on the ground of venue or on the ground that the proceedings have been brought in an inconvenient forum.

18. ADDITIONAL CLAUSES

18.1 Clauses 15 to 25 inclusive of the Loan Agreement shall be deemed to be incorporated in this Guarantee mutatis mutandis.

IN WITNESS WHEREOF, the Guarantor has executed and delivered this Guarantee as a Deed on the date first written above.

SEALED with the Common Seal of	)
DSG INTERNATIONAL LIMITED	)
and SIGNED by	)
	)
in the presence of:-	)

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Schedule 3

NOTICE OF DRAWING

FROM	:	Disposable Soft Goods Limited
TO	:	Diamond Lease (Hong Kong) Limited ORIX Asia Limited Tokyo Leasing (Hong Kong) Limited

Dear Sirs,

Loan Agreement dated 20^th December 2004

Loan facility to the aggregate extent of JPY 1,200,000,000

We refer to the above Loan Agreement (“Agreement”). Terms and expressions defined in the Agreement have the same meanings in this notice.

We hereby :-

(a) give you irrevocable notice that we wish to make a Drawing of JPY1,200,000,000 on 29^th December 2004 subject to the terms of the Agreement;

(b) request you to remit and advance the Drawing in the manner set out in Clause 2.05 of the Loan Agreement and hereby direct that the payment to be made Toyo Engineering pursuant to Clause 2.05(b) of the Agreement shall be made to the following bank account:

Receiving Bank:	UFJ Bank Limited Tokyo Main Office
	1-1 Otemachi 1-Chome, Chiyoda-ku,
	Tokyo 100-8114, Japan
Account No.:	Current 1646

(c) agree that the Facility shall be deemed to have been fully drawn by us upon application by Diamond Lease of the Drawing in the manner set out in the said Clause 2.05.

We confirm that :

(i) the representations and warranties given by us under the Agreement and any agreement(s) supplemental thereto will be true, correct and fully observed on the proposed day of drawdown and are now true and accurate; and

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(ii) no Event of Default or Potential Default has occurred and is continuing.

For and on behalf of Disposable Soft Goods Limited
by:
	Authorised Signatory

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Schedule 4

Name of Lender	Maximum amount of participation in the Facility
Diamond Lease (Hong Kong) Ltd.	JPY480,000,000.00
ORIX Asia Ltd.	JPY360,000,000.00
Tokyo Leasing (Hong Kong) Ltd.	JPY360,000,000.00

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EX-4.5

EXHIBIT 4.5

ELEVENTH AMENDMENT TO LOAN AGREEMENT

This ELEVENTH AMENDMENT TO LOAN AGREEMENT (this “Amendment”) is entered into as of November 26, 2004, among ASSOCIATED HYGIENIC PRODUCTS LLC, a Delaware limited liability company (“Borrower”), the Lenders signatory hereto, and WELLS FARGO FOOTHILL, INC. (formerly known as Foothill Capital Corporation), a California corporation, in its capacity as administrative agent (“Agent”) for the Lenders.

WITNESSETH:

WHEREAS, Borrower, the Lenders and Agent have entered into that certain Amended and Restated Loan and Security Agreement dated as of March 14, 2001, as amended by that certain First Amendment to Loan Agreement effective as of May 28, 2001 , that certain Second Amendment to Loan Agreement effective as of July 5, 2001, that certain Third Amendment and Waiver to Loan Agreement dated as of September 10, 2001, that certain Fourth Amendment to Loan Agreement dated as of December 19, 2001, that certain Fifth Amendment to Loan Agreement dated as of April 17, 2002, that certain Sixth Amendment to Loan Agreement dated as of November 14, 2002, that certain Seventh Amendment to Loan Agreement dated as of June 19, 2003, that certain Eighth Amendment to Loan Agreement dated as of October 15, 2003, that certain Ninth Amendment to Loan Agreement dated as of March 29, 2004, and that certain Tenth Amendment dated as of May 17, 2004 (as amended and as the same may hereafter be modified, amended, restated or supplemented from time to time, the “Loan Agreement”; all capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement), pursuant to which the Lenders have agreed to make loans and other financial accommodations to Borrower from time to time; and

WHEREAS, Borrower has requested that certain terms and conditions of the Loan Agreement be amended; and

WHEREAS, Agent and the Lenders have agreed to amend the Loan Agreement on the terms and conditions provided herein;

NOW THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Amendments to Loan Agreement.

(a) Section 6.2 of the Loan Agreement, “Collateral Reporting”, is hereby amended and modified by amending and restating clause (c) of such Section in its entirety as follows:

“(c) (i) Inventory reports specifying each Borrower’s cost and the wholesale market value of its Inventory, by category, with additional detail showing additions to and deletions from the Inventory and (ii) in the event Excess Availability (after subtracting the amount of any payables of Borrower which are more than 60 days past due) is $2,000,000 or less at any time, a detailed list of all trade payables and royalty payments of Borrower aged in excess of historical levels with

respect thereto and all book overdrafts in excess of historical practices with respect thereto after the date of such event and until Borrower has demonstrated to the satisfaction of Agent that Borrower has maintained Excess Availability (after subtracting the amount of any payables of the Borrower which are more than 60 days past due) of $2,000,000 or more for a period of 90 consecutive days after such event.”

(b) Section 6 of the Loan Agreement, “Affirmative Covenants”, is hereby amended and modified by adding the following Section to the end such Section:

“6.18 Eleventh Amendment Fee. No later than January 14, 2005, pay to Agent, for the benefit of the Lenders on a pro-rata basis, an amendment fee in the amount of $15,000, which fee shall be fully earned on November 26, 2004, and non-refundable when paid.”

(c) Section 7.8 of the Loan Agreement, “Payments, Prepayments and Amendments”, is hereby amended and modified by amending and restating such Section in its entirety as follows:

“7.8 Payments, Prepayments and Amendments.

(a) Make any payments of principal of, or interest or fees on, Subordinated Note A-2, Subordinated Note B, Subordinated Note A-3 or Subordinated Note A-4; provided, however, that:

(i) Borrower may refinance and pay in full the Subordinated Note A-2 with the proceeds of new subordinated debt provided by an Affiliate of Borrower on terms and conditions, and subject to a Subordination Agreement and other documents, in form and substance satisfactory to Agent;

(ii) Borrower may make regularly scheduled payments of principal on each of Subordinated Note A-3 and Subordinated Note A-4 if (i) no Event of Default has occurred and is continuing, and (ii) Borrower has demonstrated to the satisfaction of Agent that, after giving effect to each such payment, Excess Availability (after subtracting the amount of any payables of Borrower which are more than 60 days past due) is $10,000,000 or more; and

(iii) Borrower may make regularly scheduled payments of interest on each of Subordinated Note A-2, Subordinated Note A-3 and Subordinated Note A-4 if (i) no Event of Default has occurred and is continuing, and (ii) Borrower has demonstrated to the satisfaction of Agent that, after giving effect to each such payment, Excess Availability (after subtracting the amount of any payables of Borrower which are more than 60 days past due) is $2,000,000 or more;

notwithstanding the foregoing, however, in the event Excess Availability (after subtracting the amount of any payables of Borrower which are more than 60 days past due) is less than $2,000,000 at any time, Borrower may not make any regularly scheduled payments of interest on Subordinated Note A-2, Subordinated Note A-3 or Subordinated Note A-4 after such event unless and until Borrower has demonstrated to the satisfaction of Agent that Borrower has maintained Excess

Availability (after subtracting the amount of any payables of the Borrower which are more than 60 days past due) of $2,000,000 or more for a period of 90 consecutive days after such event.

(b) Except in connection with a refinancing permitted by Section 7.1(e), prepay, redeem, defease, purchase, or otherwise acquire any Indebtedness of Borrower, other than the Obligations in accordance with this Agreement.

(c) Except in connection with a refinancing permitted by Section 7.1(e), directly or indirectly, amend, modify, alter, increase, or change any of the terms or conditions of any agreement, instrument, document, indenture, or other writing evidencing or concerning Indebtedness permitted under Sections 7.1(b), (c) or (d).”

2. No Other Amendments or Waivers. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Agent or the Lenders under the Loan Agreement or any of the other Loan Documents, nor constitute a waiver of any provision of the Loan Agreement or any of the other Loan Documents. Except for the amendments set forth above, the text of the Loan Agreement and all other Loan Documents shall remain unchanged and in full force and effect and Borrower hereby ratifies and confirms its obligations thereunder. This Amendment shall not constitute a modification of the Loan Agreement or any of the other Loan Documents or a course of dealing with Agent or the Lenders at variance with the Loan Agreement or the other Loan Documents such as to require further notice by Agent or the Lenders to require strict compliance with the terms of the Loan Agreement and the other Loan Documents in the future, except as expressly set forth herein. Borrower acknowledges and expressly agrees that Agent and the Lenders reserve the right to, and do in fact, require strict compliance with all terms and provisions of the Loan Agreement and the other Loan Documents. Borrower has no knowledge of any challenge to Agent’s or any Lenders’ claims arising under the Loan Documents, or to the effectiveness of the Loan Documents.

3. Conditions Precedent to Effectiveness. This Amendment shall become effective as of the date hereof when, and only when, Agent shall have received:

(a) counterparts of this Amendment duly executed and delivered by Borrower and the Lenders; and

(b) such other information, documents, instruments or approvals as Agent or Agent’s counsel may reasonably require.

4. Representations and Warranties of Borrower. Borrower represents and warrants as follows:

(a) Borrower is a limited liability company organized, validly existing and in good standing under the laws of the jurisdiction indicated at the beginning of this Amendment and all other jurisdictions in which the failure to be so qualified reasonably could be expected to constitute a Material Adverse Change;

(b) The execution, delivery, and performance by Borrower of this Amendment and the Loan Documents to which it is a party, as amended hereby, are within Borrower’s

limited liability company powers, have been duly authorized by all necessary limited liability company action and do not and will not (i) violate any provision of federal, state, or local law or regulation applicable to Borrower, the Governing Documents of Borrower, or any order, judgment, or decree of any court or other Governmental Authority binding on Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of Borrower, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of Borrower, other than Permitted Liens, or (iv) require any approval of Borrower’s members or any approval or consent of any Person under any material contractual obligation of Borrower;

(c) The execution, delivery, and performance by Borrower of this Amendment and the Loan Documents to which it is a party, as amended hereby, do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other Person;

(d) This Amendment and each other Loan Document to which Borrower is a party, and all other documents contemplated hereby and thereby, when executed and delivered by Borrower will be the legally valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally; and

(e) No Default or Event of Default exists.

5. Counterparts. This Amendment may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which, taken together, shall constitute one and the same agreement. In proving this Amendment in any judicial proceedings, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom such enforcement is sought. Any signatures delivered by a party by facsimile transmission shall be deemed an original signature hereto.

6. Reference to and Effect on the Loan Documents. Upon the effectiveness of this Amendment, on and after the date hereof each reference in the Loan Agreement to ‘“this Agreement,” “hereunder,” “hereof” or words of like import referring to the Loan Agreement, and each reference in the other Loan Documents to “the Loan Agreement” “thereunder,” “thereof” or words of like import referring to the Loan Agreement, shall mean and be a reference to the Loan Agreement as amended hereby.

7. Costs, Expenses and Taxes. Borrower agrees to pay on demand all costs and expenses in connection with the preparation, execution, and delivery of this Amendment, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for Agent with respect thereto and with respect to advising Agent as to its rights and responsibilities hereunder. Borrower hereby acknowledges and agrees that Agent may, without prior notice to Borrower, charge such costs and fees to Borrower’s Loan Account pursuant to Section 2.6(d) of the Loan Agreement, which amounts shall constitute Advances under the Loan Agreement and shall accrue interest at the rate then applicable to Advances thereunder.

8. Governing Law. This Amendment shall be deemed to be made pursuant to the laws of the State of Georgia with respect to agreements made and to be performed wholly in the State of Georgia, and shall be construed, interpreted, performed and enforced in accordance therewith.

9. Loan Document. This Amendment shall be deemed to be a Loan Document for all purposes.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the day and year first written above.

BORROWER:	ASSOCIATED HYGIENIC PRODUCTS LL
	By:	/s/ Owen Connelly
	Name:	Owen Connelly
	Title:	Vice President Finance & MIS
AGENT
and LENDER:	WELLS FARGO FOOTHILL, INC.
	as Agent and a Lender
	By:	/s/ Kristy Loucks
	Name:	Kristy Loucks
	Title:	Vice President

CONSENT TO RELEASE OF LIENS AND EQUIPMENT SALE

This CONSENT TO RELEASE OF LIENS AND EQUIPMENT SALE (this “Consent”) is entered into as of November 26, 2004, among ASSOCIATED HYGIENIC PRODUCTS LLC, a Delaware limited liability company (“Borrower”), the Lenders signatory hereto, and FOOTHILL CAPITAL CORPORATION, a California corporation, in its capacity as administrative agent (“Agent”) for the Lenders (as defined below).

WITNESSETH:

WHEREAS, Borrower, the Lenders and Agent have entered into that certain Amended and Restated Loan and Security Agreement dated as of March 14, 2001, as amended by that certain First Amendment to Loan Agreement effective as of May 28, 2001, that certain Second Amendment to Loan Agreement effective as of July 5, 2001, that certain Third Amendment and Waiver to Loan Agreement dated as of September 10, 2001, that certain Fourth Amendment to Loan Agreement dated as of December 19, 2001, that certain Fifth Amendment to Loan Agreement dated as of April 17, 2002, that certain Sixth Amendment to Loan Agreement dated as of November 14, 2002, that certain Seventh Amendment to Loan Agreement dated as of June 19, 2003, that certain Eighth Amendment to Loan Agreement dated as of October 15, 2003, that certain Ninth Amendment to Loan Agreement dated as of March 29, 2004, and that certain Tenth Amendment to Loan Agreement dated as of May 17, 2004 (as amended and as the same may hereafter be modified, amended, restated or supplemented from time to time, the “Loan Agreement”), pursuant to which the Lenders have agreed to make loans and other financial accommodations to Borrower from time to time; and

WHEREAS, pursuant to Section 7.4 of the Loan Agreement, Borrower is permitted to dispose of Equipment included by Agent in the calculation of the Term Loan B Amount so long as the disposition is a Permitted Disposition and the proceeds of the disposition are used to repay the Term Loan as provided in such Section; and

WHEREAS, Borrower intends to sell the Nuova Red A-1 Machine located at its Oconto Falls, Wisconsin, facility and more fully described on Schedule A hereto (the “Nuova Equipment”) on a future date and use the proceeds of the sale for purposes other than the repayment of the Term Loan as required by Section 7.4 of the Loan Agreement (such sale, the “Equipment Sale”); and

WHEREAS, the sale of the Nuova Equipment is not a Permitted Disposition, and Borrower has requested that Agent and the Lenders consent to the Equipment Sale and release their Liens on the Nuova Equipment in anticipation of the Equipment Sale; and

WHEREAS, Agent and the Lenders have agreed to (a) consent to the Equipment Sale and (b) release their Liens on the Nuova Equipment, all on the terms and conditions provided herein;

NOW THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree that all capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement and further agree as follows:

1. Consent to Equipment Sale: Release of Liens.

(a) The Lenders authorize Agent to release any and all liens or security interests held by them pursuant to the Loan Agreement against the Nuova Equipment, so long as, prior to such release (a) Agent shall have received evidence that Guaranty Business Credit Corporation shall have terminated and released all of its Liens on the equipment more particularly described on Schedule B attached hereto (the “PCMC Equipment”), including, without limitation, evidence of the filing, in each office where Guaranty Business Credit Corporation filed a UCC-l Financing Statement naming the PCMC Equipment as collateral, of a Uniform Commercial Code Financing Statement Amendment terminating such UCC-l Financing Statement, and (b) the Lien granted to Agent by Borrower pursuant to the Loan Agreement shall be a first priority perfected Lien on the PCMC Equipment. Agent and the Lenders acknowledge that, as of the effective date of the satisfaction of the conditions set forth in this Section l(a), neither Agent nor the Lenders shall have a continuing right or interest in the Nuova Equipment.

(b) Agent and the Lenders here by consent to the Equipment Sale.

(c) Upon execution of this Consent by Borrower and satisfaction of the conditions set forth in Section l(a) hereof, Agent agrees to file such documents as Borrower may reasonably request, at Borrower’s expense, in order to release Agent’s Lien on the Nuova Equipment, including, without limitation, Uniform Commercial Code Financing Statement Amendments, as appropriate, for filing in each office where a UCC- 1 Financing Statement has been filed or other instruments are required to terminate the filings or recordings in favor of Agent with respect to the Nuova Equipment.

2. No Other Amendments or Waivers. The execution, delivery and effectiveness of this Consent shall not operate as a waiver of any right, power or remedy of Agent or the Lenders under the Loan Agreement or any of the other Loan Documents, nor constitute a waiver of any provision of the Loan Agreement or any of the other Loan Documents. Borrower acknowledges and expressly agrees that Agent and the Lenders reserve the right to, and do in fact, require strict compliance with all terms and provisions of the Loan Agreement and the other Loan Documents. Borrower has no knowledge of any challenge to Agent’s or any Lenders’ claims arising under the Loan Documents, or to the effectiveness of the Loan Documents.

3. Conditions Precedent to Effectiveness. This Consent shall become effective as of the date hereof when, and only when, Agent shall have received:

(a) counterparts of this Consent duly executed and delivered by Borrower and the Lenders; and

(b) such other information, documents, instruments or approvals as Agent or Agent’s counsel may reasonably require.

4. Representations and Warranties of Borrower. Borrower represents and warrants as follows:

(a) Borrower is a limited liability company organized, validly existing and in good standing under the laws of the jurisdiction indicated at the beginning of this Consent and all other jurisdictions in which the failure to be so qualified reasonably could be expected to constitute a Material Adverse Change;

(b) The execution, delivery, and performance by Borrower of this Consent and the Loan Documents to which it is a party are within Borrower’s limited liability company powers, have been duly authorized by all necessary limited liability company action and do not and will not (i) violate any provision of federal, state, or local law or regulation applicable to Borrower, the Governing Documents of Borrower, or any order, judgment, or decree of any court or other Governmental Authority binding on Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of Borrower, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of Borrower, other than Permitted Liens, or (iv) require any approval of Borrower’s members or any approval or consent of any Person under any material contractual obligation of Borrower;

(c) The execution, delivery, and performance by Borrower of this Consent and the Loan Documents to which it is a party do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other Person;

(d) This Consent and each other Loan Document to which Borrower is a party, and all other documents contemplated hereby and thereby, when executed and delivered by Borrower will be the legally valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally;

(e) No Liens on the PCMC Equipment exist other than the Lien of Agent; and

(f) No Default or Event of Default exists.

5. Counterparts. This Consent may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which, taken together, shall constitute one and the same agreement. In proving this Consent in any judicial proceedings, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom such enforcement is sought. Any signatures delivered by a party by facsimile transmission shall be deemed an original signature hereto.

6. Costs, Expenses and Taxes. Borrower agrees to pay on demand all costs and expenses in connection with the preparation, execution, and delivery of this Consent and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for Agent with respect thereto and with respect to advising Agent as to its rights and responsibilities hereunder and thereunder. Borrower hereby acknowledges and agrees that Agent may, without prior notice to Borrower, charge such costs and fees to Borrower’s Loan Account pursuant to Section 2.6(d) of the Loan Agreement, which amounts shall constitute Advances under the Loan Agreement and shall accrue interest at the rate then applicable to Advances thereunder.

7. Governing Law. This Consent shall be deemed to be made pursuant to the laws of the State of Georgia with respect to agreements made and to be performed wholly in the State of Georgia, and shall be construed, interpreted, performed and enforced in accordance therewith.

8. Loan Document. This Consent shall be deemed to be a Loan Document for all purposes.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Consent as of the day and year first written above.

BORROWER:	ASSOCIATED HYGIENIC PRODUCTS LLC
	By:	/s/ Owen Connelly
	Name:	Owen Connelly
	Title:	Vice President Finance & MIS
AGENT
and LENDER:	WELLS FARGO FOOTHILL, INC.
	as Agent and a Lender
	By:	/s/ Kristy Loucks
	Name:	Kristy Loucks
	Title:	Vice President

SCHEDULE A

NUOVA EQUIPMENT

Location	Description	Serial Number
Oconto Falls, Wisconsin	1980’s Nuova Red Elastic Leg Adult Diaper Machine	N/A

SCHEDULE B

NUOVA EQUIPMENT

Location	Description	Serial Number
Marion, Ohio	1986 PCMC Adult Diaper Machine	6937

EX-4.6

Exhibit 4.6

TRANSLATION

For and on behalf of

                        DSG INTERNATIONAL LIMITED

BANK THAI (PUBLIC) COMPANY LIMITED

- Signded -    - Signded -

GUARANTEE AGREEMENT

Authorized Signature

Done at Bank Thai (Public) Company Limited

Date                                         

(A) We { DSG International Ltd.,              nationality                                  (Name of juristic person) Registration No. Represented by                                          the authorized person                      Aged          years, of              ethnicity              nationality. (Name of natural person) Citizenship ID Card No                             .

Having the office located at No.          Village No. - on                      Road              Subdistrict

                             District                              Province Bangkok Metropolis.

(B) We {                                           of                                          nationality. (Name of juristic person) Registration No                                          . Represented by                      the authorized person                     .                      Aged          years, of              ethnicity              nationality (Name of natural person) Citizenship ID Card No                             .

Having the office located at No.          Village No.      on Soi                         

Road                      Sub-district                      District                     

Province                                         

(C) We {                                           of                                          nationality. (Name of juristic person) Registration No                                          . Represented by                      the authorized person                     .                      Aged          years, of              ethnicity              nationality (Name of natural person) Citizenship ID Card No                             .

Having the office located at No.          Village No.      on Soi                         

Road                      Sub-district                      District                     

Province                                         

(D) We {                                           of                                          nationality. (Name of juristic person) Registration No                                          . Represented by                      the authorized person                     .                      Aged          years, of              ethnicity              nationality (Name of natural person) Citizenship ID Card No                             .

Having the office located at No.          Village No.      on Soi                         

Road                      Sub-district                      District                     

Province                                         

hereinafter shall be referred to as the “GUARANTOR”, agrees to enter into this Guarantee Agreement in favour of BANK THAI (PUBLIC) COMPANY LIMITED, which hereinafter shall be referred to as the “BANK” upon the terms and conditions as follows:

Clause 1. The Guarantor hereby undertakes to underwrite every type of debt of DSG INTERNATIONAL (THAILAND) COMPANY LIMITED, which hereinafter shall be referred as the “Debtor”, who prior to the signing of this Agreement is already indebted to the Bank and/or is indebted at the time of signing this Agreement including debts that the Debtor shall have owed to the Bank after the date of signing this Agreement, irrespective of whether or not it is the debt of an overdrawn loan facility, an overdraft facility, the debt in relation to the letter of credit, trust receipt, the discount/rediscount sale of bills, debt in relation to an aval or acceptance of bills at the request of the Debtor; or other debts which are related to bills, money notes, a debt incurred in connection with hedging and against possible loss for currency exchange rate as a result of the fluctuation of the foreign exchange market before or after the date of delivery. The debts related to the issue by the Bank of the Letter of Guarantee to the debtor and any other liabilities, including debts incurred in connection with debt restructuring or debt incurred as a result of composition or arrangement with the debtor, the Guarantor hereby agrees to underwrite as a joint debtor with the Debtor for payment of debt to the Bank in the amount of 67,000,000.- Baht (Sixty Seven Million Baht only).

In addition to debts to the credit line as mentioned in the preceding paragraph, the Guarantor further agrees that the Guarantor shall yet be liable for other accessory obligations including all damages that the Bank must suffer in connection with dunning notices or payment demands or taking legal action against the debtor to enforce the payment of debt.

As the guarantee pursuant to the preceding paragraph is to underwrite the debt that has existed before or at the signing of this Agreement and/or that which shall have existed in the future, both the Guarantor and the Bank mutual agree that in the event of payment of debt having been made by the Debtor to the Bank as long as the Bank has not delivered a notice to notify that the Guarantor is duly released of its obligations under this Guarantee Agreement, it shall be held that this Guarantee Agreement is still in full force and effect to underwrite also the debts that may have incurred in the future or newly incurred debt with the Bank.

Clause 2. In the event that the Debtor has defaulted on payment for every item or any particular item of debt or that the Debtor at court order has gone into the official receivership or that the Debtor has died, become an incompetent person or quasi-incompetent person or has disappeared or been absent from the domicile or cannot be found; or in the event that the Debtor may be no longer unable to enjoy the benefits of the condition on the beginning and end of time or has ceased or dissolved its business or its business has been seized or attached according to the order or writ of execution of court or competent officer; or in any other event that preclude the operation of business, the Guarantor further agrees that it shall forthwith pay the outstanding debt of the debtor to the Bank; and the Guarantor further agrees to permit the Bank to debit every type of accounts of the Guarantor it has had with the Bank for settlement of debt under this Agreement immediately. The Guarantor’s liability shall be as a joint debtor to the Debtor and further permits the Bank to demand that any particular guarantor or every or several guarantors as the Bank may deem fit make

payment of the underwritten debt, either in part or in whole, immediately, without giving prior notice to the Debtor. And the Guarantor further agrees that it shall not raise any one particular grounds as a claim or as an excuse to release the guarantor from the liability existed under this Agreement.

In the event that the debt underwritten under this Agreement is a debt incurred as a result of issuance by the Bank of a Letter of Guarantee to third party at the request of the Debtor, the Guarantor shall give its consent in writing to the effect that if the Creditor demands that the Bank make payment under the Letter of Guarantee issued by the Bank, the Bank has the right to make a payment according to such demand immediately without prior notice to the Guarantor and/or to the Debtor; and without questioning the Debtor that if the Debtor shall still have a defense or although the Bank shall be informed that the Debtor still has a defense, if the Bank shall deem fit, then the Bank shall have the right to make such payment without raising a defense that the Debtor has had against the Creditor.

Clause 3. The Guarantor agrees to allow the Bank to grant an extension of time or renew the Agreement in favor of the Debtor or agrees to a new debt restructuring or amendment to various types of agreements related to debts pursuant to Clause 1 and/or documents that are held to form part of said various types of the agreements or any agreements relating to the debt mentioned in Clause 1 or enter into a compromise agreement with the debtor as the Bank may deem fit without prior notice to or prior consent of the Guarantor. The Guarantor shall not hold the said extension of time or renewal of the Agreement or the new debt restructuring or amendment to various types of the agreements relating the debt pursuant to Clause I and/or the entering into the said compromise agreement as grounds for release of its liability absolutely.

Clause 4. This guarantee shall be valid indefinitely and the Guarantor shall not revoke this guarantee regardless of grounds so long as the Bank has not received the payment of debt mentioned in Clause 1 in full.

Clause 5. This Guarantee is validly binding upon the Guarantor although it shall subsequently appear that the debtor shall not be held liable on grounds of the execution of mistaken legal act that gives rise to the debt or on grounds that the debtor becomes an incompetent person or such legal act is invalid regardless of causes, without consideration that while entering into a guarantee agreement, the Guarantor is whether or not aware of the grounds of such mistake or incompetence or invalidity of such legal act.

Clause 6. The Bank reserves the right to discharge the debt either in part or in whole, in favor of the debtor or the right to waiver to enforce the judgment, the pledge agreement, the mortgage agreement or any security, which has already existed or that shall have existed in the future, whether in part or in whole, with or without notice to the Guarantor, the Guarantor shall yet be held liable therefore under this Agreement and the Guarantor shall not raise these circumstances as a claim or an excuse for it to be released of the liability under this Agreement until such time the underwritten debt shall have been paid in full.

Clause 7. The Bank reserves the right to assert a claim or a non-claim or to release the obligation in favor of any particular Guarantor without prior consent of or notice to other Guarantors. The remaining other Guarantors shall yet be liable for payment of debt to the amount that the Debtor owes to the Bank until such time the Bank shall have received the payment of debt in full.

Clause 8. In the event of death of the Debtor and the Bank has not instituted legal proceedings to enforce payment of debt against the Debtor’s heir or estate or successor or assignee until the expiration of 1 year of the date of the death of the Debtor, the Guarantor shall waive the right to raise the statute of limitations as a defense against the Bank and shall further agree to settle the debt of the amount stands outstanding to the Bank until such time the Bank shall have received the payment of debt in full.

Clause 9. Even though any acts done by the Bank may have precluded the Guarantor from subrogating either in part or in whole the rights, the mortgage, the ledge, the preferential rights or any one of them, which the Debtor has given to the Bank prior to or at the time of signing the Guarantee Agreement for payment of debt, the Guarantor shall not be released of its liability whether in part or in whole.

Clause 10. Throughout the period of time that the Bank has not yet received the payment of debt or any money as specified in Clause 1 in full, the Guarantor agrees that it shall not assume the subrogation of rights from the Bank to claim repayment against the Debtor’s property.

Clause 11. In the event of any refund to be made by the Bank of any money it has received to the execution officer or official receiver or to any individual by the effect of the law or the court order or to competent officer, the Guarantor agrees to acknowledge that the Bank has not yet received the payment of debt and the Guarantor then agrees to repay the money to the Bank in full.

Clause 12. If the Guarantor has relocated its domicile, it is the duty of the guarantor to give a written notice thereof to the Bank and an array of contact letters, dunning letters, notices or any other letters to be delivered to the Guarantor, whether or not sent by registered mail or delivered by hand, if it has been sent to the location, address specified herein above or to a new address as may be notified by the Guarantor, it shall be considered that it has been duly sent to the Guarantor irrespective of whether or not it is actually received by a person.

Clause 13. The Guarantor agrees to hand over the following: ___________________________________________________

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

to be held in possession of the Bank as security until such time the Bank shall have received payment of debt in full.

To witness, the Guarantor has affixed its signature together with the corporate Seal (if there is any) as evidence on the date, in the month and the year shown above.

For and on behalf of

DSG INTERNATIONAL LIMITED

- Company Seal Affixed -

Signature:	- Signed -        - Signed -	Guarantor
	(Authorised Signature)
Signature:		Guarantor
	(                                                                             )
Signature:		Guarantor
	(                                                                             )
Signature:		Witness
	(                                                                             )
Signature:	- Signed -	Witness
	(Asanee Wangbiboolchai)
Signature:	- Signed -	Witness/Typist
	(Mr. Pongchan Chuayboonchoom)

EX-4.7

Exhibit 4.7

TRANSLATION

- Company Seal Affixed - Signed -

MEMORANDUM OF UNDERSTANDING FOR AMENDING /APPLYING FOR

[FIRST AMENDMENT] OF THE AGREEMENT

- Signed -

We, DSG International (Thailand) Co., Ltd., having the office located at No. 448/11 on Soi Ladprao 53 (Chokchai 4), Ladprao Road, Ladprao Sub-district, Ladprao District, Bangkok Metropolis, hereinafter shall be referred to as the “Borrower”, hereby enter into the Bill Credit Facility Agreement and the Memorandum of Understanding Annexed to the Bill Credit Facility Agreement dated 10 November 2004 in favour of Bank Thai (Public) Company Limited, hereinafter shall be referred to as the “Leader”, which shall collectively be referred to as the “Original Agreement”, upon the terms and conditions as follows:

Now that the Borrower is desirous of amending the terms and conditions of the Original Agreement in favour of the Lender according to the details as follows:

Clause 1. The Borrower hereby agrees to reduce the credit line from the original credit line of 280,000,000.- Baht (Two Hundred and Eighty Million Baht only) by 37,000,000- Baht (Thirty Seven Million Baht only) to the amount of 243,000,000.- Baht (Two Hundred and Forty Three Million Baht only) by holding that this Memorandum of Understanding is also the Application for the reduction of the said Credit Line.

Clause 2. The Borrower agrees to revoke the original terms in sub-clause 2.2 of the said Memorandum of Understanding Annexed to the Bill Credit Facility Agreement to be replaced by the following terms “The Borrower has already appointed BT Securities Co., Ltd., as the Co-underwriter or the Joint Lead Underwriter of the share of the Borrower’s company”.

Clause 3. The Borrower agrees to revoke the original terms in Clause 3 to be replaced by the following terms “The Borrower agrees that upon the Borrower having received the fund from the capital increase (new share to increase the capital from the right issue) of 90,000,000.- Baht (Ninety Million Baht only), which is required to increase the original capital of 25,000,000.- Baht (Twenty Five Million Baht only) to the amount of 115,000,000.- Baht (One Hundred and Fifteen Million Baht only) within 30 days of the loan draw-down under this Agreement and the Borrower agrees to repay the debt using the whole amount of the fund received from the initial public offering (IPO)”.

Clause 4. The borrower agrees that the terms of contract, the terms of agreement and/or other terms and conditions besides those that are revised, amended under this Memorandum of Understanding shall continue to be valid and enforceable under the above-mentioned original agreement in every respect unless the agreement or the terms contradict or dispute this Memorandum of Understanding, the Memorandum or Conditions contained in this Amended Memorandum of Understanding shall prevail and enforceable and it shall be held that this Amended Memorandum of Understanding also forms part of the said original Agreement.

To witness, we, the Borrower/Guarantor/Mortgagor/Pledgor for security having already acknowledged the provisions pursuant to this Memorandum of Understanding and agree to be bound for the purpose of security, guarantee/mortgage/ as security against settlement of the Borrower’s debt as well as any debt arising from novation until such time the Borrower shall have repaid the Bank in full, hereto affix our signature together with the Seal (if there is any) in the presence of witnesses on the date, in the month, in the year specified above.

DSG International (Thailand) Co., Ltd.

- Company Seal Affixed - -                                                                                                          

Signature:         - Signed -         - Signed -         Borrower/Mortgagor

(Represented by                                                      )                        

Advance Medical Supply Co., Ltd.

                                                                                                                  - Company Seal Affixed -

            Signature:         - Signed -              - Signed -                  Guarantor

(                                                                                              )

Signature:	Witness	Signature:	Witness/Typist
		(Mr. Pongchan Chuaybunchum)

EX-4.8

EXHIBIT 4.8

TENTH AMENDMENT TO LOAN AGREEMENT

This TENTH AMENDMENT TO LOAN AGREEMENT (this “Agreement”) is entered into as of May 17, 2004, among ASSOCIATED HYGIENIC PRODUCTS LLC, a Delaware limited liability company (“Borrower”), the Lenders signatory hereto, and WELLS FARGO FOOTHILL, INC. (formerly known as Foothill Capital Corporation), a California corporation, in its capacity as administrative agent (“Agent”) for the Lenders.

WITNESSETH:

WHEREAS, Borrower, the Lenders and Agent have entered into that certain Amended and Restated Loan and Security Agreement dated as of March 14, 2001, as amended by that certain First Amendment to Loan Agreement effective as of May 28, 2001, that certain Second Amendment to Loan Agreement effective as of July 5, 2001, that certain Third Amendment and Waiver to Loan Agreement dated as of September 10, 2001, that certain Fourth Amendment to Loan Agreement dated as of December 19, 2001, that certain Fifth Amendment to Loan Agreement dated as of April 17, 2002, that certain Sixth Amendment to Loan Agreement dated as of November 14, 2002, that certain Seventh Amendment to Loan Agreement dated as of June 19, 2003, that certain Eighth Amendment to Loan Agreement dated as of October 15, 2003, and that certain Ninth Amendment to Loan Agreement dated as of March 29, 2004 (as amended and as the same may hereafter be modified, amended, restated or supplemented from time to time, the “Loan Agreement”; all capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement), pursuant to which the Lenders have agreed to make loans and other financial accommodations to Borrower from time to time; and

WHEREAS, pursuant to Section 7.20(a)(iii) of the Loan Agreement, Agent shall establish the quarterly minimum EBITDA and minimum Net Worth covenants for each fiscal year of Borrower based upon the business Plan provided by Borrower for such fiscal year and using the same methodology as utilized for the 2001 and 2002 fiscal year EBITDA and Net Worth covenants; and

WHEREAS, Borrower, Agent and the Lenders have agreed to amend the Loan Agreement to set forth the quarterly minimum EBITDA and minimum Net Worth covenants for the 2004 fiscal year of Borrower on the terms and conditions provided herein;

NOW THEREFORE, in consideration of the foregoing premises and other goods and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Amendment to Loan Agreement

(a) Section 7.20(a)(i) of the Loan Agreement is hereby amended and modified by amending and restating such Section in its entirety as follows:

(ii) Minimum EBITDA. EBITDA, measured on a fiscal quarter-end basis, of not less than the required amount set forth in the following table for the applicable period set forth opposite thereto:

Applicable Amount		Applicable Period
$	376,000	For the 3 month period ending March 31, 2004
$	1,664,000	For the 6 month period ending June 30, 2004
$	2,962,000	For the 9 month period ending September 30, 2004
$	4,162,000	For the 12 month period ending December 31, 2004

(b) Section 7.20(a)(ii) of the Loan Agreement is hereby amended and modified by amending and restating Such section in its entirety as follows:

(ii) Tangible Net Worth. Tangible Net Worth of at least the required amount set forth in the following table as of the applicable date set forth opposite thereto:

Applicable Amount		Applicable Period
$	(9,023,000)	as of March 31, 2004
$	(7,444,000)	as of June 30, 2004
$	(6,264,000)	as of September 30, 2004
$	(5,694,000)	as of December 31, 2004

2. No Other Amendments or Waivers. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Agent or the Lenders under the Loan Agreement or any of the other Loan Documents, nor constitute a waiver of any provision of the Loan Agreement of any of the other Loan Documents. Except for the amendments set forth above, the text of the Loan Agreement and all other Loan Documents shall remain unchanged and in full force and effect and Borrower hereby ratifies and confirms its obligations thereunder. This Amendment shall not constitute a modification of the Loan Agreement or any of the other Loan Documents or a course of dealing with Agent or the Lenders at variance with the Loan Agreement or the other Loan Documents such as to require further notice by Agent or the Lenders to require strict compliance with the terms of the Loan Agreement and the other Loan

Documents in the future, except as expressly set forth herein. Borrower acknowledges and expressly agrees that Agent and the Lenders reserve the right to, and do in fact, require strict compliance with all terms and provisions of the Loan Agreement and the other Loan Documents. Borrower has no knowledge of any challenge to Agent’s or any Lender’s claims arising under the Loan Documents, or to the effectiveness of the Loan Documents.

3. Conditions Precedent to Effectiveness. This Amendment shall become effective as of the date hereof when, and only when, Agent shall have received counterparts of this Amendment duly executed and delivered by Borrower and the Lenders.

4. Representatives and Warranties of Borrower. Borrower represents and warrants as follows:

(a) Borrower is a limited liability company organized, validly existing and in good standing under the laws of the jurisdiction indicated at the beginning of this Amendment and all other jurisdictions in which the failure to be so qualified reasonably could be expected to constitute a Material Adverse Change;

(b) The execution, delivery, and performance by Borrower of this Amendment and the Loan Documents to which it is a party, as amended hereby, are within Borrower’s limited liability company powers, have been duly authorized by all necessary limited liability company action and do not and will not (i) violate any provision of federal, state, or local law or regulation applicable to Borrower, the Governing Documents of Borrower, or any order, judgment, or decree of any court or other Governmental Authority binding on Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time of both) a default under any material contractual obligation of Borrowerj, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of Borrower, other than Permitted Liens, or (iv) require any approval of Borrower’s members or any approval or consent of any Person under any material contractual obligation of Borrower;

(c) The execution, delivery, and performance by Borrower of this Amendment and the Loan Documents to which it is a party, as amended hereby, do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other Person;

(d) This Amendment and each other Loan Document to which Borrower is a party, and all other documents contemplated hereby and thereby, when executed and delivered by Borrower will be the legally valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective teams, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally; and

(e) No Default or Event of Default exists.

5. Counterparts. This Amendment may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which, taken together, shall constitute one and the same agreement. In proving this Amendment in any judicial proceedings, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom such enforcement is sought. Any signatures delivered by a party by facsimile transmission shall be deemed an original signature hereto.

6. Reference to and Effect on the Loan Document. Upon the effectiveness of this Agreement, on and after the date hereof each reference in the Loan Agreement to “this Agreement”, “hereunder”, “hereof”, or words of like import referring to the Loan Agreement, and each reference in the other Loan Documents to “the Loan Agreement”, “thereunder”, “thereof”, or words of like import referring to the Loan Agreement, shall mean and be a reference to the Loan Agreement as amended hereby.

7. Costs, Expenses and Taxes. Borrower agrees to pay on demand all costs and expenses in connection with the preparation, execution, and delivery of this Amendment including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for Agent with respect thereto and with respect to advising Agent as to its rights and responsibilities hereunder. Borrower hereby acknowledges and agrees that Agent may, without prior notice to Borrower, charge such costs and fees to Borrower’s Loan Account pursuant to Section 2.6(d) of the Loan Agreement, which amounts shall constitute Advances under the Loan Agreement and shall accrue interest at the rate then applicable to Advances thereunder.

8. Governing Law. This Amendment shall be deemed to be made pursuant to the laws of the State of Georgia with respect to agreements made and to be performed wholly in the State of Georgia, and shall be construed, interpreted, performed and enforced in accordance therewith.

9. Loan Document. This Amendment shall be deemed to be a Loan Document for all purposes.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the day and year first written above.

BORROWER:	ASSOCIATED HYGIENIC PRODUCTS LL
	By:	/s/ Owen Connelly
	Name:	Owen Connelly
	Title:	Vice President Finance & MIS
AGENT
and LENDER:	WELLS FARGO FOOTHILL, INC.
	as Agent and a Lender
	By:	/s/ Kristy Loucks
	Name:	Kristy Loucks
	Title:	Vice President

EX-4.9

Exhibit 4.9

TRANSLATION

BANKTHAI PUBLIC COMPANY LIMITED

Date                     

TO: President of BANKTHAI PUBLIC COMPANY LIMITED

	{	_____________________________________	}		{	}
We		DSG International (Thailand) Company Limited ___________________________________		Age			Year

Ethnic Origin:                      Nationality : Thai Occupation: Operator of trading. Residing at the House No. 448/11 on Lard Prao Road, Lard Prao Sub-district, Lard Prao District, Bangkok Metropolis. Telephone                     . Deposit Account No.                    , wish to apply for a loan from the Bank in the amount of 200,000,000 (Two Hundred Million Baht) for a period of 8 years to be used for payment of the costs of machinery.

[According to the Memorandum of Understanding annexed to the Agreement]

We agree to pay interest to the Bank at the rate of                      per annum. And we agree to allow the Bank to collect fees and various incidental expenses by debit from our Account or debit from the fund paid to us by the Bank.

We have a security as follows:                                                              

According to the Memorandum of Understanding annexed to the Agreement.

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

_________________________________________________________________________________________________________

	{	DSG International (Thailand) Company Limited	}
Signed		___________________________________		Applicant

Explanation Order

TRANSLATION

Agreement No            

BANK THAI (PUBLIC) COMPANY LIMITED

THE LOAN AGREEMENT

Done at Bank Thai (Public) Company Limited

Date          Month          Year         

We { DSG International (Thailand) Limited, Registration No. 1336/2537, of Thai nationality
(Name of juristic person) Represented by                                                  the authorized person                                           aged          year, of         ethnicity            nationality
(Name of natural person)

Having office/address located at No. 448/11 Village No              on Soi Lardprao 53 (Chokchai 4), Lardprao Road, Lardprao Sub-district, Lardprao District, Bangkok Metropolis, being the owner of the type of Deposit Account              Account No              Name of the Account                      with Bank Thai (Public) Company Limited, Office/Branch                                  hereinafter shall be referred to as the “BORROWER”, enter into this Agreement in favour of the Bank Thai (Public) Company Limited, hereinafter shall be referred to as the “LENDER” to witness as follows:

Clause 1. The Borrower has obtained the loan in the amount of 200,000,000 (Two Hundred Million Baht) and the Borrower has already received the amount of the loan under this Agreement in full.

[according to the Memorandum of Understanding annexed to the Agreement]

Clause 2. The Borrower agrees to pay interest on the said loan amount pursuant at the rate of          per annum (currently is equal to          per cent per annum). The interest is payable on monthly basis on the day specified in Clause 3 at the Lender’s place of business and during the Lender’s business hours. But if the specified due date for payment of interest falls on the Lender’s holiday, the interest payment shall be postponed to the next business day. And the Borrower hereby agrees that if the Lender makes an announcement on the revised rate of interest in keeping with the existing financial condition or as the Lender shall deem fit. The Borrower agrees to allow the Lender to charge interest according to newly revised interest rate in this Agreement as announced by the Lender from effective date immediately without prior consent of or notice to the Borrower.

The Borrower agrees that whenever the Lender has revised its interest rate, the Borrower shall arrange for the Mortgagor to register the revised interest rate in the Security Mortgage Agreement immediately. [According to the Memorandum of Understanding annexed to the Agreement.]

Clause 3. The Borrower agrees to complete the payment of debt and interest to the Lender not later than date          month          year          by installment as follows:

3.1 To pay the principal sum plus interest by installment at 1 month interval of not less than (            Baht). The first installment is payable by the Borrower within date          month              year          until the debt payment is made in full.

3.2 To make payment of the principal sum by installment each of not less than                      (             Baht) at                  month(s) interval. The first installment shall be payable within date          month              year          while the interest is payable monthly separately on every last day of the month until the payment is made in full.

3.3                                                                                                                                                    

According to the Memorandum of Understanding annexed to the Agreement.                                                                                                                                                                                                                              

__________________________________________________________________________________________________________

__________________________________________________________________________________________________________

The Borrower agrees to permit the Lender to debit the money from the type of Account              Account No.             , which money the Borrower has deposited with the Lender at Office/Branch                                  for payment of debt under this Agreement in the amount and according to the terms of payment to be made by the Borrower by installment to the Lender under the debt is paid in full without notice to the Borrower of each and every debit of the account.

The period of time for payment of the loan mentioned above shall not be prejudicial to the Lender to demand that the Borrower make pre-payment of debt under the Agreement either in whole or in part as the Lender shall deem fit.

Clause 4. If the Borrower shall default on any particular installment of payment either in respect of the principal sum or interest according to the amount and time specified in Clause 3, the Borrower further agrees to hold that the default on repayment has been for every installment of repayment and further agrees to allow the Lender the charge the maximum interest rate of the Lender that is chargeable to the loan customer as announced by the Lender (currently the interest rate is 15.00 per cent per annum) immediately or as the Lender may deem fit until such time the Borrower shall have made the repayment of loan debt to the Lender in full.

Clause 5. The borrowing and the lending under this Agreement besides having to be subject to every clause of this Agreement, the Borrower agrees that the borrowing and the lending shall also be in accordance with the law and custom of commercial banks. And if the Borrower has had the arrears of interest payment not less than 1 year, whether the Lender shall have served notice of demand for repayment or not, the Borrower agrees to add the arrears of interest to the original principal sum compound upon which further interest shall be charged immediately.

Clause 6. If the Borrower has been in breach of any particular clause of this Agreement, the Borrower agrees to allow the Lender to demand for repayment of the outstanding debt of principal sum and accumulated interest immediately, although the repayment of debt is not yet due as specified in clause 3 of this Agreement; and the Borrower agree to pay for damages, which the Lender shall have suffered as a result of the breach of agreement by the Borrower including expenses incurred in connection with the dunning for payment, starting legal proceedings and legal execution until such time the debt shall be settled in full.

Clause 7. It is the duty of the Borrower to make enquiry by itself about the total amount of debt due payable. If the Borrower shall neglect, the Borrower agrees to hold that the total debt amount shown outstanding in the Borrower’s Account is the correct total debt. If the Lender shall make dunning demand for payment, a number of communication letters, dunning demands or notices or any other letters to be delivered to the Borrower, whether or not, sent by registered or unregistered mail or delivered by hand, if sent to the location or place specified in this Agreement, shall be held to have been duly delivered to the Borrower without regard

that it is actually received by a person present at the said address or not. And if undelivered by reason of the change in or dismantlement of the said location or address without written notice to the Lender from the Borrower or undelivered because the location or address mentioned above cannot be found, it shall be held that the Borrower has duly acknowledged and received the Lender’s letter of communication, demand letter, notice or any other letter.

Clause 8. For the cost of duty stamp to be affixed on the Agreement including fees and every kind of duties levied on registration of a legal act as a security against the payment of debt and redemption (if any), the Borrower agrees to unilaterally defray such costs.

Clause 9. As a security against the performance of this Agreement, the Borrower agrees to deliver:                                         

according to the Memorandum of Understanding annexed to the Agreement - -                                                                                      

______________________________________________________________________________________________________________________________

______________________________________________________________________________________________________________________________

______________________________________________________________________________________________________________________________

to be held by the Lender as security until such time the Lender shall have received the payment of debt in full.

In the case of mortgage is made as a security, if the Lender shall enforce the foreclosure of the mortgage to be auctioned off, the proceeds so obtained is not sufficient to settle the debt or if the Lender accepts the foreclosed property and the price of the mortgaged property is less than the outstanding debt, the Borrower further agrees to pay to the Lender the deficit amount of debt in full charged to the Borrower’s property.

The Borrower having thoroughly read and understood the contents of this Agreement confirm it to be correct. To witness, it has affixed the signature in the presence of witnesses on the date, month and in the year as shown above.

        DSG International (Thailand), Ltd.

Signed                                                   Borrower

          (                                                     )

Signed                                                   Witness

          (                                                     )

Signed                                                   Witness

          (                                                     )

Signed                                                   Witness/typist

          (Mr. Pongchan Cuayboonchoom)

TRANSLATION

MEMORANDUM OF UNDERSTANDING ANNEXED TO THE LOAN AGREEMENT

DSG INTERNATIONAL (THAILAND) LIMITED

Done at Bank Thai (Public) Company Limited

Date                                                                    

Whereas DSG INTERNATIONAL (THAILAND) LIMITED, having the office located at No. 448/11 on Soi Lardprao 53 (Chokchai 4), Lardprao Road, Lardprao Subdistrict, Lardprao District, Bangkok Metropolis, hereafter shall be referred to as “BORROWER”, has entered into a loan agreement with Bank Thai (Public) Company Limited, hereinafter shall be referred to as “LENDER”, for the amount of 200,000,000 (Two Hundred Million) Baht, under the Loan Agreement dated                     . The Borrower agrees and represents that prior to the drawing down of the loan and/or throughout the period in which the Borrower is indebted to the Lender, the Borrower shall comply with the terms and conditions as follows:

1. Conditions on drawing down the loan

The Borrower agrees to draw down the loan upon having already signed and delivered to the Lender a Machinery Pledge Agreement as a security pursuant to sub-clause 4.2 and the Borrower shall undertake to complete the registration of the pledge of the said machinery within 6 months of the date of the loan draw-down.

2. Interest rate

The Borrower agrees to pay interest on loan once a month for every month on every last business day of the month until the debt is paid in full as follows:

2.1 For year 1 to year 3, the rate of interest is BT’S MLR minus 1 per annum.

2.2 For year 4 to year 8, the rate of interest is BT’S MLR per annum.

(On the date of signing the Loan Agreement, the interest rate BT’S MLR is equal to              per cent per annum.)

3. Term and Conditions of Payment

3.1 The Borrower agrees that it shall complete the payment of the loan under this Agreement within 8 years with effect from the date of the first loan draw-down.

3.2 The Borrower shall apply for a 1-year of grace period with effect from the date of the first loan draw-down while making payment of interest within the end of the month until the loan debt is paid in full.

3.3 Upon expiration of the grace period pursuant to 3.2 (on the 13^th month with effect from date of the first loan draw-down), the Borrower agrees to repay the principal sum of not less than 2,380,000. (Two Million and Three Hundred Eighty Thousand) Baht to the Lender in monthly installment. However, the Borrower shall complete the repayment of the loan within 7 years with effect from the expiry date pursuant to sub-clause 3.2. The interest payment shall be made separately on monthly basis.

4. Security

4.1 Mortgage of plot of land under the Land Title Deed No. 36360 located in Bua Loy sub-district, Nong Khae District, Saraburi Province, together with structure existed thereon at this time and that which shall have constructed thereon in the future by the Borrower.

4.2 To pledge/mortgage 1 set of the Borrower’s machinery together with equipment (diaper manufacturing equipment for adult).

4.3 Advance Medical Supply Co., Ltd., shall act as the guarantor.

5. Fee

The Borrower agrees to pay fee to the Lender as follows:

5.1 Prepayment fee at the rate of 2 per cent of the amount of prepayment payable in lump sum amount on the date of making the prepayment except the source of fund has derived from increase in capital or business operation.

5.2 Front-end fee at the rate of 0.40 of the loan limit of 200,000,000 (Two Hundred Million) Baht amounting to 800,000 (Eight Hundred Thousand) Baht payable in lump sum amount on the date of first loan drawdown.

6. Other

6.1 The Borrower agrees to allow DSG International Limited to retain the ratio of shareholding in DSG International (Thailand) Ltd. (the Borrower) up to not less than 50 per cent of total share throughout the period of using the line of credit with the Lender unless the Lender shall give its consent otherwise in writing.

The Borrower agrees and acknowledges that the Memorandum of Understanding annexed to this Loan Agreement shall also form part of the said Loan Agreement.

To witness, both parties have affixed each respective signature and corporate Seal (if there is any) in the presence of witnesses on date, month, year shown above.

            DSG international (Thailand) Limited

        Signed                                               Borrower

(By                                                                    )

Signed                                                   Witness	Signed                                                   Witness/Typist
(                                                     )	(Mr. Pongchan Chuayboonchoom)

EX-4.10

Exhibit 4.10

TRANSLATION

BANKTHAI PUBLIC COMPANY LIMITED

Date                     

TO: President of BANKTHAI PUBLIC COMPANY LIMITED

	{	DSG International (Thailand) Company Limited	}		{	}
WE		___________________________________		Age			Year
		___________________________________

Ethnic Origin:                      Nationality : Thai Occupation: Operator of trading. Residing at the House No. 448/11 on Lardprao Road, Lardprao Sub-district, Lardprao District, Bangkok Metropolis. Telephone                      Deposit Account No.                     , wish to apply for a LOAN from the Bank in the amount of 120,000,000 (One Hundred and Twenty Million Baht) for a period of 8 years to be used for payment of the cost of land, cost of construction of the office building. [According to the Memorandum of Understanding annexed to the Agreement]

We agree to pay interest to the Bank at the rate of                      per annum. And we agree to allow the Bank to collect fees and various incidental expenses by debit from our Account or debit from the fund paid to us by the Bank.

We have a security as follows:  ____________________________________________________________________________

According to the Memorandum of Understanding annexed to the Agreement.                                                                                   

__________________________________________________________________________________________________________

__________________________________________________________________________________________________________

_____________________________________________________________________________________

	{	DSG International (Thailand) Company Limited	}
Signed		___________________________________		Applicant
		___________________________________

Explanation Order

TRANSLATION

BANK THAI (PUBLIC) COMPANY LIMITED

THE LOAN AGREEMENT

Done at Bank Thai (Public) Company Limited

                                                         Date                      Month              Year                 

    We { DSG International (Thailand) Limited, Registration No. 1336/2537, of Thai nationality (Name of juristic person) Represented by                                          the authorized person aged              year, of                      ethnicity                      nationality (Name of natural person)

Having office/address located at No. 448/11 Village No              on Soi Lardprao 53 (Chokchai 4), Lardprao Road, Lardprao Sub-district, Lardprao District, Bangkok Metropolis, being the owner of the type of Deposit Account                      Account No Name of the Account                                          with Bank Thai (Public) Company Limited, Office/Branch                      hereinafter shall be referred to as the “BORROWER”, enter into this Agreement in favour of the Bank Thai (Public) Company Limited, hereinafter shall be referred to as the “LENDER” to witness as follows:

Clause 1. The Borrower has obtained the loan in the amount of 120,000,000 (One Hundred and Twenty Million Baht) and the Borrower has already received the amount of the loan under this Agreement in full. [According to the Memorandum of Understanding annexed to the Agreement]

Clause 2. The Borrower agrees to pay interest on the said loan amount pursuant at the rate of                                          per annum (currently is equal to              per cent per annum). The interest is payable on monthly basis on the day specified in Clause 3 at the Lender’s place of business and during the Lender’s business hours. But if the specified due date for payment of interest falls on the Lender’s holiday, the interest payment shall be postponed to the next business day. And the Borrower hereby agrees that if the Lender makes an announcement on the revised rate of interest in keeping with the existing financial condition or as the Lender shall deem fit. The Borrower agrees to allow the Lender to charge interest according to newly revised interest rate in this Agreement as announced by the Lender from effective date immediately without prior consent of or notice to the Borrower.

The Borrower agrees that whenever the Lender has revised its interest rate, the Borrower shall arrange for the Mortgagor to register the revised interest rate in the Security Mortgage Agreement immediately. [According to the Memorandum of Understanding annexed to the Agreement.]

Clause 3. The Borrower agrees to complete the payment of debt and interest to the Lender not later than date          month          year          by installment as follows:

3.1 To pay the principal sum plus interest by installment at 1 month interval of not less than                      (                    ) Baht. The first installment is payable by the Borrower within date                      month              year              until the debt payment is made in full.

3.2 To make payment of the principal sum by installment each of not less than                  (                    ) Baht at                      month(s) interval. The first installment shall be payable within date              month              year             , while the interest is payable monthly separately on every last day of the month until the payment is made in full.

3.3  __________________________________________________________________________________________________

According to the Memorandum of Understanding annexed to the Agreement.                                                                                   

__________________________________________________________________________________________________________

__________________________________________________________________________________________________________

The Borrower agrees to permit the Lender to debit the money from the type of Account                      Account No                     , which money the Borrower has deposited with the Lender at Office/Branch                      for payment of debt under this Agreement in the amount and according to the terms of payment to be made by the Borrower by installment to the Lender under the debt is paid in full without notice to the Borrower of each and every debit of the account.

The period of time for payment of the loan mentioned above shall not be prejudicial to the Lender to demand that the Borrower make pre-payment of debt under the Agreement either in whole or in part as the Lender shall deem fit.

Clause 4. If the Borrower shall default on any particular installment of payment either in respect of the principal sum or interest according to the amount and time specified in Clause 3, the Borrower further agrees to hold that the default on repayment has been for every installment of repayment and further agrees to allow the Lender the charge the maximum interest rate of the Lender that is chargeable to the loan customer as announced by the Lender (currently the interest rate is 15.00 per cent per annum) immediately or as the Lender may deem fit until such time the Borrower shall have made the repayment of loan debt to the Lender in full.

Clause 5. The borrowing and the lending under this Agreement besides having to be subject to every clause of this Agreement, the Borrower agrees that the borrowing and the lending shall also be in accordance with the law and custom of commercial banks. And if the Borrower has had the arrears of interest payment not less than 1 year, whether the Lender shall have served notice of demand for repayment or not, the Borrower agrees to add the arrears of interest to the original principal sum compound upon which further interest shall be charged immediately.

Clause 6. If the Borrower has been in breach of any particular clause of this Agreement, the Borrower agrees to allow the Lender to demand for repayment of the outstanding debt of principal sum and accumulated interest immediately, although the repayment of debt is not yet due as specified in clause 3 of this Agreement; and the Borrower agree to pay for damages, which the Lender shall have suffered as a result of the breach of agreement by the Borrower including expenses incurred in connection with the dunning for payment, starting legal proceedings and legal execution until such time the debt shall be settled in full.

Clause 7. It is the duty of the Borrower to make enquiry by itself about the total amount of debt due payable. If the Borrower shall neglect, the Borrower agrees to hold that the total debt amount shown outstanding in the Borrower’s Account is the correct total debt. If the Lender shall make dunning demand for payment, a number of communication letters, dunning demands or notices or any other letters to be delivered to the Borrower, whether or not, sent by registered or unregistered mail or delivered by hand, if sent to the location or place specified in this Agreement, shall be held to have been duly delivered to the Borrower without regard that it is actually received by a person present at the said address or not And if

undelivered by reason of the change in or dismantlement of the said location or address without written notice to the Lender from the Borrower or undelivered because the location or address mentioned above cannot be found, it shall be held that the Borrower has duly acknowledged and received the Lender’s letter of communication, demand letter, notice or any other letter.

Clause 8. For the cost of duty stamp to be affixed on the Agreement including fees and every kind of duties levied on registration of a legal act as a security against the payment of debt and redemption (if any), the Borrower agrees to unilaterally defray such costs.

Clause 9. As a security against the performance of this Agreement, the Borrower agrees to deliver:                                          

according to the Memorandum of Understanding annexed to the Agreement -                                                                                   

______________________________________________________________________________________________________________________________

______________________________________________________________________________________________________________________________

______________________________________________________________________________________________________________________________

to be held by the Lender as security until such time the Lender shall have received the payment of debt in full.

In the case of mortgage is made as a security, if the Lender shall enforce the foreclosure of the mortgage to be auctioned off, the proceeds so obtained is not sufficient to settle the debt or if the Lender accepts the foreclosed property and the price of the mortgaged property is less than the outstanding debt, the Borrower further agrees to pay to the Lender the deficit amount of debt in full charged to the Borrower’s property.

The Borrower having thoroughly read and understood the contents of this Agreement confirm it to be correct. To witness, it has affixed the signature in the presence of witnesses on the date, month and in the year as shown above.

        DSG International (Thailand), Ltd.

Signed                                                   Borrower

          (                                                     )

Signed                                                   Witness

          (                                                     )

Signed                                                   Witness

          (                                                     )

Signed                                                  Witness/typist

          (Mr. Pongchan Cuayboonchoom)

TRANSLATION

MEMORANDUM OF UNDERSTANDING ANNEXED TO THE LOAN AGREEMENT

DSG INTERNATIONAL (THAILAND) LIMITED

Done at Bank Thai (Public) Company Limited

Date                     

Whereas DSG INTERNATIONAL (THAILAND) LIMITED, having the office located at No. 448/11 on Soi Lardprao 53 (Chokchai 4), Lardprao Road, Lardprao Subdistrict, Lardprao District, Bangkok Metropolis, hereafter shall be referred to as “BORROWER”, has entered into a loan agreement with Bank Thai (Public) Company Limited, hereinafter shall be referred to as “LENDER”, for the amount of 120,000,000 (One Hundred and Twenty Million) Baht, under the Loan Agreement dated                      The Borrower agrees and represents that prior to the drawing down of the loan and/or throughout the period in which the Borrower is indebted to the Lender, the Borrower shall comply with the terms and conditions as follows:

1. Objective to Use the Loan

The loan shall be used for payment of the cost of land, cost of the construction of the office building and for the construction work.

2. Conditions on drawing down the loan

The Borrower agrees to draw down the loan upon the terms and conditions as follows:

2.1 To draw down the loan of 20,000,000 (Twenty Million) Baht for payment of the cost of land. The Borrower agrees to collect the loan on the date of the registration of the mortgage of land as security pursuant to sub-clause 5.1.

2.2 To draw down the loan of 100,000,000 (One Hundred Million) for payment of the cost of construction. The Borrower agrees to collect the loan up to 80 per cent of the cost of the construction work or to full amount of the estimated price but not exceeding 100,000,000 (One Hundred Million) Baht. Each collection of the loan shall be subject to the inspection by the Lender of the result of the construction work and price estimate as the case maybe.

2.3 Prior to the draw-down of the loan, the Borrower agrees to deliver the Construction Contract to the Lender.

3. Interest rate

The Borrower agrees to pay to the Lender the interest on loan once a month for every month on every last business day of the month until the debt is paid in full as follows:

3.1 For year 1 to year 3, the rate of interest is BT’S MLR minus 1 per annum.

3.2 For year 4 to year 8, the rate of interest is BT’S MLR per annum.

(On the date of signing the Loan Agreement, the interest rate BT’S MLR is equal to              per cent per annum.)

4. Term and Conditions of Payment

4.1 The Borrower agrees that it shall complete the payment of the loan under this Agreement within 8 years with effect from the date of the first loan draw-down.

4.2 The Borrower shall apply for a 1-year of grace period with effect from the date of the loan draw-down while making payment of interest within the end of the month until the loan debt is paid in full.

4.3 Upon expiration of the grace period pursuant to 4.2 (on the 13^th month with effect from date of the first loan draw-down), the Borrower agrees to repay the principal sum in monthly installment within the last business of the month to the Lender of not less than 1,430,000 (One Million Four Hundred and Thirty Thousand) Baht. However, the Borrower shall complete the repayment of the loan debt within 7 years with effect from the expiry date pursuant to sub-clause 4.2. The interest payment shall be made separately on monthly basis.

5. Security

5.1 A Mortgage of the plot of land under the Land Title Deed No. 36360 located in Bua Loy sub-district, Nong Khae District, Saraburi Province, together with structure existed thereon at this time and that which shall have been constructed thereon in the future by the Borrower.

5.2 A pledge/mortgage of 1 set of the Borrower’s machinery is made together with equipment (diaper manufacturing equipment for adult).

5.3 Advance Medical Supply Co., Ltd., shall act as the guarantor.

6. Fee

The Borrower agrees to pay fee to the Lender as follows:

6.1 Prepayment fee at the rate of 2 per cent of the amount of prepayment payable in lump sum amount on the date of making the prepayment except the source of fund has derived from increase in capital or business operation.

6.2 Front-end fee at the rate of 0.40 of the loan limit of 120,000,000 (One Hundred and Twenty Million Baht) amounting to 480,000 (Four Hundred Eighty Thousand Baht) payable in lump sum amount on the date of signing the said loan agreement.

7. Other Term and Condition

7.1 The Borrower agree to allow DSG International Limited to retain the ratio of shareholding in DSG International (Thailand) Co., Ltd. (the Borrower) up to not less than 50 per cent of total share throughout the period of using the line of credit with the lender unless the Lender shall give its consent otherwise in writing.

The Borrower agrees and acknowledges that the Memorandum of Understanding annexed to this Loan Agreement shall also form part of the said Loan Agreement.

To witness, both parties have affixed each respective signature and corporate Seal (if there is any) in the presence of witnesses on date, month, year shown above.

DSG International (Thailand) Limited

Signed                                          Borrower

                                                                   ( By                                                 )

Signed                                          Witness            Signed                                          Witness/Typist

                                  (                                                          )                    (Mr Pongchan Chuayboonchoom)

TRANSLATION

APPLICATION FOR RECEIPT OF THE LOAN

Done at Bank Thai (Public) Company Limited

Date                     

TO:      President,

            Bank Thai (Public) Company Limited,

Whereas, we, DSG International (Thailand) Limited, have entered into a Loan Agreement with Bank Thai (Public) Company Limited, under the Agreement date                      in the amount of 120,000,000 (One Hundred Twenty Million) Baht;

We wish to express our intention to the Bank to apply for the draw-down of the above-mentioned amount of the loan from the Bank in the amount of                      (                    ) Baht and together with the amount of the loan having been earlier drawn down in amount of                      (                    ) Baht, the grand total of the amount of the loan shall be                      (                    ) Baht to be drawn on (date)                     . We therefore request that the Bank to act according to our wish as follows:

(        ) To credit the amount of the loan to the Type of Account                      the Account Number                      Name of the Account                                          at Bank Thai (Public) Company Limited, in the amount of                      (                    ) Baht.

(        ) To draw a cashier’s cheque totaling              cheque(s) ordered payable in the name of                     , by giving the details as follows:

Cashier’s cheque No. 1, in the amount of                      (                    ) Baht;

Cashier’s cheque No. 2, in the amount of                      (                    ) Baht;

Cashier’s cheque No. 3, in the amount of                      (                    ) Baht.

We do hereby authorize                                          to receive the said cashier’s cheques on our behalf.

( ) Other (please specify).                                                                                                                                    

For the act done by the Bank according to the wish mentioned above, it shall then be held that we have already received the loan in correct amount from the Bank. In the event of any damage that may have occurred as a result of the acts done by the Bank in accordance with our wish specified above, we further agree to be held liable to Bank Thai (Public) Company Limited in every respect.

DSG INTERNATIONAL (THAILAND) LIMITED

(Signed)                                                                                        Borrower

(by                                                                                         )

TRANSLATION

LOAN RECEIPT SLIP

On (date)                                          we, DSG International (Thailand) Limited (“Borrower”), have already received correctly and fully the amount of                      (                    ) Baht from Bank Thai (Public) Company Limited.

The said money is the amount a loan draw-down under the LOAN AGREEMENT dated                      entered into by and between the BORROWER and the LENDER as specified in the said Loan Agreement dated                     

DSG International (Thailand) Limited

Signed                                                       Borrower

                                                                             (                                                            )

EX-4.11

EXHIBIT 4.11

NINTH AMENDMENT TO LOAN AGREEMENT

This NINTH AMENDMENT TO LOAN AGREEMENT (this “Amendment”) is entered into as of March 29, 2004, among ASSOCIATED HYGIENIC PRODUCTS LLC, a Delaware limited liability company (“Borrower”), the Lenders signatory hereto, and WELLS FARGO FOOTHILL, INC. (formerly known as Foothill Capital Corporation), a California corporation, in its capacity as administrative agent (“Agent”) for the Lenders.

WITNESSETH:

WHEREAS, Borrower, the Lenders and Agent have entered into that certain Amended and Restated Loan and Security Agreement dated as of March 14, 2001, as amended by that certain First Amendment to Loan Agreement effective as of May 28, 2001, that certain Second Amendment to Loan Agreement effective as of July 5, 2001, that certain Third Amendment and Waiver to Loan Agreement dated as of September 10, 2001, that certain Fourth Amendment to Loan Agreement dated as of December 19, 2001, that certain Fifth Amendment to Loan Agreement dated as of April 17, 2002, that certain Sixth Amendment to Loan Agreement dated as of November 14, 2002, that certain Seventh Amendment to Loan Agreement dated as of June 19, 2003, and that certain Eighth Amendment to Loan Agreement dated as of October 15, 2003 (as amended and as the same may hereafter be modified, amended, restated or supplemented from time to time, the “Loan Agreement”; all capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Loan Agreement), pursuant to which the Lenders have agreed to make loans and other financial accommodations to Borrower from time to time; and

WHEREAS, Borrower has requested that (a) Agent and the Lenders permit a payment of accrued loan interest, royalties and other fees by Borrower to Disposable Soft Goods (UK) Plc (“DSG Plc”) in the amount of $6,000,000 (the “DSG Plc Payment”) and (b) that the Lenders finance the DSG Plc Payment; and

WHEREAS, Borrower has requested that the Lenders finance the final payment in the amount of $1,505,250 due from Borrower to Curt G. JOA, Inc. in connection with Borrower’s purchase of that certain high speed diaper machine, model number J4-MV Baby Diaper Machine, serial number WM 3270-1899, from Curt G. JOA, Inc. (the “JOA Payment”); and

WHEREAS, as of the date hereof, there are no outstanding principal balances due under Term Loan A and Term Loan B and the outstanding principal balance of Term Loan C is $1,238,597; and

WHEREAS, Agent and the Lenders have agreed to (a) finance the DSG Plc Payment and the JOA Payment, (b) consent to the DSG Plc Payment and (c) amend the Loan Agreement on the terms and conditions provided herein;

NOW THEREFORE, in consideration of the foregoing premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

1. Amendments to Loan Agreement.

(a) Section 1.1 of the Loan Agreement, “Definitions”, is hereby amended and modified by amending and restating the definitions of “Subordination Agreement”, “Term Loan Amount” and “Term Loan Commitment” in their respective entirety as follows:

“Subordination Agreement” means, individually and collectively, (a) that certain Subordination Agreement dated of even date herewith, among DSG, Borrower and Agent relating to the Subordinated Note A, (b) that certain Subordination Agreement dated of even date herewith, among DSG Holdings (UK), Borrower and Agent relating to the Subordinated Note B, and (c) any other subordination agreement entered into in connection with Subordinated Note A, Subordinated Note A-2, Subordinated Note A-3, Subordinated Note A-4 or Subordinated Note B from time to time, all in form and substance satisfactory to Agent.

“Term Loan” means, collectively, Term Loan D and Term E.

“Term Loan Commitment means, collectively, the Term Loan D Commitment and the Term Loan E Commitment.”

(b ) Section 1.1 of the Loan Agreement, “Definitions”, is hereby further amended and modified by adding the definitions “DSG Plc”, “ JOA Purchase”, “Ninth Amendment Effective Date”, “Subordinated Note A-4”, “Term Loan D”, “Term Loan D Amount”, “Term Loan D Commitment”, “Term Loan E”, “Term Loan E Amount” and “Term Loan E Commitment” in the appropriate alphabetical order:

“DSG Plc” has the meaning set forth in Section 2.2(a)(ii)(A).

“JOA Purchase” means the purchase of that certain high speed diaper machine, model number J4-MV Baby Diaper Machine, serial number WM 3270-1899, from Curt G. JOA, Inc.

“Ninth Amendment Effective Date” has the meaning set forth in that certain Ninth Amendment to Loan Agreement dated as of March 29, 2004, among Borrower, the Agent and the Lenders.

“Subordinated Note A-4” means the indebtedness of Borrower to DSG Plc, evidenced by that certain promissory note executed by Borrower and payable to the order of DSG Plc dated as of April 30, 2004, in the original principal amount of $4,000,000, in form and substance satisfactory to Agent.”

“Term Loan D” has the meaning set forth in Section 2.2(a)(ii)(A).

“Term Loan D Amount” has the meaning set forth in Section 2.2(a)(ii)(A).

“Term Loan D Commitment” means, with respect to each Lender, its Term Loan D Commitment, and, with respect to all Lenders, their Term Loan D Commitments, in each case as such Dollar amounts are set forth beside such Lender’s name under the applicable heading on Schedule C-1 or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 14.1.

“Term Loan E” has the meaning set forth in Section 2.2(a)(ii)(B).

“Term Loan E Amount” has the meaning set forth in Section 2.2(a)(ii)(B).

“Term Loan E Commitment” means, with respect to each Lender, its Term Loan E Commitment, and, with respect to all Lenders, their Term Loan E Commitments, in each case as such Dollar amounts are set forth beside such Lender’s name under the applicable heading on Schedule C-l or on the signature page of the Assignment and Acceptance pursuant to which such Lender became a Lender hereunder in accordance with the provisions of Section 14.1.”

(c) Section 1.1 of the Loan Agreement, “Definitions”, is hereby further amended and modified by deleting the definitions “Term Loan A Amount”, “Term Loan A Commitment” “Term Loan B Amount”, “Term Loan B Commitment”, “Term Loan C Amount” and “Term Loan C Commitment”.

(d) Section 2.2 of the Loan Agreement, “Term Loan: Capital Expenditure Loans”, is hereby amended and modified by amending and restating subsection (a) of such Section in its entirety as follows:

“(a) Term Loans.

(i) Term Loan A, Term Loan B and Term Loan C. On March 14, 2001, the Lenders made a term loan to Borrower in the original principal amount of Eleven Million Dollars ($11,000,000). As of the Fourth Amendment Effective Date, the principal balance of such term loan is $8,712,000, which shall be divided into three separate term loans, as set forth below;

(A) Term Loan A. The principal balance of Term Loan A (“Term Loan A”) is $2,780,601 as of the Fourth Amendment Effective Date. Term Loan A shall be repaid in equal monthly installments of principal in the amount of $58,510 plus accrued interest, such installments to be payable on the first day of each month commencing with the first day of the first month following the Fourth Amendment Effective Date and continuing on the first day of each succeeding month until and including the earliest of (1) the payment in full of Term Loan A, or (2) the Maturity Date, or (3) termination of this Agreement

(B) Term Loan B. The principal balance of Term Loan B (“Term Loan B”) is $2,934,365 as of the Fourth Amendment f Effective Date. Term Loan B shall be repaid in equal monthly installments of principal in the amount of $61,746 plus accrued interest, such installments to be payable on the first day of each month commencing with the first day of the first month following the Fourth Amendment Effective Date and continuing on

the first day of each succeeding month until and including the earliest of (1) the payment in full of Term Loan B, or (2) the Maturity Date, or (3) termination of this Agreement; and

(C) Term Loan C. The principal balance of Term Loan C (“Term Loan C”) is $2,997,034 as of the Fourth Amendment Effective Date. Term Loan C shall be repaid in equal monthly installments of principal in the amount of $63,077 plus accrued interest, such installments to be payable on the first day of each month commencing with the first day of the first month following the Fourth Amendment Effective Date and continuing on the first day of each succeeding month until and including the earliest of (1) the payment in full of Term Loan C, or (2) the Maturity Date, or (3) termination of this Agreement.

(ii) Term Loan D and Term Loan E. As of the Ninth Amendment Effective Date, the principal balances of Term Loan A and Term Loan B are $0.00, and the principal balance of Term Loan C is $1,238,597. The Lenders have agreed to lend to Borrower on the Ninth Amendment Effective Date the aggregate amount of $8,743,847, such amount to be allocated between Term Loan D and Term Loan E and repaid as set forth below:

(A) Term Loan D. The initial principal balance of Term Loan D (“Term Loan D”) on the Ninth Amendment Effective Date is $7,238,597 (the “Term Loan D Amount”). The proceeds of Term Loan D shall be used to prepay all outstanding principal and interest due under Term Loan C in full and to make a payment of accrued loan interest, royalties and other fees by Borrower to Disposable Soft Goods (U.K.) Plc (“DSG Plc”) in the amount of $6,000,000. Term Loan D shall be repaid in equal monthly installments of principal in the amount of $120,644 plus accrued interest, such installments to be payable on the first day of each month commencing May 1, 2004, and continuing on the first day of each succeeding month until and including the earliest of (1) the payment in full of Term Loan D, (2) the Maturity Date, and (3) termination of this Agreement; and

(B) Term Loan E. The initial principal balance of Term Loan E (“Term Loan E”) on the Ninth Amendment Effective Date is $1,505,250 (the “Term Loan E Amount”). The proceeds of Term Loan E shall be used to make the final payment due in connection with the JOA Purchase. Term Loan E shall be repaid in equal monthly installments of principal in the amount of $25,088 plus accrued interest, such installments to be payable on the first day of each month commencing May 1, 2004, and continuing on the first day of each succeeding month until and including the earliest of (1) the payment in full of Term Loan E, (2) the Maturity Date, and (3) termination of this Agreement.

(iii) Prepayments.

(A) The unpaid principal balance of each of Term Loan D and Term Loan E shall be repaid with the proceeds of any Permitted Disposition to the extent such repayment is required by Section 7.4 hereof, with such proceeds being applied to the installments due on the respective Term Loan in the inverse order of their maturity.

(B) Not later than May 2, 2004, Borrower shall have received $4,000,000 from DSG Plc and used such amount to prepay the installments due on Term Loan D in the inverse order of maturity.

(iv) Repayment. The outstanding unpaid principal balance of the Term Loan, together with all accrued and unpaid interest and fees thereon, shall be due and payable on the earlier of the Maturity Date or the date of termination of this Agreement, whether by its terms, by prepayment, by acceleration, or otherwise. The unpaid principal balance of the Term Loan may be prepaid in whole or in part without penalty or premium (except as provided in Section 3.6) at any time during the term of this Agreement upon 90 days’ written notice by Borrower to Agent, all such prepaid amounts to be applied pro-rata to the installments due on Term Loan D and Term Loan E, in the inverse order of their respective maturity. All amounts outstanding under the Term Loan shall constitute Obligations.”

(e) Section 7.1 of the Loan Agreement, “Indebtedness”, is hereby amended and modified by amending and restating such Section in its entirety as follows:

“(d) Indebtedness evidenced by (i) Subordinated Note A-2 (as such term is defined in the Subordination, Waiver and Consent Agreement dated as of September 11, 2001 among Borrower, Agent and DSG Plc) and Subordinated Note B and (ii) Subordinated Note A-3 and Subordinated Note A-4, so long as Subordinated Note A-3 and Subordinated Note A-4 are each subject to a Subordination Agreement duly executed by DSG Plc and Borrower and in full force and effect, “

(f) Section 7.4 of the Loan Agreement, “Disposal of Assets”, is hereby amended and modified by amending and restating such Section in its entirety as follows:

“7.4 Disposal of Assets. Convey, sell, lease, license, assign, transfer, or otherwise dispose of any of Borrower’s assets; provided, however, that the Borrower may dispose of assets in a Permitted Disposition so long as: (a) if the asset was acquired with the proceeds of a Capital Expenditure Loan, the proceeds are used to repay the applicable Capital Expenditure Loan on the date of receipt thereof by Borrower; (b) if the asset is Real Property Collateral that was included by Agent in the calculation of the Term Loan D Amount (designated “Real Estate Held for Sale” in Borrower’s strategic business plan delivered to Agent) or Equipment that was included by Agent in the calculation of the Term Loan D Amount, the proceeds are used (i) first, to repay the installments due on Term Loan D in the inverse order of maturity, (ii) second, to repay the installments due on Term Loan E in the inverse order of maturity, and (iii) third, any remaining proceeds are directed to the Cash Management Account; (c) if the asset is that certain high speed diaper machine, model number J4-MV Baby Diaper Machine, serial number WM 3270-1899, and to the extent such proceeds from the sale of such Equipment are not used to purchase replacement Equipment of equal or greater value within five (5) Business Days after selling any such Equipment, the proceeds are used (i) first, to repay the installments due on the Term Loan E in the inverse order of maturity, (ii) second, to repay the

installments due on Term Loan D in the inverse order of maturity, and (iii) third, any remaining proceeds are directed to the Cash Management Account; and (d) in all other cases, the proceeds are directed to the Cash Management account, or immediately deposited by Borrower in the Cash Management Account.”

(g) Section 7.8 of the Loan Agreement, “Payments, Prepayments and Amendments”, is hereby amended and modified by amending and restating such Section in its entirety as follows:

“(a) Make any payments of principal of, or interest or fees on, Subordinated Note A-2, Subordinated Note B, Subordinated Note A-3 or Subordinated Note A-4; provided, however, that Borrower may make regularly scheduled interest payments on Subordinated Note A-2 if (i) no Event of Default has occurred and is continuing, and (ii) Borrower has demonstrated to the satisfaction of Agent that, after giving effect to such payment, Excess Availability is $10,000,000 or more; provided, however that Borrower may refinance and pay in full the Subordinated Note A-2 with the proceeds of new subordinated debt provided by an Affiliate of Borrower on terms and conditions, and subject to a Subordination Agreement and other documents, in form and substance satisfactory to Agent, provided, further, Borrower may make regularly scheduled payments of principal and interest on Subordinated Note A-3 if (i) no Event of Default has occurred and is continuing, and (ii) Borrower has demonstrated to the satisfaction of Agent that, after giving effect to such payment, Excess Availability (after subtracting the amount of any payables of the Borrower which are more than 60 days past due) is $10,000,000 or more and provided, further, Borrower may make regularly scheduled payments of principal and interest on Subordinated Note A-4 if (i) no Event of Default has occurred and is continuing, and (ii) Borrower has demonstrated to the satisfaction of Agent that, after giving effect to such payment, Excess Availability (after subtracting the amount of any payables of the Borrower which are more than 60 days past due) is $10,000,000 or more.”

(h) Section 7.17 of the Loan Agreement, “Use of Proceeds”, is hereby amended and modified by amending and restating such Section in its entirety as follows:

“Section 7.17 Use of Proceeds. Use the proceeds of (a) the Advances and Term Loan A, Term Loan B and Term Loan C for any purpose other than (i) on the Closing Date, (x) to facilitate the Drypers Acquisition, (y) to restate and restructure amounts owing under the Prior Loan Agreement, and (z) to pay transactional fees, costs, and expenses incurred in connection with this Agreement, the other Loan Documents, and the transactions contemplated hereby and thereby and (ii) thereafter, consistent with the terms and conditions hereof, for its lawful and permitted corporate purposes; provided, Borrower may use the proceeds of Advances in an aggregate amount not exceeding $1,450,000 to pay amounts due under the Settlement Agreement, (b) the Capital Expenditure Loan for any purpose other than to purchase Equipment, (c) Term Loan D for any purpose other than, on the Ninth Amendment Effective Date, as provided in Section 2.2(a)(ii)(A) hereof and (D) Term Loan E for any purpose other than, on the Ninth Amendment Effective Date, as provided in Section 2.2(a)(ii)(B) hereof.”

(i) Schedule C-l of the Loan Agreement, “Commitments”, is hereby amended and modified by deleting such Schedule in its entirety and substituting the Schedule C-l attached to this Amendment in lieu thereof.

2. Consent. Agent and the Lenders hereby consent to a payment of accrued loan interest, royalties and other fees by Borrower to DSG Plc in the amount of $6,000,000 on the Ninth Amendment Effective Date.

3. No Other Amendments or Waivers. The execution, delivery and effectiveness of this Amendment shall not operate as a waiver of any right, power or remedy of Agent or the Lenders under the Loan Agreement or any of the other Loan Documents, nor constitute a waiver of any provision of the Loan Agreement or any of the other Loan Documents. Except for the amendments and consent set forth above, the text of the Loan Agreement and all other Loan Documents shall remain unchanged and in full force and effect and Borrower hereby ratifies and confirms its obligations thereunder. This Amendment shall not constitute a modification of the Loan Agreement or any of the other Loan Documents or a course of dealing with Agent or the Lenders at variance with the Loan Agreement or the other Loan Documents such as to require further notice by Agent or the Lenders to require strict compliance with the terms of the Loan Agreement and the other Loan Documents in the future, except as expressly set forth herein. Borrower acknowledges and expressly agrees that Agent and the Lenders reserve the right to, and do in fact, require strict compliance with all terms and provisions of the Loan Agreement and the other Loan Documents. Borrower has no knowledge of any challenge to Agent’s or any Lenders’ claims arising under the Loan Documents, or to the effectiveness of the Loan Documents.

4. Conditions Precedent to Effectiveness. This Amendment shall become effective as of the date hereof (the “Ninth Amendment Effective Date”) when, and only when, Agent shall have received:

(a) counterparts of this Amendment duty executed and delivered by Borrower and the Lenders;

(b) the re-affirmation of the Parent Guaranty duly executed by Holdco, in form and substance satisfactory to Agent;

(c) a Term Loan D amendment fee from Borrower in the amount of $20,000 (the “Term Loan D Amendment Fee”), for the benefit of the Lenders on a pro-rata basis, which fee shall be fully earned and non-refundable when paid;

(d) a Term Loan E amendment fee from Borrower in the amount of $15,000 (the “Term Loan E Amendment Fee”; together with the Term Loan D Amendment Fee, collectively, the “Amendment Fees”), for the benefit of the Lenders on a pro-rata basis, which fee shall be fully earned and non-refundable when paid; and

(e) such other information, documents, instruments or approvals as Agent or Agent’s counsel may reasonably require.

5. Representations and Warranties of Borrower. Borrower represents and warrants as follows:

(a) Borrower is a limited liability company organized, validly existing and in good standing under the laws of the jurisdiction indicated at the beginning of this Amendment and all other jurisdictions in which the failure to be so qualified reasonably could be expected to constitute a Material Adverse Change;

(b) The execution, delivery, and performance by Borrower of this Amendment and the Loan Documents to which it is a party, as amended hereby, are within Borrower’s limited liability company powers, have been duly authorized by all necessary limited liability company action and do not and will not (i) violate any provision of federal, state, or local law or regulation applicable to Borrower, the Governing Documents of Borrower, or any order, judgment, or decree of any court or other Governmental Authority binding on Borrower, (ii) conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any material contractual obligation of Borrower, (iii) result in or require the creation or imposition of any Lien of any nature whatsoever upon any properties or assets of Borrower, other than Permitted Liens, or (iv) require any approval of Borrower’s members or any approval or consent of any Person under any material contractual obligation of Borrower;

(c) The execution, delivery, and performance by Borrower of this Amendment and the Loan Documents to which it is a party, as amended hereby, do not and will not require any registration with, consent, or approval of, or notice to, or other action with or by, any Governmental Authority or other Person;

(d) This Amendment and each other Loan Document to which Borrower is a party, and all other documents contemplated hereby and thereby, when executed and delivered by Borrower will be the legally valid and binding obligations of Borrower, enforceable against Borrower in accordance with their respective terms, except as enforcement may be limited by equitable principles or by bankruptcy, insolvency, reorganization, moratorium, or similar laws relating to or limiting creditors’ rights generally; and

(e) No Default or Event of Default exists.

6. Counterparts. This Amendment may be executed in multiple counterparts, each of which shall be deemed to be an original and all of which, taken together, shall constitute one and the same agreement. In proving this Amendment in any judicial proceedings, it shall not be necessary to produce or account for more than one such counterpart signed by the party against whom such enforcement is sought. Any signatures delivered by a party by facsimile transmission shall be deemed an original signature hereto.

7. Reference to and Effect on the Loan Documents. Upon the effectiveness of this Amendment, on and after the date hereof each reference in the Loan Agreement to “this Agreement,” “hereunder,” “hereof” or words of like import referring to the Loan Agreement, and each reference in the other Loan Documents to “the Loan Agreement” “thereunder,” “thereof” or words of like import referring to the Loan Agreement, shall mean and be a reference to the Loan Agreement as amended hereby.

8. Costs, Expenses and Taxes. Borrower agrees to pay on demand all costs and expenses in connection with the preparation, execution, and delivery of this Amendment and the other instruments and documents to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for Agent with respect thereto and with respect to advising Agent as to its rights and responsibilities hereunder and thereunder. Borrower hereby acknowledges and agrees that Agent may, without prior notice to Borrower, charge such costs and fees and the Amendment Fees to Borrower’s Loan Account pursuant to Section 2.6(d) of the Loan Agreement, which amounts shall constitute Advances under the Loan Agreement and shall accrue interest at the rate then applicable to Advances thereunder.

9. Governing Law. This Amendment shall be deemed to be made pursuant to the laws of the State of Georgia with respect to agreements made and to be performed wholly in the State of Georgia, and shall be construed, interpreted, performed and enforced in accordance therewith.

10. Loan Document. This Amendment shall be deemed to be a Loan Document for all purposes.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the day and year first written above.

BORROWER:	ASSOCIATED HYGIENIC PRODUCTS LLC
	By:	/s/ Peter Chang
	Name:	Peter Chang
	Title:	Chairman
AGENT and LENDER:	WELLS FARGO FOOTHILL, INC.,
	By:	/s/ Kristy S. Loucks
	Name:	Kristy S. Loucks
	Title:	Vice President

Schedule C-1 0

Commitments

Lender	Revolver Commitment		Term Loan D Commitment (subfacility)		Term Loan E Commitment (subfacility)		Total Commitment
Foothill Capital Corporation	$	30,000,000	$	7,238,597	$	1,505,250	$	30,000,000
All Lender	$	30,000,000	$	7,238,597	$	1,505,250	$	30,000,000

GUARANTOR REAFFIRMATION AND ACKNOWLEDGMENT OF

NINTH AMENDMENT TO LOAN AGREEMENT

In order to induce WELLS FARGO FOOTHILL, INC. (formerly known as Foothill Capital Corporation), as administrative agent for the Lenders (as defined in the hereinafter defined Loan Agreement) (“Agent”), and the Lenders to enter into the Ninth Amendment to Loan agreement described below and to extend certain additional credit thereafter to or for the benefit of ASSOCIATED HYGIENIC PRODUCTS LLS, a Delaware limited liability company (“Borrower”), as well as for other good and valuable consideration, AHP HOLDINGS L.P. (“Guarantor”) hereby:

1. acknowledges and agrees to the execution, delivery and performance of that certain Ninth Amendment to Loan Agreement dates as of the date hereof, among Borrower, Agent and the Lenders signatory thereto (the “Ninth Amendment”), and waives any prior notice of any extensions of credit which may be made on or after this date by Agent or the Lender to or for the benefit of Borrower under that certain Loan and Security Agreement dated as of March 14, 2001, among Borrower, Agent and the Lenders (such Loan and Security Agreement, as amended prior to the date hereof and by the Ninth Amendment, is hereinafter referred to as the “Loan Agreement”; all capitalized terms used herein and not otherwise defined herein shall have the meanings given such terms as defined in the Loan Agreement);

2. reaffirms that certain Amended and Restated Parent Guaranty dated as of March 14, 2001, executed by Guarantor in favor of Agent (the “Guaranty”), shall in all respects be a continuing, absolute, unconditional and irrevocable guaranty of payment of the Obligations, and shall remain outstanding and in full force and effect until all Obligations have been paid in cash in full, all obligations of Guarantor under the Guaranty shall have been paid in cash in full and the Commitments shall have been terminated; and

3. acknowledges and agrees that the security and other interests granted to Agent and the Lenders pursuant to the Loan Documents to which Guarantor is a signatory prior to the date hereof shall remain outstanding and in full force and effect in accordance with the Loan Documents, and shall continue to secure the Obligations, and that the security and other interests granted to Agent and the Lenders thereby are hereby ratified, confirmed and continued by execution and delivery of this Reaffirmation. The Loan Documents to which Guarantor is a signatory shall remain extant and in full force and effect following the execution and delivery of the Ninth Amendment and the other Loan Documents executed in connection therewith.

This Reaffirmation shall be governed by the laws of the State of Georgia and shall inure to the benefit of and shall be binding upon Agent, the Lenders and Guarantor and their respective heirs, legal representatives, successors and assigns. This Reaffirmation shall be deemed to be a Loan Document for all purposes.

IN WITNESS WHEREOF, Guarantor has signed, sealed and delivered this Reaffirmation, all as of this 29^th day of March, 2004.

GUARANTOR:
AHP HOLDINGS L.P.
By:	/s/ Peter Chang
Name:	Peter Chang
Title:	Chairman

EX-12.1

EXHIBIT 12.1

CERTIFICATION AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Peter Chang, Chief Financial Officer of DSG International Limited, certify that:

1. I have reviewed this annual report on Form 20-F of DSG International Limited;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have;

a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and internal weaknesses in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 27, 2005

/s/ PETER CHANG

Peter Chang

EX-12.2

EXHIBIT 12.2

CERTIFICATION AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Brandon Wang, Chairman and Chief Executive Officer, of DSG International Limited, certify that:

1. I have reviewed this annual report on Form 20-F of DSG International Limited;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have;

a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and internal weaknesses in the design or operation of internal control over financial reporting that are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: June 27, 2005

/s/ BRANDON WANG

Brandon Wang

EX-13.1

EXHIBIT 13.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of DSG International Limited (the “Company”) on Form 20-F for the period ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter Chang, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. ¨1350, as adopted pursuant to ¨906 of the Sarbanes-Oxley Act of 2002, that: to the best of my knowledge the Annual Report of the Company on Form 20-F for the period ended December 31, 2004 fully complied with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.

/s/ PETER CHANG

Peter Chang

EX-13.2

EXHIBIT 13.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of DSG International Limited (the “Company”) on Form 20-F for the period ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brandon Wang, Chairman and Chief Executive Officer, of the Company, certify, pursuant to 18 U.S.C. ¨1350, as adopted pursuant to ¨906 of the Sarbanes-Oxley Act of 2002, that: to the best of my knowledge the Annual Report of the Company on Form 20-F for the period ended December 31, 2004 fully complied with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition of the Company at the end of such period and the results of operations of the Company for such period.

/s/ BRANDON WANG

Brandon Wang

EX-15.1

EXHIBIT 15.1

COMPUTATION OF NET INCOME PER ORDINARY SHARE

	Year ended December 31,
	2004		2003			2002
	(in thousands except per share amounts)
Number of ordinary shares
Ordinary shares outstanding, beginning of year		7,258		6,989			6,989
Ordinary shares issued		—		1,175			—
Ordinary shares repurchased and cancelled		—		(906	)		—
Ordinary shares outstanding, end of year		7,258		7,258			6,989
Weighted average shares outstanding during the year
Basic		7,258		7,514			6,989
Diluted		7,433		7,652			6,989
Income (loss) from continuing operations	$	2,905	$	(8,680	)	$	(355	)
Income from discontinued operations		—		—			17,600
Net income (loss)	$	2,905	$	(8,680	)	$	17,245
Net income (loss) per share of common stock :
Basic
Income (loss) from continuing operation	$	0.40	$	(1.16	)	$	(0.05	)
Income from discontinued operations		—		—			2.52
Net income (loss) per basic share of common stock	$	0.40	$	(1.16	)	$	2.47
Diluted(1)
Income (loss) from continuing operation	$	0.39		(1.16	)		(0.05	)
Income from discontinued operations		—		—			2.52
Net income (loss) per diluted share of common stock	$	0.39	$	(1.16	)	$	2.47

⁽¹⁾ The restricted shares and stock options outstanding at December 31, 2003 have not been included in the computation of diluted earnings per share because to do so would be anti-dilutive for the year ended December 31, 2003.

EX-15.2

EXHIBIT 15.2

ABOUT THE COMPANY

DSG International Limited (the “Company”) is a global company specialized in manufacturing and distribution of disposable baby diapers, training pants and adult incontinence products. The Company now has eight manufacturing plants established in Hong Kong, the United States, England, the People’s Republic of China (“PRC”), Thailand, Indonesia and Malaysia. The Company’s products are marketed and distributed throughout Asia, North America and Europe. Its principal brand names are “FITTI®”, “PET PET®”, “COSIFITS®”, “BABY LOVE®”, “BABYJOY®”, “DISPO 123^™”, “HANDY^™”, “CERTAINTY®”, “CERTAINTY® GUARD”, “MERIT®” and “DRYPERS®”. These brands are synonymous with high quality and superior value, characteristics that the Company is dedicated to maintaining.

FINANCIAL HIGHLIGHTS

	Year Ended December 31,
(In US$ million except per share amounts)	2004		2003			2002			2001			2000
Net sales	$	218.5	$	218.4		$	227.8		$	227.8		$	157.6
Income (loss) from continuing operations(1)	$	2.9	$	(8.7	)	$	(0.4	)	$	(29.5	)	$	(0.5	)
Income from discontinued operations	$	—	$	—		$	17.6		$	2.0		$	3.5
Net income (loss) (1)	$	2.9	$	(8.7	)	$	17.2		$	(27.5	)	$	3.0
Shareholders’ equity	$	57.2	$	53.1		$	59.0		$	39.0		$	63.4
Income (loss) per share
Continuing operations
Basic	$	0.40	$	(1.16	)	$	(0.05	)	$	(4.39	)	$	(0.08	)
Diluted(2)	$	0.39	$	(1.16	)	$	(0.05	)	$	(4.39	)	$	(0.08	)
Discontinued operations	$	—	$	—		$	2.52		$	0.29		$	0.52
Net income (loss) per share	$	0.40	$	(1.16	)	$	2.47		$	(4.10	)	$	0.44

⁽¹⁾ Loss from continuing operations and net loss for the year ended December 31, 2004 and 2003 includes a charge of $2.8 million and $3.9 million, respectively related to stock-based compensation expense.

⁽²⁾ The restricted shares and stock options outstanding at December 31, 2003 have not been included in the computation of diluted earnings per share because to do so would be anti-dilutive for the year ended December 31, 2003.

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CONTENTS

THE DSG MANAGEMENT TEAM	3
Executive and Non-Executive Directors of DSG
TO OUR SHAREHOLDERS	4
Report on the highlights of 2004 and the outlook for 2005 by Brandon Wang, Chairman
OPERATIONS	6
Report of DSG’s operations worldwide in 2004
OPERATING AND FINANCIAL REVIEW AND PROSPECTS	9
SELECTED CONSOLIDATED FINANCIAL DATA	23
MANAGEMENT REPORT	25
by Peter Chang, Chief Financial Officer
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM	26
by Deloitte & Touche LLP
CONSOLIDATED BALANCE SHEETS	27
CONSOLIDATED STATEMENTS OF OPERATIONS	29
CONSOLIDATED STATEMENTS OF CASH FLOWS	31
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY	33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	34
SHAREHOLDER INFORMATION	61
DSG COMPANIES	62
DSG Corporate addresses worldwide

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THE DSG MANAGEMENT TEAM

DSG EXECUTIVE DIRECTORS	DSG OFFICERS
Brandon S L Wang	George Jackson
Member of Executive Cabinet, Chairman and	Chief Executive of North American operations
Chief Executive Officer
	Patrick Wong
Johnny S L Tsui	Chief Executive Officer – South East Asia
Member of Executive Cabinet, Chief Operating
Officer of Greater China and	Steven Pankow
Company Secretary	Executive Vice President of Sales & Marketing
	of North American operations
Patrick K Y Tsang
Member of Executive Cabinet and
Chief Operating Officer of Europe
Terence Y F Leung
Member of Executive Cabinet
Peter Chang
Member of Executive Cabinet, Chief Financial
Officer and Chairman of North American operations
DSG NON-EXECUTIVE DIRECTORS
Anil Thadani
Chairman of Symphony Capital Partners (Asia)
Limited, Hong Kong
Owen Price
Formerly Managing Director of Dairy Farm
International Holdings, Hong Kong
(retired in 1993)

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TO OUR SHAREHOLDERS

The year of 2004 is marked as one of significant changes in our Company’s history. Begun in 2003, we have set some aggressive initiatives across all aspects of our operation. These initiatives can be categorized as “Re-focus”, “Re-tooling” and “Re-structuring”.

Our 2004 annual report discusses some of the accomplishments from the initiatives and as well as the challenges encountered and the ones we will continue to face.

Overall, I am encouraged to see the improvement by implementing these initiatives and I am convinced that the success of these initiatives will continue to strengthen our financial performance and assist the Company to meet the new challenges.

Financial Review

Net sales in 2004 were $218.5 million which was essentially at the same level as last year. In 2004, the Company recorded a net income of $2.9 million compared to a net loss of $8.7 million in 2003. The net sales grew 14% in the Asian markets from the year before and the sales also increased by 19% in Europe although on a smaller base. However, the sales growth in those regions were offset by the shortfall in the Company’s North American markets primarily due to the decision to exit the unprofitable institutional adult incontinence business. It is very commendable that the Company managed to grow 14% in sales in Asian markets despite the intense competition. This better than expected success was primarily the fruit from the “Re-focus” to the needs of the consumers and “Re-tooling” to improve product performance and feature upgrades.

The operating income of $2.2 million in 2004 was a substantial improvement from last year at a loss of $6.1 million. This is where we realized the pay off from “Re-structuring” initiatives. The result of cash flow improvement will enable the Company to continue to fund the various investment projects.

Operations

North America

This year the Company’s North American operations completed one of the re-structuring initiatives by exiting the unprofitable institutional incontinence business and a plant closure through the consolidating effort. The completion of this phase made the manufacturing capacity and overhead cost structure more closely aligned with current sales level. At the same time, the Company continued to focus the sales growth by expanding its private label (corporate brand) baby diaper and training pant business.

Asia

The brand awareness and brand building effort started in late 2003 in this region brought a promising reward for us in 2004. The net sales grew by 14%, a remarkable sales uplift, resulted in an improvement of operating income from $2.3 million in 2003 to $4.2 million in 2004. Our “Re-focus” to the needs of the consumers and “Re-tooling” to improve the product performance and added product features enabled us to enjoy the double digit volume growth.

- 4 -

Europe

Europe remains to be a very tough market for the Company. The sales in 2004 although improved by 19% over last year, but it is on a small base. The Company will continue to evaluate strategic viable alternatives.

Outlook

The competitive market conditions within our industry in 2004, coupled with the sharp increase of operating and raw material costs, presented significant challenges for the Company. However, our operations worldwide demonstrated their abilities to endure these conditions by adopting and implementing several key initiatives. We have managed to improve our operating cost structure to be more competitive, we have managed to grow sales volume in most of our key markets and we have managed to build capacities in high growth markets. Based on the experience gained and the financial performance improvement achieved in the year, we are confident that our business strategies are working, particularly under this tough competitive environment.

Looking at 2005, most indications are that the same challenges encountered in 2004 will continue to be here in 2005. These are significant challenges. However, we believe that by striving to focus on our business growth, by striving to drive the cost down, by striving to make our foundation healthy; all of these will enable us to deliver a better value for our shareholders.

On behalf of the entire DSG management team, I thank all shareholders for your continued support and trust.

Brandon Wang

Chairman

- 5 -

OPERATIONS

DSG International Limited and its subsidiaries, first established in Hong Kong in 1973, is one of the world leading companies specialized in manufacturing disposable baby diapers, training pants and adult incontinence products. The Company now operates eight manufacturing facilities in North America, Asia and Europe with extensive distribution activities around the world. The Company classified its operations into four segments in North America, Asia, Europe, and Shanghai, PRC joint venture based on its nature of activities.

The principal raw materials for the Company’s disposable products are fluff wood pulp and super absorbent polymer. Other raw materials include polyethylene back-sheets, cloth-like breathable back-sheets, polypropylene non-woven liners, adhesive closure tapes, mechanical closure tapes, hot melt adhesive, elastic, aloe vera and tissue.

There are different marketing and distribution strategies for each geographic segment of the Company, however, the Company’s fundamental strategies are:

• producing high quality and value-added products for consumers.

• providing healthy profit margins to distributors and retailers.

• low cost manufacturer with continuous improvement.

• responding intelligently to change in the marketplace.

NORTH AMERICA

This year, the Company continued its successful effort to strengthen the North American operation. All the programs, systems, and other measures put in place to improve productivity, efficiency, product quality, customer service, and operational effectiveness have shown positive results. The Company continued to focus on aligning manufacturing capacity and overhead costs to current net sales level and market potential. The Company will continue to see positive impacts in 2005 from manufacturing effectiveness and supply chain improvements; however, the overall operating environment will be very challenging during 2005 with the expected continuation of significant raw material and packaging upward pricing pressure caused by the market price of crude oil remaining over $50/barrel.

The net sales for the year 2004 were $143.0 million compared with $152.5 million in 2003. The decrease in 2004 sales was attributable to the Company’s decision to exit the lower margin institutional adult incontinence business, the continued decline in proprietary branded sales, and the continued decline in overall category dollar sales driven by reduced consumer pad usage per day, the intense retail price war, and reduced retail price spreads between the corporate brands and the national brands. Operating income increased by $3.9 million in year 2004 versus 2003. The overall reduction in net sales for corporate and company brands was offset by lower overhead and promotional costs. In addition, the Company invested significantly in product materials and formulation to continue to keep pace with changes in the marketplace and to exceed consumers wants for more supreme like features.

The Company continued to grow sales and to expand its private label (corporate brand) baby diaper and training pant business, while maintaining several key customers and markets on their branded business. On the corporate brand side, the Company continued to strengthen its existing private label partnerships with major retailers like Wal-Mart USA, Wal-Mart Canada, Kroger, Walgreens, Giant Eagle, Meijer, Aldi, etc. The Company’s FITTI® brand remains very strong, showing growth over 2003 in the leading U.S. retail

- 6 -

markets of New York and New Jersey. The Company continued to add new products and product features in the area of disposable baby products. Included were new diapers with a wide “stretch-ear” fastening system, the first custom printed cover, wetness indicators, a better fitting chassis, and a Dry-Lock^™ dryness layer. Significant changes in materials and product formulation were made to provide faster absorbing and dryer-to-the-touch products; while controlling costs in the face of the rapidly rising raw material costs. The Company looks forward to further expanding existing retail partnerships while adding prestigious new customers to their list in the coming year.

In the retail adult incontinence class of trade area, the Company continued to pursue its successful strategy to provide key retailers and consumers with product technology that is superior to what other manufacturers can currently provide. However, during 2004 the Company also executed a strategy to exit the institutional supply segment of the category where profit margins were unacceptable.

In line with the Company’s global fundamental marketing strategies, the Company’s North American operations provide its customers high quality products and superior service with satisfactory profit margin.

The Company’s principal brand names in North America are DRYPERS® and FITTI® for disposable baby diapers and training pants.

ASIA

2004 was a promising year for the Company’s operation in Asia. The Company’s sales were up by 14.4% and operating income improved by $1.8 million to $4.2 million in 2004. In December 2004, the Company’s South East Asian operations announced its plan of initial public offering of shares of the Company’s Thailand subsidiary which includes our Malaysia, Singapore and Indonesia operations, in the Stock Exchange of Thailand, which is expected to be completed in 2005. The Company’s sales increased from $62.4 million in 2003 to $71.3 million in 2004. Most of the sales growth was contributed from the operations in Thailand and the PRC. Although the market is very competitive in Asia, the Company has successfully built up brand value in the markets with specifically targeted marketing and sales programs in spite of continued aggressive pricing discounts from competitors.

In the Asian markets, the Company provides consumers with a different range of products with retail price differentiation to maintain its competitiveness against other local brands. The Company also has flexibility in tailoring packaging, brand and product features to coincide with advertising and promotional activities. This flexibility helps to cope with different demands in various markets in the region. Although competition and pricing pressure has become more intense in the region, the Company believes that there is great potential for sales growth due to projected population growth figures, lower diapers conversion rate and growing economy. As a pioneer and world class manufacturer in the region, the Company has an advantage in entering and expanding in these markets by cultivating disposable diaper usage and establishing its brands at an early stage through strategic advertising and promotional activities.

The Company’s major brands for disposable baby diapers in Asia are FITTI®, PET PET®, COSIFITS®, FITTI® Basic, BABY LOVE® and BABYJOY®. Besides, the Company manufactures private label disposable baby diapers for some reputable retailers. The Company also produces and distributes adult incontinence products in Asia under the brand names DISPO 123^™, HANDY^™, CERTAINTY® and CERTAINTY® Guard.

- 7 -

EUROPE

The Company’s net sales in Europe were $4.2 million in 2004 compared to $3.5 million in 2003. The increase of sales were primarily attributed to a concerted effort on promotional activities with the retailers. However, the cost of the promotion activity along with the sharp increase of raw material costs, negatively impacted on the operating cost resulting in an operating loss of $1.0 million.

The Company’s brands in Europe for baby diapers are FITTI®, COSIFITS® and CARES®. The Company works on strategy of selected presence of branded and private label disposable baby diapers business in the United Kingdom and continues to seek market opportunities and niches in the region. The Company acknowledges that based on the current size of its operations it will be difficult to gain the market share from major global competitors.

- 8 -

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

The following discussion and analysis should be read in conjunction with the selected consolidated financial data and the consolidated financial statements and related notes which appear elsewhere in this Annual Report.

General

The Company’s revenues are primarily derived from the manufacture and sale of disposable baby diapers, training pants and adult incontinence products in North America, Asia and Europe, both under its own brands and private label brands of major retailers.

The Company is not taxed in the British Virgin Islands where it is incorporated. The Company’s subsidiaries are subject to taxation in the jurisdictions in which they operate.

The consolidated financial statements of the Company are prepared in U.S. dollars, and the majority of its revenues are received and expenses are disbursed in U.S. dollars. Because certain of the Company’s subsidiaries account for their transactions in currencies other than U.S. dollars, the consolidated balance sheets contain foreign currency translation adjustments and the consolidated statements of operations contain realized exchange gains and losses due to exchange rate fluctuations.

The Company sold its Australian operations in December 2002. Consequently, the results of the Company’s Australian subsidiaries are presented as discontinued operations. References to the Company refer to its continuing operations, with the exception of the discussions regarding discontinued operations below.

In December 2004, the Company reorganized its subsidiary structure in the Southeast Asia region. Upon completion of the reorganization, the Company’s directly and majority-owned subsidiaries in Malaysia, Singapore and Indonesia are now subsidiaries of DSG International (Thailand) Ltd. (“DSGT”). DSGT and its subsidiaries are accounted for by the Company as entities under common control. Shares were swapped in the intercompany transaction to accomplish the corporate reorganization. As part of the reorganization, a dividend of $2.6 million was paid to the minority shareholders. In addition, directors and certain key employees of the Company purchased shares in DSGT for $326,000. The Company recognized compensation expense of $2.0 million for the difference between the issuance price and fair value and a gain on the sale of shares of subsidiary of $1.5 million. Prior to the sale of shares to related parties, the Company owned approximately 88% of DSGT. As a result of these transactions, the Company now owns approximately 82% of DSGT.

On December 22, 2004, DSGT filed a registration statement and draft prospectus with the Securities and Exchange Commission, Thailand and the Stock Exchange of Thailand (“SET”) proposing a public offering of shares of DSGT on the SET. The Company expects to complete the public offering of additional new shares on the SET in 2005 and expects to continue to have a majority ownership of DSGT after the completion of the public offering. The Company will likely have gains on the sale of stock in connection with this public offering in 2005.

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OPERATING AND FINANCIAL REVIEW AND PROSPECTS - (Continued)

Industry Trends

The Company believes that the most significant industry trends are:

• fluff wood pulp costs and other raw material costs increased in 2004. It is anticipated that these raw material costs will continue to increase in 2005. The Company’s gross profit margin may be adversely affected if selling prices are not adjusted or if such adjustments significantly trail the cost increases;

• increasing demand for cloth-like breathable back-sheet, elasticated ear patch with a mechanical closure system, and thin absorbent core products, which the Company is meeting through machine modifications and product development effort;

• the domination of industry leaders in most of the Company’s markets pressures retailers’ margins. The Company is finding it more difficult to respond to highly competitive market conditions.

The Company is unable to predict whether the industry trends noted above would have a material effect on its future financial condition or results of operations and, if so, whether such an effect will be positive or negative.

Forward-looking Statements

Certain written and oral statements made by the Company and its management may be considered “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995, including statements made in this Annual Report on Form 20-F, public releases of information and other filings with the Securities and Exchange Commission. Generally, words such as “anticipate”, “estimate”, “will”, “project”, “expect”, “believe” and similar expressions identify forward-looking statements. All forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience or our present expectations. Therefore, caution should be taken not to place undue reliance on any such forward-looking statements since such statements speak only as of the date when made. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Risk Factors

Among the factors that have a direct effect on the results of operations and financial condition of the Company are the following:

1. Raw Material Cost

The upward trend for the major raw material components continued in 2004. The operating results in all of our segments were affected adversely by this factor. Most raw materials used by the Company are oil based by-products which are highly volatile both in price and unpredictable demand. In addition to maintaining multiple sources, the Company has entered into various short-term supply contracts to effectively manage the volatility on supply and pricing. While the Company continues to implement programs to drive the cost out, it is difficult to predict that these measures are adequate to offset raw material cost increases and shortage of supplies.

- 10 -

OPERATING AND FINANCIAL REVIEW AND PROSPECTS - (Continued)

2. Branded Product Innovation

Patents and other intellectual property rights are an important competitive factor in the disposable diaper market, mostly because of the industry emphasis on product innovations. Patents held by main competitors could severely limit the Company’s ability to keep up with branded product innovations, by prohibiting the Company from marketing product with comparable features.

3. Pricing and Volumes

The market position of the Company’s main global competitors, the Procter & Gamble Company (“P&G”) and Kimberly-Clark Corporation (“KC”), relative to the Company, varies from one geographic area to another; but due to their substantial financial, technical, marketing, manufacturing, logistics and personnel resources, both of these major manufacturers have the ability to exert significant influence in price and volumes, and gain substantial market share in any of their marketing areas. They have heavily promoted diapers in the multi-pack configuration. These packages offer a lower unit price than previously available to the retailer and consumer. It is possible that as a consequence of this strategy, in those geographic markets in which the main competitors have adopted it, the Company may realize lower selling prices and/or lower sales volume. As a result, the intense competition in the markets may result in pricing pressure, lower sales and reduced margins. The Company’s business and operating results could be materially and adversely affect by these continuing competitive pressures and the Company may be unable to compete successfully with these main competitors in the future.

In early 2005, both P&G and KC had announced price increases of approximately 5%. This increase is attributed to the substantial increased costs of raw material. Although it presents opportunities for the Company to improve its margin, there is no guarantee that the Company can be successful in achieving price increases.

4. Increased Cost

On May 21, 2001, the Company entered into an agreement with P&G to settle any potential liability of the Company which may have existed with respect to any past infringement on P&G patents prior to January 1, 2001 and to agree on royalty payments relating to sales on certain of the Company’s products in the Asian Pacific and Australian region after December 31, 2000. A similar agreement with P&G was entered into in 1998 relating to the North American region that provides for payments of royalty fees based on a percentage of certain products sold after December 31, 1997 within the North American region.

On September 12, 2003, the Company entered into another agreement with P&G to resolve any possible dispute between the parties related to a patent. This agreement grants a royalty bearing non-exclusive rights to use certain features for certain products produced by the Company’s North American region. The royalty fee is calculated based on percentage of the products sold and recorded as selling, general and administrative expenses in the consolidated statements of operations.

The Company believes that the royalty being charged by P&G under its respective license agreements is approximately the same royalty that will be paid by its major competitors for similar patent rights. However, these royalties will continue to have an adverse impact on the Company’s future financial condition and results of operations as compared to pre-settlement.

- 11 -

OPERATING AND FINANCIAL REVIEW AND PROSPECTS - (Continued)

5. Increased Financial Leverage

The Company’s short and long-term debts were $51.9 million as of December 31, 2004, an increase of $15.9 million from $36.0 million last year. The debts bear various interest rates as of December 31, 2004, ranging from 2.3% to 8.5%. The existing level of the Company’s financial leverage could adversely affect the Company’s ability to obtain additional financing for working capital, acquisitions or other purposes and could make the Company more vulnerable to economic crisis in the different geographical markets and to competitive pressures from its main competitors. The global uprising trend in interest rates could also adversely affect the Company’s performance.

As a substantial portion of the Company’s available cash from operations will have to be applied to meet debt service requirements, the Company’s liquidity could be affected as well as its ability to fund capital expenditures. Notwithstanding, the Company believes that its cash flow from operations and other sources of liquidity will be adequate to meet its requirements for working capital, capital expenditures, interest payment and scheduled principal payment for the foreseeable future. However, if the Company is unable to generate sufficient cash flow from operations in the future, it may be required to refinance all or a portion of its existing debt or obtain additional financing. There is no assurance that this additional financing could be obtained or if obtained, would be on terms favorable for the Company.

6. Litigation Risk

As the Company operates in an industry in which patents are numerous and are enforced vigorously, the Company and its subsidiaries are from time to time involved in legal matters.

The Company is currently not defending itself in any significant litigation matters. Although it cannot be certain, in management’s opinion, none of the legal proceedings in which the Company is currently involved, individually or in the aggregate, is expected to have a material adverse effect on the Company’s business, financial condition or results of operation.

7. Worldwide Political, Economic, Legal and Other Uncertainties

The Company is incorporated in the British Virgin Islands and has operating subsidiaries incorporated in Hong Kong, the United States, the United Kingdom, the People’s Republic of China (“PRC”), Thailand, Indonesia and Malaysia. The Company manufactures and distributes baby diapers, training pants and adult incontinence products in North America, Europe, Greater China and South East Asia regions. The global operations may render the Company subject to political, economic risks and legal uncertainties, including the changes in economic and political conditions and government policies; wars, civil unrest, acts of terrorism and other conflicts; changes in tariffs, trade agreements and taxation and limitation of repatriation of funds due to foreign exchange controls. The occurrence or consequences of any of the aforesaid factors may restrict the Company’s ability to operate in the affected region and decrease the profitability of the Company’s operations in that region.

Related Party Transactions

As of December 31, 2004, the Company had a payable balance of $37,000 to Mr. Brandon Wang, Chief Executive Officer. This payable balance was classified as other current liabilities. The Company repaid $1.2 million to Mr. Brandon Wang during 2004.

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OPERATING AND FINANCIAL REVIEW AND PROSPECTS - (Continued)

During 2003, Mr. Brandon Wang, the Company’s Chief Executive Officer, and a Trust controlled by him repaid the entire shareholder loan, which had an outstanding balance of $8.6 million on December 31, 2002. To repay the shareholder loan, Mr. Wang used funds from a shareholder dividend paid by the Company in March 2003, shares sold back to the Company and net proceeds from the sale of his London residence.

On March 19, 2003, 375,000 restricted shares were granted to Mr. Wang under the Company’s Equity Participation Plan. These restricted Ordinary Shares were considered bonus shares that had a six-month vesting period from the date of grant. After expiration of the vesting period on September 23, 2003, Mr. Wang sold these restricted Ordinary Shares back to the Company at the prevailing market price of $7.01 per share. Mr. Wang received payment of $5.00 per share ($1.875 million) at the time of the share repurchase. The Company has a remaining balance of $754,000 due Mr. Wang on the 375,000 restricted Ordinary Shares of $2.01 per share as of year ended December 31, 2003.

On March 20, 2003, the Board of Directors of the Company authorized the purchase of the London residence of Mr. Wang, for its fair market value of $12.3 million as determined by an independent appraiser. The net proceeds of this transaction of $5.7 million was used by Mr. Wang to repay a portion of the shareholder loan due to the Company. The Board of Directors authorized Mr. Wang and his wife’s use and lease of this London property from the Company at a market rate of $36,000 per month.

In 2004 and 2003, the Company received rental income of $432,000 and $216,000, respectively, from Mr. Brandon Wang and his wife for the use and lease of the London property.

During 2003 and 2002, Mr. Wang and a trust controlled by him repaid $8.6 million and $4.1 million, respectively, to the Company. In 2002, the Company advanced $1.9 million to Mr. Wang and to a trust of which he is a beneficiary. These advances were made under a loan and security agreement in which the Company agreed to make loans to Mr. Wang from time to time, subject to any limit on such loans which may be imposed by the Board of Directors. The loans were repayable on demand evidenced by promissory notes bearing interest at a rate equal to 1.5% over LIBOR or such other rate that the Board of Directors and the borrower shall agree in writing. Interest of $81,000 and $230,000 was charged on these advances in 2003 and 2002, respectively.

As a result of these series of transactions and the remaining payable balance of $754,000 due to shares repurchased from Mr. Wang, the Company had a balance of $1.2 million payable to Mr. Wang and a Trust controlled by him as of December 31, 2003.

In 2004, certain directors and key employees of the Company purchased shares of the Company’s Thailand subsidiary at amounts below market value. The Company recognized $2.0 million of compensation expense related to this transaction.

- 13 -

OPERATING AND FINANCIAL REVIEW AND PROSPECTS - (Continued)

Results of Operations

The following table sets forth the percentage of net sales represented by the specified components of income and expense for the years ended December 31, 2004, 2003 and 2002:

	Year Ended December 31,
	2004		2003		2002
Net sales	100.0	%	100.0	%	100.0	%
Cost of sales	73.7		75.2		74.8
Gross profit	26.3		24.8		25.2
Selling, general and administrative expenses	(24.5	)	(27.4	)	(23.5	)
Restructuring costs and impairment loss	(0.7	)	—		(0.6	)
Gain (loss) on disposals of property, plant and equipment	(0.1	)	(0.1	)	0.1
Operating income (loss)	1.0		(2.7	)	1.2
Interest expense	(0.9	)	(0.7	)	(0.9	)
Interest income	0.1		0.1		0.1
Exchange gain (loss)	(0.8	)	0.2		0.2
Gain on sale of shares of subsidiary	0.7		—		—
Other income (expense), net	0.2		0.1		—
Income (loss) from continuing operations before income taxes and minority interests	0.3		(3.0	)	0.6
Provision for income taxes	1.3		(0.5	)	(0.2	)
Minority interest	(0.3	)	(0.5	)	(0.5	)
Income (loss) from continuing operations	1.3		(4.0	)	(0.1	)
Discontinued operations
Income from discontinued operations before income taxes (including gain on disposal of 6.8% in 2002)	—		—		8.3
Provision for income taxes (including tax on gain on disposal of 0.3% in 2002)	—		—		(0.6	)
Income from discontinued operations	—		—		7.7
Net income (loss)	1.3	%	(4.0	)%	7.6	%

Comparison of 2004, 2003 and 2002

The Company’s net sales in 2004 were $218.5 million which was equivalent with last year. The sales growth in the Asian markets were up 14% which was offset by the shortfall in the Company’s North American markets, due partly to the exit of the unprofitable institutional adult incontinence business in the North America and declined sales in proprietary brands. Sales in Europe increased by 19% in 2004 versus 2003.

- 14 -

OPERATING AND FINANCIAL REVIEW AND PROSPECTS - (Continued)

The Company’s gross margin in 2004 was improved by 1.5% compared with 2003. This gain was attributed primarily from the reduction of excessive manufacturing overhead in North American operations. Selling, general and administrative expenses as a percentage of net sales was 24.5% in 2004 which was lowered by 2.9% compared with 2003. In 2003, the Company included stock based compensation of $3.9 million and $0.5 million in transaction costs related to the purchase of real estate property. Excluding the stock based compensation for both years and the transaction cost in 2003, the selling, general and administrative expenses as a percentage to net sales would have been 23.7% in 2004 and 25.4% in 2003.

During 2004, the Company reduced $5,276 of its valuation allowance previously recorded for our U.S. net operating loss carryforwards. In our opinion, it is more likely than not that the Company will utilize the tax loss carryforwards.

During 2004, the Company underwent a major restructuring to re-align manufacturing capacity and overhead cost structure in our North American operation resulting in a total cost of $1.5 million for the plant closure; Drypers trademark impairment and impairment of assets held-for-sale. Interest expense increased from $1.5 million in 2003 to $1.9 million in 2004 due to debt levels increasing from $36.0 million at December 31, 2003 to $51.9 million at December 31, 2004. An exchange loss of $1.7 million was realized in 2004 due to unfavorable fluctuation of foreign currencies against the US Dollar in 2004. The Company recognized a gain on sale of shares of subsidiary to the Company’s directors and certain key employees of $1.5 million in 2004.

Net sales of the Company in 2003 were $218.4 million which was 4.1% lower than 2002. The majority of the decline was in the Company’s North American business due to the decrease in branded label business that declined at a faster pace than the increase in private label business. The sales in Greater China (the PRC and Hong Kong) had a moderate growth of 12% in 2003. The sales growth in South East Asian markets was flat. Sales in the Thailand market showed remarkable growth of 11% but this was offset by sales declines of 9% due to intense pricing competition in the Malaysian and Indonesian markets. The volume continued to decrease by 10% in European markets in 2003.

The Company’s gross profit margin in 2003 from the continuing operations declined by 0.4% to 24.8% from 25.2% in 2002. The decline was attributable to the combination of lower sales volume and an unfavorable sales mix to lower margin products, especially in the North American business. Selling, general and administrative expenses as a percentage of net sales from continuing operations increased by 3.9% from 23.5% to 27.4% in 2003. This increase was mainly due to additional charges to the Company’s stock-based compensation expense of $3.9 million, transaction costs incurred on the purchase of the London property of $496,000 and a television advertising campaign of $1.5 million in the PRC.

The Company incurred an impairment loss of $78,000 on long-lived assets related to assets held-for-sale in the North American operations in 2003. Debt levels increased from $24.3 million as of year ended December 31, 2002 to $36.0 million as of year ended December 31, 2003. However, the interest expense decreased to $1.5 million in 2003 from $2.0 million in 2002 due to lower borrowing rates and increased debt levels in the fourth quarter of 2003.

Geographic Segment Information

As the results of the Company’s operations differ significantly from one market to another, the following discussion considers the Company’s results in each of the geographic regions in which it operates. The tables below set forth the Company’s net sales and operating income in each geographic region in 2004, 2003 and 2002, and the percentage change over the preceding period:

1. North America

	Year Ended December 31,						Increase/(Decrease)
	2004		2003		2002		2004		2003		2002
	(Dollars in thousands)
Net sales	$	142,977	$	152,534	$	161,528	(6.3	)%	(5.6	)%	1.9	%
Operating income		7,121		3,239		4,290	120.0		(24.5	)	—

- 15 -

OPERATING AND FINANCIAL REVIEW AND PROSPECTS - (Continued)

The Company’s net sales were $143.0 million in 2004 compared with $152.5 million in 2003. This decline was attributed to the decline in proprietary branded sales and the exit of the low margin institutional adult incontinence product business. Gross profit margin increased to 22.2% in 2004 compared with 20.6% which was attributed to improved operational effectiveness and the Company’s continued focus on offering the marketplace a world class product at the lowest attainable manufactured cost. Selling, general and administrative expenses as a percentage of net sales in 2004 decreased to 18.2% from 19.0% a year ago, primarily due to the Company’s focus on aligning overhead expenses to net sales. As a result, operating income for the year 2004 increased by $3.9 million to $7.1 million compared with $3.2 million of the previous year.

The Company’s net sales were $152.5 million in 2003 compared with $161.5 million in 2002. Gross profit margin was 20.6% in 2003 compared with 22.5% in 2002. This decline was attributed to excess manufacturing capacity and the Company’s investment in the enhancement of product features and performance to meet competitive offerings in the marketplace. Selling, general and administrative expenses as a percentage of net sales in 2003 decreased to 19.0% from 19.9% in 2002. This decrease was attributable to the decrease in net sales as overall expenses fell year on year. Operating income for the year 2003 decreased by $1.1 million from 2002 to operating income of $3.2 million.

2. Asia

	Year Ended December 31,						Increase/(Decrease)
	2004		2003		2002		2004		2003		2002
	(Dollars in thousands)
Net sales	$	71,309	$	62,351	$	62,138	14.4	%	0.3	%	(1.3	)%
Operating income		4,153		2,317		4,543	79.2		(49.0	)	(11.3	)

The Company’s net sales increased by 14.4% to $71.3 million in 2004 from $62.4 million in 2003. The Company’s sales recorded rapid growth in the PRC and Thailand markets in 2004. Although facing the intense price competition in Malaysian market, the Company was successful in improving distribution channels by product re-positioning and brands consolidation to capture a high single digit volume growth in the market in 2004. On the other hand, the Company faced fierce price competition in Indonesian market, which negatively affected the Company’s sales. Sales in Hong Kong and Singapore were still sluggish due to the low baby birth rate and competition.

- 16 -

OPERATING AND FINANCIAL REVIEW AND PROSPECTS - (Continued)

The Company’s gross profit margin in Asia was slightly decreased by 0.8% due to products feature improvement without passing on all the increased costs to customers. The Company’s selling, general and administrative expenses as a percentage of sales decreased from 30.8% in 2003 to 27.8% in 2004. This improvement, despite the additional expenses incurred for the relocation of the Thailand production facilities, was primarily accomplished by the substantial increase of volume. As a result, operating income increased by $1.8 million from $2.3 million in 2003 to $4.2 million in 2004.

The Company’s net sales in Asia increased marginally by 0.3% to $62.4 million in 2003. The lower baby birth rates and outbreak of Severe Acute Respiratory Syndrome in Asia adversely impacted the sales in Hong Kong and Singapore. However, sales in the PRC and Thailand recorded double-digit growth of 17.0% and 11.0%, respectively, in 2003. The Company’s sales in the Malaysian market were negatively affected by intense price competition. However, the Company improved the gross profit margin in Malaysian operation by 5.0% in 2003 to 31.0% as a result of improved production efficiencies. On the other hand, selling, general and administrative expenses as a percentage of net sales increased to 30.8% in 2003 from 25.3% last year mainly due to increased advertising expenses of $2.0 million to build brand awareness in the PRC market. As a result, operating income decreased by 49.0% to $2.3 million in 2003 from $4.5 million last year.

3. Europe

	Year Ended December 31,									Increase/(Decrease)
	2004			2003			2002			2004		2003		2002
	(Dollars in thousands)
Net sales	$	4,189		$	3,525		$	4,131		18.8	%	(14.7	)%	(33.6	)%
Operating loss		(1,035	)		(929	)		(876	)	11.4		6.1		(35.6	)

The Company’s net sales in Europe were $4.2 million in 2004 compared to $3.5 million in 2003. The increase of sales were primarily attributed to a concerted effort on promotional activities with the retailers. However, the cost of the promotion activity along with the sharp increase of raw material costs, negatively impacted on the operating cost resulting in an operating loss of $1.0 million.

The Company’s net sales in Europe were $3.5 million in 2003 compared to $4.1 million in 2002. The Company has scaled back its operations in Europe, but continues to market branded and private label disposable baby diapers in the United Kingdom. The Company’s operating loss for the year 2003 was $0.9 million which increased 6.1% compared with last year.

4. Shanghai, PRC Joint Venture

	Year Ended December 31,								Increase/(Decrease)
	2004			2003			2002		2004		2003	2002
	(Dollars in thousands)
Operating loss	$	(448	)	$	(236	)	$	—	89.8	%	—	—

- 17 -

OPERATING AND FINANCIAL REVIEW AND PROSPECTS – (Continued)

The Company’s joint venture investment in Shanghai is in set up stage and no sales or operations have commenced. It is anticipated to commence the operations during 4th quarter of 2005. The operating loss incurred related to start up expenses related to administrative expenses such as payroll, rent and travel expenses in 2004.

In April 2003, the Company entered into a joint venture agreement with Mitsubishi Corporation and Japan Absorbent Technology Institute of Japan to establish a manufacturing facility in Shanghai, PRC. The joint venture will engage in manufacturing disposable hygiene related products. The Japanese joint venture partners will provide the proprietary patents, related technology and certain raw materials. The invested capital of the investment is $5.0 million and the Company owns a 75% interest in the joint venture company.

In 2003, the Company’s joint venture in Shanghai, PRC had a loss of $236,000 related to expenditures for office rental, personnel and traveling expenses during the initial set up stage of operations.

The Company is accounting for the operation of the joint venture on a consolidated basis of accounting.

Liquidity and Capital Resources

The Company has cash and cash equivalent of $16.5 million at the year ended 2004, a decrease of $3.8 million from $20.3 million in 2003. The cash and cash equivalents were held by individual operations of the Company in their local currencies and were from time to time invested in interest bearing deposit accounts. The Company did not use any financial instruments for hedging.

Net cash provided by operating activities from continuing operations in 2004 was $7.5 million, including non-cash items of depreciation and amortization charge, stock-based compensation and impairment loss on long-lived assets of $8.4 million, $2.8 million and $0.9 million, respectively. The non-cash adjustment also included a gain on sales of shares of Thailand subsidiary to directors and certain key employees of the Company for $1.5 million during the restructuring of Thailand subsidiary, offset by a share of profit by minority shareholders of $599,000 in 2004. The decrease in cash flows was derived from a net increase in working capital components of $2.8 million from continuing operations in 2004 primarily due to an increase in accounts receivable, other receivables, inventories and prepaid expenses of $0.8 million, $0.9 million, $0.5 million and $1.0 million, respectively, as of December 31, 2004.

Net cash used in investing activities from continuing operations in 2004 was $23.5 million. The Company invested $21.7 million in capital expenditures which included $3.4 million for construction of a manufacturing facility in Thailand, $12.1 million for the manufacturing facility and machinery for the Shanghai, PRC joint venture, and $6.2 million for additions and modifications to machinery and equipment in the Company’s various other operations. In addition, the Company paid the payable to Mr. Wang, the Chief Executive Officer of the Company of $1.2 million in 2004. The Company had restricted cash of $1.7 million for the pledge against a banking facility of the Company’s Thailand subsidiary at December 31, 2004. In 2004, the Company received $781,000 from the sales of shares to the Company’s directors and certain key employees and capital contribution by the Thailand minority shareholders.

- 18 -

OPERATING AND FINANCIAL REVIEW AND PROSPECTS – (Continued)

The Company had $19.1 million in short-term bank credit lines, out of total available credit facilities of $34.2 million, as of December 31, 2004. Short-term bank borrowings increased by $3.1 million in 2004 versus an increase of $4.9 million during 2003. The Company borrowed long-term debt of $23.2 million and repaid $11.7 million of long-term debt during 2004. The weighted average interest rate on borrowings at December 31, 2004 was 5.62% (5.45% in 2003). As part of the restructuring of the Company’s South East Asia operation in 2004, the Company paid a $2.6 million dividend to the minority shareholders of the Company’s Thailand and Indonesia subsidiaries. As a result, net cash provided by financing activities from continuing operation in 2004 was $12.1 million.

The Company’s primary sources of liquidity have been provided by internally generated funds and bank borrowings. In management’s opinion, the cash on hand of $16.5 million at December 31, 2004 plus expected cash flow from operating activities is sufficient to fund its liquidity, contractual obligations and commitments needs for the next twelve months. However, the Company may require periodic additional borrowings in order to finance expansions in Thailand and Shanghai, capital expenditure for the joint venture investment in Shanghai and additions and modifications to machinery and equipment, other investments or other business requirements.

Contractual Obligations and Commitments

As of the year ended December 31, 2004, the Company’s contractual obligations and commitments were summarized as follows:

	Payment due by year
	Total		2005		2006		2007		2008		2009 and thereafter
	(Dollars in thousands)
Short-term borrowings	$	19,111	$	19,111	$	—	$	—	$	—	$	—
Long-term debt		32,772		6,099		7,079		3,079		12,500		4,015
Operating leases		6,483		2,510		1,965		1,071		468		469
Purchase of license use right		500		500		—		—		—		—
Joint venture investment		606		606		—		—		—		—
Investment in PRC diaper plant		1,057		1,057		—		—		—		—
Capital expenditures		595		595		—		—		—		—
Interest payment obligations		5,100		1,568		1,288		1,094		919		231
Accrued raw materials purchase obligations		6,512		6,512		—		—		—		—
Total	$	72,736	$	38,558	$	10,332	$	5,244	$	13,887	$	4,715

- 19 -

OPERATING AND FINANCIAL REVIEW AND PROSPECTS - (Continued)

New Accounting Pronouncements

In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities”, which interprets Accounting Research Bulletin 51, “Consolidated Financial Statements”, and requires consolidation of certain entities in which the primary beneficiary has a controlling financial interest despite not having voting control of such entities. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The adoption of FIN 46 did not have a material impact on the Company’s consolidated financial position or results of operations.

In April 2003, the FASB issued SFAS No. 149, “Amendment to Statement 133 on Derivative Instruments and Hedging Activities”. SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 is applied prospectively and is effective for contracts entered into or modified after June 30, 2003, except for SFAS No. 133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003 and certain provisions relating to forward purchases and sales on securities that do not yet exist. The adoption of SFAS No. 149 did not have a material impact on its consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”. The statement establishes standards for how an issuer classifies and measures certain financial instruments. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The statement requires that certain financial instruments that, under previous guidance, could be accounted for as equity classified as liabilities, or assets in some circumstances. This statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The statement also requires disclosures about alternative ways of settling the instruments and the capital structure of entities whose shares are mandatorily redeemable. The adoption of SFAS No. 150 did not have a material impact on the Company’s consolidated financial statements.

In November 2004, the Financial Accounting Standards Board issued Statement No. 151, “Inventory Costs” (“SFAS No. 151”). SFAS No. 151 amends Accounting Research Bulletin No. 43, chapter 4, “Inventory Pricing”. It states that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current period charges. In addition, this statement requires that the allocation of overhead costs be based upon normal capacity for the production facilities and that any overhead costs not allocated due to lower production, be recognized as current period charges and not capitalized in inventory. The effective date of this statement is for fiscal years beginning after June 15, 2005. The Company does not believe the adoption of this statement will have a material impact on its financial statements.

In December 2004, the Financial Accounting Standards Board issued Statement No. 153, Exchanges of Non-monetary Assets (“SFAS No. 153”). SFAS No. 153 amends APB Opinion No. 29, Accounting for Non-monetary Transactions. This statement specifies that a non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The effective date of this statement is for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this statement will not have a material impact on the Company’s financial statements.

- 20 -

OPERATING AND FINANCIAL REVIEW AND PROSPECTS - (Continued)

In December 2004, the Financial Accounting Standards Board issued Statement No. 123 (revised 2004), “Share-Based Payment,” (“SFAS No. 123 (R)”). This statement established standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. In general, the accounting required by SFAS 123R is similar to that of SFAS 123. The major revision in this statement from the original statement is that companies will now be required to recognize compensation expense in their financial statements, typically over the vesting period.

On April 14, 2005, the Securities and Exchange Commission announced the adoption of a new rule that amends the compliance date for SFAS 123R. The new rule requires the Company to adopt SFAS 123 by January 1, 2006. The Company does not expect the adoption of SFAS 123R to have a material impact.

In December 2004, the Financial Accounting Standards Board issued FASB Staff Position No. 109-1 (“FSP No. 109-1”). FSP 109-1 provides guidance on the application of FASB Statement 109, “Accounting for Income Taxes”, (“SFAS No. 109”), to the provision within the American Jobs Creation Act of 2004 (“the Act”) that provides a tax deduction on qualified production activities. In accordance with FSP No. 109, a qualified production activity deduction should be accounted for as a special deduction in accordance with SFAS No. 109. The effective date for FSP No. 109-1 was December 14, 2004 and did not have an impact in 2004. We expect that this will lower our future effective tax rate as this deduction will result in a permanent difference.

In December 2004, the Financial Accounting Standards Board issued FASB Staff Position No. 109-2 (“FSP No. 109-2”). FSP 109-2 provides guidance on the application of FASB Statement 109, “Accounting for Income Taxes”, (“SFAS No. 109”), to the provision within the American Jobs Creation Act of 2004 (“the Act”) that provides a one-time special tax deduction of 85% of certain foreign earning that are repatriated (as defined in the Act). FSP No. 109-2 allows a company time beyond the financial reporting period of enactment to evaluate the effect of the Act on its plan for reinvestment or repatriation of foreign earnings for purposes of apply SFAS No. 109. The effective date for FSP No. 109-2 was December 21, 2004 and did not have an impact in 2004. We do not believe that FSP No. 109-2 will have a material impact on our financial statements in the future.

Significant Accounting Policies

The Company prepares its consolidated financial statements in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. On an on-going basis, the Company evaluates its estimates and judgments, including those related to bad and doubtful debts, inventories, income taxes, impairment of assets, intangible assets and litigation. The Company bases its estimates and judgments on historical experience and on various other factors that the Company believes are reasonable. Actual results may differ from these estimates under different assumptions or conditions.

The following significant accounting policies encompass the more substantial judgments and estimates used in the preparation of the Company’s consolidated financial statements.

- 21 -

OPERATING AND FINANCIAL REVIEW AND PROSPECTS - (Continued)

Bad and doubtful debts – The Company maintains allowances for its bad and doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. If the financial condition of its customers changed, changes to these allowances may be required, which would impact the Company’s future operating results.

Inventories – Inventories, consisting of finished goods, raw materials and packaging materials, are stated at the lower of cost or market with cost determined using the first-in, first-out method. The Company makes certain obsolescence and other assumptions to adjust inventory based on historical experience and current information. The Company writes down inventory for estimated obsolete or unmarketable inventory equal to the difference between the costs of inventory and estimated market value, based upon assumptions about future demand and market conditions. These assumptions, although consistently applied, can have a significant impact on current and future operating results and financial position.

Income taxes – The Company records a valuation allowance to reduce its deferred tax assets to the amount that the Company believes is more likely than not to be realized. In the event the Company was to determine that it would be able to realize its deferred tax assets in the future in excess of its recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made.

Impairment of assets – Effective from January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets”, issued by FASB. In accordance with the guidelines of this accounting standard, goodwill and indefinite-lived intangible assets are no longer amortized, and instead, are assessed for impairment on at least an annual basis. Purchased intangible assets other than goodwill and indefinite-lived intangible assets are amortized over their estimated useful lives, and reviewed for impairment whenever events or changes in circumstances indicate the carrying amount may not be recoverable. As a result, declines in fair value of long-term assets would result in impairment charges which would impact future operating results.

Litigation – The Company records contingent liabilities relating to litigation or other loss contingencies when it believes that the likelihood of loss is probable and the amount of the loss can be reasonably estimated. Changes in judgments of outcome and estimated losses are recorded, as necessary, in the period such changes are determined or become known. Any changes in estimates would impact its future operating results. Significant contingent liabilities, which the Company believes are at least possible, are disclosed in the Notes to the consolidated financial statements.

- 22 -

SELECTED CONSOLIDATED FINANCIAL DATA

(in thousands except per share amounts)

	Year Ended December 31,
	2004			2003			2002			2001			2000
Statement of Operations Data
Net sales(1)	$	218,475		$	218,410		$	227,797		$	227,769		$	157,613
Cost of sales		(160,955	)		(164,310	)		(170,422	)		(178,413	)		(117,711	)
Gross profit		57,520			54,100			57,375			49,356			39,902
Selling, general and administrative expenses(2)		(53,646	)		(59,815	)		(53,613	)		(58,561	)		(37,569	)
Restructuring costs and impairment loss		(1,491	)		(78	)		(1,390	)		(6,356	)		—
Gain (loss) on disposals of property, plant and equipment		(224	)		(269	)		244			(199	)		223
Settlement of legal cases		—			—			—			(4,575	)		—
Gain (loss) on disposal of subsidiaries		—			—			—			(672	)		214
Operating income (loss)		2,159			(6,062	)		2,616			(21,007	)		2,770
Interest expense		(1,931	)		(1,514	)		(1,966	)		(4,398	)		(1,471	)
Interest income		153			319			328			677			816
Exchange gain (loss)		(1,749	)		536			506			(2,801	)		(1,329	)
Gain on sale of shares of subsidiary		1,468			—			—			—			—
Other income (expense), net		472			44			(68	)		(459	)		45
Income (loss) from continuing operations before income taxes and minority interest		572			(6,677	)		1,416			(27,988	)		831
Provision for income taxes		2,932			(1,016	)		(502	)		(1,117	)		(1,255	)
Minority interest		(599	)		(987	)		(1,269	)		(424	)		(141	)
Income (loss) from continuing operations		2,905			(8,680	)		(355	)		(29,529	)		(565	)
Discontinued operations
Income from discontinued operations before income taxes (including gain on disposal of $15,525 in 2002)		—			—			18,977			1,993			3,830
Provision for income taxes (including tax on gain on disposal of $692 in 2002)		—			—			(1,377	)		(27	)		(302	)
Income from discontinued operations		—			—			17,600			1,966			3,528
Net income (loss)	$	2,905		$	(8,680	)	$	17,245		$	(27,563	)	$	2,963
Net income (loss) per share of common stock :
Basic
Income (loss) from continuing operations	$	0.40		$	(1.16	)	$	(0.05	)	$	(4.39	)	$	(0.08	)
Income from discontinued operations		—			—			2.52			0.29			0.52
Net income (loss) per basic share of common stock	$	0.40		$	(1.16	)	$	2.47		$	(4.10	)	$	0.44
Diluted(3)
Income (loss) from continuing operations	$	0.39		$	(1.16	)	$	(0.05	)	$	(4.39	)	$	(0.08	)
Income from discontinued operations		—			—			2.52			0.29			0.52
Net income (loss) per diluted share of common stock	$	0.39		$	(1.16	)	$	2.47		$	(4.10	)	$	0.44

- 23 -

SELECTED CONSOLIDATED FINANCIAL DATA - (Continued)

(in thousands)

	Year Ended December 31,
	2004	2003	2002	2001	2000
Weighted average number of shares outstanding
Basic	7,258	7,514	6,989	6,721	6,675
Diluted	7,433	7,652	6,989	6,721	6,675

The Company declared dividend of $0.70 per share during 2003.

⁽¹⁾ The amount of sales incentives included as a deduction from sales in accordance with EITF No. 01-9, “Accounting for Consideration Given by a Vendor or a Customer (Including a Reseller of the Vendor’s Products)”, was $18,886,$21,470, $24,961, $26,686, $12,295 and $10,811 for the years ended December 31, 2004, 2003, 2002, 2001 and 2000 respectively.

⁽²⁾ Selling, general and administrative expenses for the year ended December 31, 2004 and 2003 includes a charge of $2,804 and $3,901 related to stock based compensation expense, respectively.

⁽³⁾ The restricted shares and stock options outstanding at December 31, 2003 have not been included in the computation of diluted earnings per share because to do so would be anti-dilutive for the year ended December 31, 2003.

	December 31,
	2004		2003		2002		2001		2000
Balance Sheet Data
Working capital	$	19,996	$	13,171	$	27,956	$	3,144	$	32,423
Total assets		151,734		132,728		129,867		138,648		111,409
Long-term debt		26,673		14,167		9,197		13,218		5,577
Shareholders’ equity		57,152		53,120		59,032		38,981		63,447

- 24 -

MANAGEMENT REPORT

To the Shareholders of DSG International Limited

The financial statements of the Company published in this report were prepared by the Company’s management, which is responsible for their integrity and objectivity. The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, applying certain estimates and judgments as required. The financial information elsewhere in this Annual Report is consistent with that in the financial statements.

The Company maintains a system of internal accounting controls and procedures adequate to provide reasonable assurance at an appropriate cost/benefit relationship that its transactions are properly recorded and reported, its assets are protected and its established policies are followed. This system is maintained by the establishment and communication of policies and a qualified financial staff.

Our independent registered public accounting firm, Deloitte & Touche LLP, are appointed by the Audit Committee of the Board of Directors and ratified by our Company’s shareholders. Deloitte & Touche LLP conducts its audit of the Company’s consolidated financial statements in conformity with standards of the Public Company Accounting Oversight Board (United States). The report of the independent registered public accounting firm, based upon their audit of the consolidated financial statements of DSG International Limited is contained in this Annual Report.

The Audit Committee of the Board of Directors, comprised solely of independent outside directors, meets with the independent registered public accounting firm and representatives from management to evaluate the adequacy and effectiveness of the audit functions, control systems and quality of our financial accounting and reporting.

Peter Chang

Chief Financial Officer

June 27, 2005

- 25 -

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To Board of Directors and shareholders of DSG International Limited

We have audited the accompanying consolidated balance sheets of DSG International Limited and subsidiaries (the “Company”) as of December 31, 2004 and 2003 and the related consolidated statements of operations, comprehensive income (loss), shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Atlanta, Georgia

June 24, 2005

- 26 -

CONSOLIDATED BALANCE SHEETS

(in thousands)

	December 31,
	2004		2003
ASSETS
Current assets:
Cash and cash equivalents	$	16,493	$	20,282
Accounts receivable, less allowance for doubtful accounts of $2,478 in 2004 and $2,774 in 2003		29,835		28,970
Other receivables		2,248		1,596
Inventories		20,611		20,111
Prepaid expenses and other current assets		2,708		1,684
Income taxes receivable		661		260
Assets held-for-sale (Note 11)		7,833		—
Deferred income taxes		3,239		703
Total current assets		83,628		73,606
Property, plant and equipment – at cost:
Land		9,537		10,994
Buildings		15,231		20,722
Machinery and equipment		62,727		68,200
Furniture and fixtures		2,472		2,310
Motor vehicles		1,814		1,648
Leasehold improvements		1,938		2,644
Construction in progress		18,587		4,303
Total		112,306		110,821
Less: accumulated depreciation and amortization		53,842		58,038
Net property, plant and equipment		58,464		52,783
Restricted cash (Note 12)		1,736		—
Deferred income taxes		3,428		596
Other assets		2,313		2,527
Intangible assets		2,165		3,216
Total long-term assets		68,106		59,122
Total assets	$	151,734	$	132,728

- 27 -

CONSOLIDATED BALANCE SHEETS - (Continued)

(in thousands except shares and per share amounts)

	December 31,
	2004			2003
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings	$	19,111		$	15,583
Current portion of long-term debt		6,099			6,215
Accounts payable		21,097			19,941
Accrued advertising and promotion		6,604			7,635
Accrued payroll and employee benefits		2,808			2,583
Other accrued expenses		7,285			6,453
Income taxes payable		591			810
Other current liabilities (Note 16)		37			1,215
Total current liabilities		63,632			60,435
Long-term debt		26,673			14,167
Other non-current liability		314			303
Total non-current liabilities		26,987			14,470
Minority interest		3,963			4,703
Commitments and contingencies (Note 17)
Shareholders’ equity:
Ordinary shares, $0.01 par value – authorized 20,000,000 shares; issued and outstanding 7,258,316 and 7,258,316 shares in 2004 and 2003, respectively		73			73
Additional paid-in capital		19,140			18,927
Retained earnings		43,856			40,951
Unearned stock-based compensation (Note 19)		—			(638	)
Accumulated other comprehensive loss		(5,917	)		(6,193	)
Total shareholders’ equity		57,152			53,120
Total liabilities and shareholders’ equity	$	151,734		$	132,728

See accompanying notes to consolidated financial statements.

- 28 -

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands)

	Year Ended December 31,
	2004			2003			2002
Net sales	$	218,475		$	218,410		$	227,797
Cost of sales		(160,955	)		(164,310	)		(170,422	)
Gross profit		57,520			54,100			57,375
Selling, general and administrative expenses		(53,646	)		(59,815	)		(53,613	)
Restructuring costs and impairment loss		(1,491	)		(78	)		(1,390	)
Gain (loss) on disposals of property, plant and equipment		(224	)		(269	)		244
Operating income (loss)		2,159			(6,062	)		2,616
Interest expense		(1,931	)		(1,514	)		(1,966	)
Interest income		153			319			328
Exchange gain (loss)		(1,749	)		536			506
Gain on sale of shares of subsidiary (Note 3)		1,468			—			—
Other income (expense), net		472			44			(68	)
Income (loss) from continuing operations before income taxes and minority interests		572			(6,677	)		1,416
Provision for income taxes		2,932			(1,016	)		(502	)
Minority interest, net of tax of $107, $318 and $498 in 2004, 2003 and 2002, respectively		(599	)		(987	)		(1,269	)
Income (loss) from continuing operations		2,905			(8,680	)		(355	)
Discontinued operations
Income from discontinued operations before income taxes (including gain on disposal of $15,525 in 2002)		—			—			18,977
Provision for income taxes (including tax on gain on disposal of $692 in 2002)		—			—			(1,377	)
Income from discontinued operations		—			—			17,600
Net income (loss)	$	2,905		$	(8,680	)	$	17,245

See accompanying notes to consolidated financial statements.

- 29 -

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands except per share amounts)

	Year Ended December 31,
	2004		2003			2002
Net Income (loss) per share of common stock:
Basic
Income (loss) from continuing operations	$	0.40	$	(1.16	)	$	(0.05	)
Income from discontinued operations		—		—			2.52
Net income (loss) per basic share of common stock	$	0.40	$	(1.16	)	$	2.47
Diluted
Income (loss) from continuing operations	$	0.39	$	(1.16	)	$	(0.05	)
Income from discontinued operations		—		—		$	2.52
Net income (loss) per diluted share of common stock	$	0.39	$	(1.16	)	$	2.47
Weighted average number of shares outstanding
Basic		7,258		7,514			6,989
Diluted		7,433		7,652			6,989

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(in thousands)

	Year Ended December 31,
	2004		2003			2002
Net income (loss)	$	2,905	$	(8,680	)	$	17,245
Other comprehensive income
Foreign currency translation adjustments		276		1,313			613
Comprehensive income (loss)	$	3,181	$	(7,367	)	$	17,858

See accompanying notes to consolidated financial statements.

- 30 -

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Year Ended December 31,
	2004			2003			2002
Cash flows from operating activities
Net income (loss) from continuing operations	$	2,905		$	(8,680	)	$	(355	)
Adjustments to reconcile net loss from continuing operations to net cash provided by operating activities:
Depreciation and amortization		8,440			7,920			7,596
Provision for doubtful accounts		31			1,183			1,454
Stock-based compensation		2,804			3,901			—
Impairment loss on long-lived assets		910			78			1,390
(Gain) loss on disposals of property, plant and equipment		224			269			(244	)
Gain on sale of shares of subsidiary		(1,468	)		—			—
Deferred income taxes		(5,369	)		(115	)		(462	)
Minority interest, net of taxes		599			987			1,269
Accrued bonus payable		11			303			—
Other		1,231			507			470
Changes in working capital components from continuing operations, net of effects from sale of subsidiaries and acquisition of a business:
Accounts receivable		(826	)		(441	)		986
Other receivables		(869	)		387			1,481
Inventories		(482	)		3,021			6,952
Prepaid expenses and other current assets		(1,043	)		243			(19	)
Accounts payable		1,064			(7,478	)		2,894
Accrued expenses		(1	)		1,026			(5,634	)
Income taxes payable		(625	)		(1,072	)		881
Net cash provided by operating activities from continuing operations		7,536			2,039			18,659
Net cash provided by operating activities from discontinued operations		—			—			4,729
Net cash provided by operating activities		7,536			2,039			23,388
Cash flows from investing activities
Expenditures for property, plant and equipment		(21,668	)		(24,326	)		(5,569	)
Proceeds from disposals of property, plant and equipment		807			121			870
Advances to a shareholder		—			—			(1,868	)
Repayments by a shareholder		—			8,551			4,061
Repayment to a shareholder		(1,178	)		—			—
Capital contribution from joint venture partners		—			1,250			—
Capital contribution for Thailand subsidiary and sale of subsidiary shares		781			—			—
Increase in restricted cash in bank		(1,736	)		—			—
Investment in license use right		(500	)		(875	)		(125	)
Decrease (increase) in other assets		—			124			408
Net cash used in investing activities from continuing operations		(23,494	)		(15,155	)		(2,223	)
Net cash provided by investing activities from discontinued operations		—			—			20,720
Net cash provided by (used in) investing activities	$	(23,494	)	$	(15,155	)	$	18,497

See accompanying notes to consolidated financial statements.

- 31 -

CONSOLIDATED STATEMENTS OF CASH FLOWS – (Continued)

(in thousands)

	Year Ended December 31,
	2004			2003			2002
Cash flows from financing activities
(Decrease) increase in short-term borrowings	$	3,136		$	4,935		$	(11,846	)
Increase in long-term debt		23,220			12,441			—
Repayment of long-term debt		(11,650	)		(5,773	)		(7,113	)
Repurchase of shares		—			(5,282	)		—
Dividend paid		—			(5,715	)		—
Due to a shareholder for share repurchases		—			1,215			—
Dividend paid to minority shareholders		(2,603	)		(146	)		(167	)
Net cash (used in) provided by financing activities from continuing operations		12,103			1,675			(19,126	)
Net cash used in financing activities from discontinued operations		—			—			(618	)
Net cash (used in) provided by financing activities		12,103			1,675			(19,744	)
Effect of exchange rate changes on cash and cash equivalents		66			218			—
Increase (decrease) in cash and cash equivalents		(3,789	)		(11,223	)		22,141
Cash and cash equivalents, beginning of year		20,282			31,505			9,364
Cash and cash equivalents, end of year	$	16,493		$	20,282		$	31,505
Supplemental disclosures of cash flow information
Cash paid during the year for:
Continued operations:
Interest	$	1,872		$	1,547		$	1,874
Income taxes, net of tax refund		2,400			2,469			14
Discontinued operations:
Interest		—			—			305
Income taxes		—			—			385

Non-cash transactions

Additions to property, plant and equipment which were financed by a vendor loan and new capital leases during the year ended December 31, 2004 and 2003 totaled $15,643 and $1,837, respectively.

On December 31, 2003, the Company reclassified assets held-for-sale of $5,737 to property, plant and equipment because disposal of these assets was no longer probable (see Note 11).

See accompanying notes to consolidated financial statements.

- 32 -

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

	Ordinary shares					Additional paid-in capital			Retained earnings			Unearned stock based compensation (Note 19)			Accumulated other comprehensive income (loss)			Receivable from shareholder (Note 16)			Total shareholders’ equity
	Shares		Amount
Balance at December 31, 2001	6,989		$	70		$	19,673		$	38,101		$	—		$	(8,119	)	$	(10,744	)	$	38,981
Net income	—			—			—			17,245			—			—			—			17,245
Foreign currency translation adjustment	—			—			—			—			—			613			—			613
Net repayment of receivable from a shareholder	—			—			—			—			—			—			2,193			2,193
Balance at December 31, 2002	6,989			70			19,673			55,346			—			(7,506	)		(8,551	)		59,032
Net loss	—			—			—			(8,680	)		—			—			—			(8,680	)
Issuance of restricted shares	1,175			12			4,359			—			(4,371	)		—			—			—
Amortization of unearned compensation	—			—			—			—			3,733			—			—			3,733
Stock-based compensation options	—			—			168			—			—			—			—			168
Repurchase of shares	(906	)		(9	)		(5,273	)		—			—			—			—			(5,282	)
Dividend paid	—			—			—			(5,715	)		—			—			—			(5,715	)
Foreign currency translation adjustment	—			—			—			—			—			1,313			—			1,313
Net repayment of receivable from a shareholder	—			—			—			—			—			—			8,551			8,551
Balance at December 31, 2003	7,258			73			18,927			40,951			(638	)		(6,193	)		—			53,120
Net income	—			—			—			2,905			—			—			—			2,905
Amortization of unearned compensation	—			—			—			—			638			—			—			638
Stock-based compensation options	—			—			213			—			—			—			—			213
Foreign currency translation adjustment	—			—			—			—			—			276			—			276
Balance at December 31, 2004	7,258		$	73		$	19,140		$	43,856		$	—		$	(5,917	)		—		$	57,152

See accompanying notes to consolidated financial statements.

- 33 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(dollars in thousands)

1. ORGANIZATION AND BASIS OF PRESENTATION

The Company is incorporated in the British Virgin Islands. It operates through subsidiary companies located in North America, Australia, Asia and Europe which manufacture and distribute disposable baby diapers, adult incontinence and training pants products.

On November 11, 2002, the Company entered into a definitive agreement to sell its Australian subsidiaries as of November 1, 2002 and the sale was completed on December 6, 2002. Accordingly, the operating results of the Australian subsidiaries have been segregated from the Company’s continuing operations and reported as a separate line item as discontinued operations on the consolidated statement of operations in 2002.

In December 2004, the Company underwent a restructuring of its shareholding in the group of companies by arranging for the Company’s Thailand subsidiary, DSG International (Thailand) Ltd. (“DSGT”) to hold 100% of shares in Disposable Soft Goods (Malaysia) Sdn. Bhd., DSG (Malaysia) Sdn. Bhd. and Disposable Soft Goods (S) Pte. Ltd. by accepting the shares of the above-named companies currently held by the Company as payment for the newly issued ordinary shares of DSGT. DSGT also retained 60% shareholding in PT DSG Surya Mas Indonesia.

The financial statements of the Company and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of consolidation — The consolidated financial statements include the assets, liabilities, revenues and expenses of all subsidiaries. Inter-company balances and transactions are eliminated in consolidation.

Cash and cash equivalents — Cash and cash equivalents include cash on hand, cash accounts, interest bearing savings accounts, commercial paper and time certificates of deposit with a maturity of three months or less when purchased.

Inventories — Inventories are stated at the lower of cost determined by the first-in, first-out method, or value determined by the market. Finished goods inventories consist of raw materials, direct labor, and overhead associated with the manufacturing process. The Company reviews inventory at least quarterly to determine the necessity of write-offs for excess, obsolete or unsaleable inventory. The Company estimates reserves for inventory obsolescence and shrinkage based on management’s judgment of future realization. These reviews require management to assess customer and market demand. All inventories are valued using the first-in, first-out method.

Depreciation and amortization of property, plant and equipment — Depreciation is provided on the straight line method at rates based upon the estimated useful lives of the property, generally three to ten years except for buildings which are 40 years. Costs of leasehold improvements are amortized over the life of the related asset or the term of the lease, whichever is shorter. Amortization of assets recorded under capital lease is included in amounts reported as depreciation and amortization in the consolidated statements of cash flows.

- 34 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Revenue recognition — The Company recognizes revenue and the related account receivable when the following four criteria are met: (1) persuasive evidence of an arrangement exists; (2) ownership has transferred to the customer; (3) the selling price is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criteria (4) is based on management’s judgments regarding the collectibility of the Company’s accounts receivable. Generally, the Company recognizes revenue when it ships its manufactured products or when it completes a service and title and risk of loss passes to its customers. Provisions for discounts, returns, allowances, customer rebates, and other adjustments are provided for in the same period the related revenues are recorded.

Sales incentives — The amount of sales incentives included as a deduction from sales in accordance with Emerging Issues Task Force No. 01-9 “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Product)” was $18,886, $21,470 and $24,961 for the years ended December 31, 2004, 2003 and 2002, respectively.

Shipping costs — Shipping costs are recorded as a component of selling, general and administrative expenses and totaled $7,640, $8,275 and $9,914 for the years ended December 31, 2004, 2003 and 2002, respectively.

Income taxes — Income taxes are provided based on an asset and liability approach for financial accounting and reporting of income taxes. Deferred income tax liabilities or benefits are recorded to reflect the tax consequences in future years of differences between tax basis of assets and liabilities and the financial reporting amounts and operating loss carryforwards. A valuation allowance is recorded if it is more likely than not that some portion of, or all of, a deferred tax asset will not be realized.

Valuation of long-lived assets — The Company evaluates the carrying value of long-lived assets to be held and used when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered not recoverable when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair value of the long-lived asset. Losses on long-lived assets to be disposed of represent the excess of the carrying value over the fair value less disposal costs.

Sales of shares by a subsidiary — In 2004, the Company’s Thailand subsidiary sold shares and the Company adopted a policy of income statement treatment in consolidation. This policy represents a choice among an alternative accounting method of treatment as an equity transaction and will be applied consistently to all future shares transactions that meet the conditions for income statement treatment set forth herein for any subsidiary (see Note 3).

Impairment of long-lived assets – Pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the Company periodically evaluates long-lived assets, including property, plant and equipment and definite lived intangible assets whenever events or changes in conditions may indicate that the carrying value may not be recoverable. Factors that management considers important that could initiate an impairment review include the following:

• significant operating losses;

- 35 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

• recurring operating losses;

• significant declines in demand for a product produced by an asset capable of producing only that product;

• assets that are idled or held for sale;

• assets that are likely to be divested.

The impairment review requires the Company to estimate future undiscounted cash flows associated with an asset or group of assets and sum the estimated future cash flows. If the future undiscounted cash flows is less than the carrying amount of the asset, the Company must estimate the fair value of the asset. If the fair value of the asset is below the carrying value, then the difference will be written-off. Estimating future cash flows requires the Company to make judgments regarding future economic conditions, product demand and pricing. Although the Company believes its estimates are appropriate, significant differences in the actual performance of the asset or group of assets may materially affect the Company’s asset values and results of operations.

The Company disposed of its Australian subsidiaries during 2002 and the respective operations were disclosed as discontinued operations pursuant to SFAS No. 144.

Foreign currency translation — The Company uses the United States dollar as its reporting currency. Assets and liabilities of foreign subsidiaries are translated at year-end exchange rates, while revenues and expenses are translated at average currency exchange rates during the year. Adjustments resulting from translating foreign currency financial statements are reported as a separate component of shareholders’ equity. Gains or losses from foreign currency transactions are included in net income.

Income or loss per share — The Company computes basic and diluted earnings or loss per share in accordance with SFAS No. 128, “Earnings per Share”. Basic earnings or loss per share are based on the weighted average number of Ordinary Shares outstanding. Diluted earnings or loss per share are based on the weighted average number of Ordinary Shares outstanding plus dilutive common stock equivalents. Diluted earnings or loss per share are not presented in 2003 as the effect of the restricted shares and stock options and warrants outstanding during the years were antidilutive. There were no common stock equivalents outstanding during 2002.

Concentration of credit risk — The Company sells to distributors and retailers located in each of the countries in which it operates. The Company grants credit to all qualified customers on an unsecured basis but does not believe it is exposed to any undue concentration of credit risk to any significant degree.

Comprehensive income — Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners.

Intangible assets — Intangible assets consist of Drypers Trademarks, patents, and private label customer relationships. The Drypers trade name is an indefinite life intangible and is not amortized. Patents and private label customer relationships are amortized five to seven years using the straight-line method.

- 36 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands except shares and per share amounts)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

Effective from January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets”. In accordance with SFAS No. 142, the Drypers Trademarks (an indefinite-life intangible asset) are no longer amortized but instead performs an impairment test at least annually. As of the latest annual impairment test date on December 31, 2004, the Company performed its most recent impairment test using discounted cash flow methodology which resulted in a reduction of $602 in the carrying value of the Drypers trade name to its estimated fair value at December 31, 2004 (see Note 13). There was no impairment charge for the year ended December 31, 2003.

Stock-based compensation — The Company uses SFAS No. 123, “Accounting for Stock-Based Compensation”, to account for its stock-based compensation plans in 2003. Under this method, accounting and disclosure requirements reflect a fair-value base method of accounting for stock-based employee compensation plans. Compensation expense attributable to fixed stock awards is recognized on a straight-line basis over the related vesting period.

In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation and Disclosure”, which amends SFAS No. 123 and provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based compensation. In addition SFAS No. 148 amended the disclosure requirements of FASB Statement No. 123 to require prominent disclosures in both annual and interim financial statements which are included in the notes to these consolidated financial statements.

The Company adopted SFAS No. 148 in conjunction with the 2003 grant of restricted shares and stock options. The fair value of the restricted shares and stock options were estimated using the Black-Scholes Model. The assumptions used in the model included: fair market value of the Company shares at the date of grant of $3.72 per share, volatility rate of 90%, dividend yield of 0% for all periods, discount rates of 1.0% and 1.62% and vesting periods from six months to two years. As a result, the total 2003 stock-based compensation expense of the Plan was $4,371 and $427 for the restricted share and stock options respectively. Stock based compensation expense of $3,733 and $168 for the restricted shares and stock options, respectively was charged in 2003. Unearned stock based compensation of $638 for restricted stock was outstanding at December 31, 2003 and was fully amortized in 2004.

In addition, in 2004 the Company’s Thailand subsidiary issued 126,602 ordinary shares at par value of Baht 100 per share to the directors and certain key employees of the Company for $326. The stock was issued below fair market value and the Company recorded $1,953 of compensation expenses. The following is a summary of stock based compensation expenses:

	December 31,
	2004		2003
Deferred stock-based compensation charge :
Restricted shares	$	638	$	3,733
Share options		213		168
Thailand subsidiary shares sold to related parties		1,953		—
Total stock-based compensation charged	$	2,804	$	3,901

- 37 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

In January 2003, the FASB issued FIN 46, “Consolidation of Variable Interest Entities”, which interprets Accounting Research Bulletin 51, “Consolidated Financial Statements”, and requires consolidation of certain entities in which the primary beneficiary has a controlling financial interest despite not having voting control of such entities. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The adoption of FIN 46 did not have a material impact on the Company’s consolidated financial position or results of operations.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity”. The statement establishes standards for how an issuer classifies and measures certain financial instruments. This statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The statement requires that certain financial instruments that, under previous guidance, could be accounted for as equity classified as liabilities, or assets in some circumstances. This statement does not apply to features embedded in a financial instrument that is not a derivative in its entirety. The statement also requires disclosures about alternative ways of settling the instruments and the capital structure of entities whose shares are mandatorily redeemable. The adoption of SFAS No. 150 did not have a material impact on the Company’s consolidated financial statements.

In November 2004, the Financial Accounting Standards Board issued Statement No. 151, Inventory Costs (“SFAS No. 151”). SFAS No. 151 amends Accounting Research Bulletin No. 43, Chapter 4, Inventory Pricing. It states that abnormal amounts of idle facility expense, freight, handling costs and wasted materials (spoilage) should be recognized as current period charges. In addition, this statement requires that the allocation of overhead costs be based upon normal capacity for the production facilities and that any overhead costs not allocated due to lower production, be recognized as current period charges and not capitalized in inventory. The effective date of this statement is for fiscal years beginning after June 15, 2005. The Company does not believe the adoption of this statement will have a material impact on its financial statements.

In December 2004, the Financial Accounting Standards Board issued Statement No. 153, Exchanges of Non-monetary Assets (“SFAS No. 153”). SFAS No. 153 amends APB Opinion No. 29, Accounting for Non-monetary Transactions. This statement specifies that a non-monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The effective date of this statement is for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The adoption of this statement will not have a material impact on the Company’s financial statements.

In December 2004, the Financial Accounting Standards Board issued Statement No. 123 (revised 2004), “Share-Based Payment”, (SFAS No. 123 (R)”). This statement established standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. In general, the accounting required by SFAS 123R is similar to that of SFAS 123. The major revision in this statement from the original statement is that companies will now be required to recognize compensation expense in their financial statements, typically over the vesting period.

- 38 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued

On April 14, 2005, the Securities and Exchange Commission announced the adoption of a new rule that amends the compliance date for SFAS 123R. The new rule requires the Company to adopt SFAS 123R by January 1, 2006. The Company does not expect the adoption of SFAS 123R to have a material impact.

In December 2004, the Financial Accounting Standards Board issued FASB Staff Position No. 109-1 (“FSP No. 109-1”). FSP 109-1 provides guidance on the application of FASB Statement 109, “Accounting for Income Taxes”, (“SFAS No. 109”), to the provision within the American Jobs Creation Act of 2004 (“the Act”) that provides a tax deduction on qualified production activities. In accordance with FSP No. 109, a qualified production activity deduction should be accounted for as a special deduction in accordance with SFAS No. 109. The effective date for FSP No. 109-1 was December 14, 2004 and did not have an impact in 2004. We expect that this will lower our future effective tax rate as this deduction will result in a permanent difference.

In December 2004, the Financial Accounting Standards Board issued FASB Staff Position No. 109-2 (“FSP No. 109-2”). FSP 109-2 provides guidance on the application of FASB Statement 109, “Accounting for Income Taxes”, (“SFAS No. 109”), to the provision within the American Jobs Creation Act of 2004 (“the Act”) that provides a one-time special tax deduction of 85% of certain foreign earning that are repatriated (as defined in the Act). FSP No. 109-2 allows a company time beyond the financial reporting period of enactment to evaluate the effect of the Act on its plan for reinvestment or repatriation of foreign earnings for purposes of applying SFAS No. 109. The effective date for FSP No. 109-2 was December 21, 2004 and did not have an impact in 2004. We do not believe that FSP No. 109-2 will have a material impact on our financial statements in the future.

Insurance reserves – The Company’s U.S. operation has a portion of the health insurance program that is self-funded up to a certain level. As of December 31, 2004, the Company recorded a medical insurance liability amount of $425 to cover the known claims but not invoiced. This amount had been paid off in the first quarter of 2005.

Use of estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. For example, significant management judgment is required in determining: the credit worthiness of customers and collectibility of accounts receivable; excess, obsolete or unsaleable inventory reserves; the potential impairment of long-lived assets including intangibles; the accounting for income taxes and the liability for self-insured claims. Actual results could differ from the Company’s estimates and the differences could be significant.

- 39 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands)

3. REORGANIZATION OF THE SOUTH EAST ASIAN OPERATIONS

In December 2004, the Company reorganized its subsidiary structure in the Southeast Asia region. Upon completion of the reorganization, the Company’s directly and majority-owned subsidiaries in Malaysia, Singapore and Indonesia are now subsidiaries of DSG International (Thailand) Limited (“DSGT”). DSGT and its subsidiaries are accounted for by the Company as entities under common control. Shares were swapped in the intercompany transaction to accomplish the corporate reorganization. As part of the reorganization, a dividend of $2,603 was paid to the minority shareholders. In addition, directors and certain key employees of the Company purchased shares, in DSGT for $326. The Company recognized compensation expense of $1,953 for the difference between the issuance price and fair value and a gain on the sale of the subsidiary shares of $1,468. Prior to the sale of shares to directors and certain key employees, the Company owned approximately 88% of DSGT. Deferred taxes were not provided on the gain recognized on the sale of shares because there was no tax consequences. As a result of these transactions, the Company now owns approximately 82% of DSGT.

On December 22, 2004, DSGT filed a registration statement and draft prospectus with the Securities and Exchange Commission, Thailand and the Stock Exchange of Thailand (“SET”) proposing a public offering of shares of DSGT on the SET. The Company expects to complete the public offering of additional new shares on the SET in 2005 and expects to continue to have a majority ownership of DSGT after the completion of the public offering.

4. RESTRUCTURING COSTS AND IMPAIRMENT LOSS

The Company incurred severance payments in 2004 due to the exit of the adult incontinence business in North America operation and streamlining of operation in the Company’s North American and Singaporean operations, totaling $581 these expenses were fully paid during 2004 and no accrual remains at December 31, 2004.

In 2004, the Company recorded an impairment charge of $602 (see Note 13) related to the Drypers trademark. The Company also recorded an impairment charge for assets held-for-sale in the North American operations of $308 and $78 in 2004 and 2003 respectively (see Note 11).

In 2002, the Company also recorded an impairment losses totaling $1,390 comprised of $160, $576 and $654 related to its U.K. operation, Drypers trademark and assets held-for-sale in the United States operation, respectively.

- 40 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands)

5. DISPOSAL OF SUBSIDIARIES

Discontinued Operations

On November 11, 2002, the Company entered into a definitive agreement to sell its Australian subsidiaries effective November 1, 2002 and the sale was completed on December 6, 2002. Accordingly, the operating results of the Australian subsidiaries for the ten-months ended October 31, 2002 have been segregated from the Company’s continuing operations and reported as a separate line item on the consolidated statement of operations in 2002. The sale of these subsidiaries was completed for consideration of $29,608. The sale proceeds were reduced by the repayment of bank indebtedness of $6,345 and repayment of inter-company loans in the amount of $2,919, accruals of capital gain tax of $692, and certain other items. The gain on disposal totaled $14,833 (net of $692 taxes). All the sale proceeds were received by the Company in cash in 2002.

The net sales and income before income taxes of the discontinued operations of the Company’s Australian subsidiaries for the ten-month period ended October 31, 2002 were as follows:

	For the period ended October 31, 2002
Net sales	$	38,445
Income before income taxes (excluding gain on disposal of $15,525)	$	3,452

The amount of sales incentives included as a reduction from sales in accordance with EITF No. 01-09 was $5,842 for the ten months period ended October 31, 2002.

6. PROVISION FOR INCOME TAXES

Income is subject to taxation in the various countries in which the Company and its subsidiaries operate. The Company is not taxed in the British Virgin Islands where it is incorporated.

The components of income (loss) from continuing operations before income taxes and minority interest are as follows:

	2004			2003			2002
U.S.	$	3,339		$	(788	)	$	(788	)
Foreign		(2,767	)		(5,889	)		2,204
	$	572		$	(6,677	)	$	1,416

- 41 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands)

6. PROVISION FOR INCOME TAXES - continued

The provision for income taxes of continuing operations consists of the following:

	2004			2003			2002
Current
U.S.	$	701		$	(614	)	$	(135	)
Foreign		1,737			1,745			2,518
Deferred taxes		(5,370	)		(115	)		(1,881	)
	$	(2,932	)	$	1,016		$	502

A reconciliation between the provision for income taxes of continuing operations computed by applying the United States Federal statutory tax rate to income (loss) from continuing operations before taxes and minority interest and the actual provision for income taxes is as follows:

	2004			2003			2002
Provision for income taxes at statutory rate on income (loss) from continuing operations for the year	$	194		$	(2,295	)	$	495
Effect of different tax rates applicable to foreign earnings		459			149			102
Foreign losses which are not deductible		539			2,445			889
Foreign profits which are not taxable		(1,005	)		(193	)		(464	)
Change in valuation allowance		(4,597	)		265			883
Withholding tax on interest and royalty income		1,182			548			618
Sale of shares of Thailand subsidiary		165
Benefit of loss carryback		—			—			(1,419	)
Cessation of business		—			189			—
Other		131			(92	)		(602	)
	$	(2,932	)	$	1,016		$	502

The Company’s subsidiary incorporated in the People’s Republic of China (the “PRC”) is entitled to a two-year exemption from state and local income taxes commencing from the first profitable year of operations, which was 1998, followed by a 50% reduction in tax rates for the next three years. The year ended December 31, 2000 was the first year for the subsidiary to be under a 50% reduction in the prevailing tax rate. Since the subsidiary has operating losses since 2000, this tax holiday did not have any effect on the Company’s net income (loss) or earnings (loss) per share in 2004, 2003 and 2002.

- 42 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands)

6. PROVISION FOR INCOME TAXES - continued

Certain subsidiaries have operating loss carryforwards for income tax purposes which may be applied to reduce future taxable income. The loss carryforwards are available on a country by country basis and are not available for use except in the country in which the loss occurred. At December 31, 2004 the tax loss carryforwards by country and their future expiration dates are as follows:

	Total		2005		2006		2007		2008		2009 - 2022		Indefinite
United Kingdom	$	112,709	$	—	$	—	$	—	$	—	$	—	$	112,709
U.S.A. – Federal		10,408		—		—		—		—		10,408		—
U.S.A. – State		21,603		—		—		—		—		21,603		—
PRC		1,106		—		—		411		—		695		—
Hong Kong		1,078		—		—		—		—		—		1,078
	$	146,904	$	—	$	—	$	411	$	—	$	32,706	$	113,787

Included in United Kingdom operating loss carryforwards for income tax purposes is approximately $74,242 relating to tax losses at the date of acquisition of a company acquired in 1993. Utilization of these losses will result in a reduction in future tax expense and is dependent on both the earning of sufficient otherwise taxable income in the relevant countries and the satisfaction of technical requirements of applicable law. In the case of the United Kingdom, this includes the requirement that there not be a “major change” in business activities.

In addition to the amounts above, the Company has a tax loss of $575 in 2004 ($3,351 in 2003) which is available for carryforward to offset capital gains in the United States. The Company has recorded a valuation allowance of an equal amount given the uncertainty of realizing the benefit of such losses.

In March 2002, the United States amended its regulations allowing the losses of 2001 to be carried back five years instead of its normal two years carryback period. As a result, the Company carried back $4,483 of its losses resulting in an additional benefit of $1,419. This benefit was recorded during 2002, the period in which the change was enacted.

- 43 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands)

6. PROVISION FOR INCOME TAXES - continued

Deferred income tax balances at December 31 are related to:

	2004						2003
	Assets			Liabilities			Assets			Liabilities
Inventories	$	214		$	—		$	12		$	—
Accounts receivable and prepaid expenses		697			(83	)		654			—
Property, plant and equipment		—			(1,795	)		—			(438	)
Other		3,141			—			134			—
Capital loss carrryforwards		1,315			—			1,357			—
Tax loss carryforwards		39,179			—			40,591			—
Valuation allowances		(36,001	)		—			(41,011	)		—
Total	$	8,545		$	(1,878	)	$	1,737		$	(438	)

At December 31, 2004 and 2003, cumulative undistributed earnings of subsidiaries of the Company totaled $28,877 and $34,857, respectively. No provision for withholding taxes has been made because it is expected that such earnings will be reinvested indefinitely. The determination of the withholding taxes that would be payable upon remittance of these earnings and the amount of unrecognized deferred tax liability on these unremitted earnings is not practicable.

During 2004, the Company reduced $5,276 of its valuation allowances previously recorded for U.S. net operating loss carryforwards. In management’s opinion, it is more likely than not that the Company will utilize the tax loss carryforwards. The remaining valuation allowances primarily related to tax loss carryforwards in United Kingdom, Hong Kong and China which management does not believe will be realized.

7. INCOME (LOSS) PER SHARE

The computation of basic and diluted income (loss) per share for the years ended December 31, 2004 and 2003 is as follows:

	2004					2003								2002
	Net income		Shares	Per share amount		Net loss			Shares		Per share amount			Net income		Shares	Per share amount
Basic net income (loss) per common share	$	2,905	7,258,316	$	0.40	$	(8,680	)	7,513,571		$	(1.16	)	$	17,245	6,989,116	$	2.47
Effect of dilutive securities:
Restricted shares awarded		—	—		—		—		1,175,000			—			—	—		—
Restricted shares redeemed		—	—		—		—		(375,000	)		—			—	—		—
Stock options		—	175,000		—		—		175,000			—			—	—		—
Diluted net income (loss) per common share		—	7,433,316	$	0.39		—		7,651,653		$	(1.16	)		—	6.989,116	$	2.47

- 44 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands except shares and per share amount)

7. INCOME (LOSS) PER SHARE - continued

The basic and diluted income (loss) per share amounts for year ended December 31, 2004 and 2003 are computed by dividing the applicable statement of operations amount by the weighted average shares outstanding. The Company’s 2003 stock options or unvested restricted stock awards outstanding have been excluded from the computation of diluted income (loss) per share because to do so would be antidilutive. A total of 1,167,945 antidilutive weighted average shares with respect to outstanding stock options, and restricted stock awards have been excluded from the computation of diluted income per share for the years ended December 31, 2003. There were no common stock equivalents outstanding during 2002.

8. INVENTORIES

Inventories by major categories are summarized as follows:

	2004		2003
Raw materials	$	10,310	$	10,670
Finished goods		10,301		9,441
	$	20,611	$	20,111

9. CAPITAL LEASES

Included in property, plant and equipment are assets acquired under capital leases with the following net book values:

	2004			2003			2002
At cost:
Machinery and equipment	$	5,210		$	4,000		$	7,390
Motor vehicles		174			109			145
		5,384			4,109		$	7,535
Less: Accumulated amortization		(2,462	)		(1,635	)		(1,981	)
Net book value	$	2,922		$	2,474		$	5,554

- 45 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands)

10. RELATED PARTY LOAN RECEIVABLE

The related party loan receivable is due from a minority shareholder of a subsidiary and is non-interest bearing.

During 2002, a repayment plan was agreed to with the minority shareholder. Under the agreement, the non-interest bearing loan is repayable in five equal annual installments beginning in 2002. In 2004, a revised repayment plan was agreed to with the minority shareholder to extend the repayment by 5 years in 10 equal biannual installments ending in 2009.

At December 31, 2004 and 2003, the current portion of the note receivable of $62 and $124 is included in other receivables.

11. ASSETS HELD FOR SALE

A write-down on the assets held for sale of $78 and $654 was recorded during the years ended December 31, 2003 and 2002, respectively, and was included in the consolidated statements of operations to write down the assets to the lower of cost or net realizable value.

On December 31, 2003, the Company’s management believed that the land, building and leasehold improvements with a carrying amount of $5,737 would not be disposed of during 2004. In accordance with SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets”, since the Company no longer believed disposal of these assets was probable within one year, the Company reclassified the assets to asset held-for-use. Depreciation for the period of classification as held-for-sale in the amount of $388 was recorded in 2003.

During 2004, the Company transferred machines of $502 to assets held for sale. One machine of $377 together, with the remainder of assets held for sale from prior years, were sold in 2004, and the Company recorded a loss of $109 relating to the sales of these machines. On December 31, 2004, the Company transferred $5,214 of land and building to assets held-for-sale. The assets are related to the office building and plant in Duluth, Georgia, which were disposed of for cash consideration of $8,500 in March 2005.

In addition, the Company’s Wisconsin and Thailand plant had land, building, leasehold improvement and certain equipment retired from active use with carrying values of $1,851 and $768, respectively, recorded as assets held-for-sale at December 31 2004. The land, building and equipment in Wisconsin were sold for cash consideration of $1,869 in January 2005. The Company believes that the remaining asset held-for-sale in Thailand at December 31, 2004 will be disposed of during 2005.

In August 2001, the Company signed a license agreement to purchase a license use right for $2,500 from the Japanese joint venture partners for the right to manufacture and use technology know-how and distribute and sell the products in certain territories for a 20 years period from the first payment in 2002. As of year ended December 31, 2004, the Company has paid a total of $2,000 deposit for the license rights and

- 46 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands)

11. ASSETS HELD FOR SALE - continued

recorded this amount as other assets in the consolidated balance sheet. The remainder of $500 will be paid in 2005. Amortization of the license use right, is based on the remaining life span of 20 years commence from the date of operation of the joint venture. As of December 31, 2004, no amortization has been provided.

12. RESTRICTED CASH

In 2004, the Company pledged a fixed deposit of $1,736 with a bank in Thailand for a banking facility provided to the Company’s Thailand operation (see Note 14).

13. INTANGIBLE ASSETS

Intangible assets consist of the following:

	2004			2003
Drypers trademarks	$	1,328		$	1,328
Less : Impairment charge		(602	)		—
Drypers trademarks after impairment		726			1,328
Patents		1,990			1,990
Private label customer relationship		1,150			1,150
		3,866			4,468
Less: Accumulated amortization		(1,701	)		(1,252	)
Net book value	$	2,165		$	3,216

Accumulated amortization of intangible assets were summarized as follows:

	2004		2003		2002
Opening balance	$	1,252	$	804	$	355
Amortization charge		449		448		449
Closing balance	$	1,701	$	1,252	$	804

As a result of the adoption of SFAS No. 142, the Company no longer amortizes the Drypers Trademarks beginning January 1, 2002. Instead, these assets are assessed for impairment at least annually at December 31. During 2004, the Company performed its annual impairment test on the Drypers Trademarks and resulted in an impairment loss of $602 in 2004. No impairment loss was awarded in 2003. The fair value of these assets encompassed in the impairment test was determined using weighted average of relief from royalty, gross profit advantage and residual income method. Amortization expense relating to intangible assets with definite lives (patents and private label customer relationship) charged to income from operations for the years ended December 31, 2004, 2003 and 2002 was $449, $448 and $449, respectively.

- 47 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands)

13. INTANGIBLE ASSETS - continued

Estimated amortization expense of the patents and private label customer relationship for the next five years is as follows:

2005	$	449
2006		449
2007		448
2008		93
2009		—
Total	$	1,439

14. SHORT-TERM BORROWINGS

Short-term borrowings include borrowings in the form of trade acceptances, loans and overdrafts with various banks:

	2004			2003
Credit facilities granted	$	34,214		$	32,272
Utilized	$	19,111		$	15,583
Weighted average interest rate on borrowings at end of year		5.62	%		5.45	%

The Company maintains short-term bank credit lines in each of the countries in which it operates. Interest rates are generally based on the banks’ prime lending rates and cost of funds and the credit lines are normally subject to annual review. The amounts outstanding as of December 31, 2004 and 2003 include $3,748 and $6,567, respectively, relating to the revolving credit facility provided by the Senior Lender discussed in Note 15. The revolving credit facility provided by the Senior Lender was $15,000 as of December 31, 2004 and 2003. The Company had approximately $11,252 and $8,433 available for additional borrowings under the Senior Lender revolving credit facility at December 31, 2004 and 2003, respectively.

The total credit facilities granted and utilized, excluding the revolving credit facility provided by the Senior Lender, totaled $19,214 and $15,363 respectively at December 31, 2004 ($17,272 and $9,016, respectively, at December 31, 2003). At December 31, 2004 and 2003, amounts available for additional borrowings, excluding those available under the revolving credit facility provided by the Senior Lender discussed in Note 15, totaled $3,851 and $8,256, respectively.

At December 31, 2004 and 2003, borrowings of $6,584 and $7,340 were collateralized by the pledge of machinery and equipment, accounts receivable and inventory of subsidiaries with a book value of $24,908 and $38,633, respectively. In addition, other borrowings of $8,152 and $840 were collateralized by the pledge of land and buildings with a net book value of $6,414 and $1,447 as of December 31, 2004 and 2003, respectively.

- 48 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands)

14. SHORT-TERM BORROWINGS - continued

In connection with the short term banking credit lines with financial institutions in Thailand, the amount granted and utilized was $14,416 and $12,552, respectively as of December 31, 2004. The borrowing is expected to be partially repaid from the proceeds of an initial public offering in Thailand in 2005.

- 49 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands)

15. LONG-TERM DEBT

Long-term debt consists of:

	2004			2003
Term loans bearing interest at U.S. Prime rate plus 3.25% per annum (8.0% and 7.25% per annum at December 31, 2004 and 2003, respectively) principal payable in monthly installments of $145.7 plus accrued interest, through March 2007, secured by substantially all the assets of the Company’s Georgia, Ohio and Washington facilities	$	3,578		$	2,252
Loan from a finance company (the “Wisconsin Loan”) at London Inter-Bank Offered Rate (“LIBOR”) plus 3.0% per annum, principal payable in monthly installments of $41.7 plus accrued interest, 4.425% per annum at December 31, 2003, secured by substantially all the assets of the Company’s Wisconsin facility. The loan was fully repaid in 2004		—			917
Mortgage loan bearing interest at LIBOR plus 1.25% per annum (2.65% and 2.4375% per annum at December 31, 2004 and 2003, respectively), interest payable quarterly with entire principal due in November 2006		2,080			2,080
Equipment loan bearing interest at 7.0% per annum at December 31, 2004 and 2003, principal payable biannually of $612.5 plus accrued interest, through April 2005, secured by a machine in the Company’s Malaysian facility		306			919
Equipment loan bearing interest at 4.0% per annum, principal payable in monthly installments of $561.5 plus accrued interest in 2003, secured by a machine in the Company’s Washington facility. The loan was fully repaid in 2004		—			1,684
Bank loan bearing interest at Hong Kong Prime rate plus 1.5% (6.5% per annum at December 31, 2004 and 2003), principal payable in monthly reducing balance plus accrued interest, through May 2006, secured by the Company’s machines in Zhongshan, PRC		479			792
Mortgage loan bearing interest at 6.44% and 5.64% per annum at December 31, 2004 and 2003, interest payable quarterly with entire principal due in December 2008		9,379			8,667
Equipment loan bearing interest rate at 6.5% per annum, principal payable biannually of $110.3 plus accrued interest with entire principal due in March 2005		1,199			1,127
Mortgage loan bearing interest at 4.75% per annum at December 31, 2004, interest payable monthly with entire principal due in April 2013, secured by the land and building of the Thailand facility in Saraburi province		2,829			—
Equipment loan bearing interest at Japanese Swap rate plus 4.5% (fixed at 5.175% per annum at December 31, 2004), principal payable quarterly of $525.5 plus accrued interest with entire principal due in December 2009		11,679			—
Capital leases bearing interest rates ranging from 4.5% to 6.5% per annum at December 31, 2003 (4.5% to 12.0% per annum in 2002) with maturity dates ranging from June 2004 through June 2006		1,243			1,944
Total		32,772			20,382
Current portion of long-term debt		(6,099	)		(6,215	)
Long-term debt, less current portion	$	26,673		$	14,167

- 50 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands)

15. LONG-TERM DEBT - continued

Maturities of long-term debt as at December 31, 2004 are as follows:

	Loans		Capital Leases		Total
Year ending December 31,
2005	$	5,101	$	998	$	6,099
2006		6,849		230		7,079
2007		3,072		7		3,079
2008		12,493		7		12,500
2009		3,244		1		3,245
2010 and thereafter		770		—		770
Total	$	31,529	$	1,243	$	32,772

The loans and capital leases commitments amounts above exclude implicit interest with payment due summarized as follows:

	Loans		Capital Leases		Total
Payment due by year
2005	$	1,533	$	35	$	1,568
2006		1,285		3		1,288
2007		1,093		1		1,094
2008		918		1		919
2009 and thereafter		231		—		231
Total	$	5,060	$	40	$	5,100

In March 2001, Senior Lender Agreement of one of the Company’s U.S. subsidiaries (the “Subsidiary”) entered into an amended financing agreement with its existing financial institution (the “Senior Lender”) under which the Subsidiary received a term loan of $11,000 (the “Term Loan”), a capital expenditure line of up to $5,000, and a revolving credit facility (based on the lesser of a percentage of eligible accounts receivable and inventory or $15,000). Such financing was entered into in connection with the Subsidiary’s purchase of certain assets of the North American operations of Drypers Corporation.

In April 2002, the Senior Lender and the Subsidiary amended the revolver line to allow for advances of up to $1,450 for a legal settlement, increased the capital expenditure line to $6,975 and revised certain covenants including capital expenditures, payments and prepayments, and additional indebtedness.

- 51 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands except shares and per share amount)

15. LONG-TERM DEBT - continued

As of December, 2004 and 2003, the Subsidiary borrowed $3,578 and $2,252 Term Loan, respectively with interest payable at prime plus 3.25% per year at 8.5% and 7.25%, respectively. These loans were divided into two separate term loan and repayable in monthly installments of principal in the amount of $145.732 and $121.587 plus accrued interest and are collateralized by the substantially all the Subsidiary’s assets as of December 31, 2004 and 2003, respectively. In addition, the Subsidiary had outstanding borrowings of approximately $3,748 and $6,567 of the $15,000 revolving credit facility as of December 31, 2004 and 2003, respectively. These amounts were recorded as a component of short-term borrowings in the Company’s consolidated balance sheets (see Note 14).

Among other things, the Senior Lender Loan agreement contains certain restrictive covenants, including the maintenance of earnings before interest, taxes, depreciation, and amortization (“EBITDA”) and tangible net worth, and places limitations on acquisitions, dispositions, capital expenditures, and additional indebtedness.

In December 2004, the Company, entered into an agreement with three lenders for an Equipment Loan of JPY1,200,000,000.

This is a term loan for five years maturing in December 2009 with quarterly payment of $525.50 plus interest (Japanese swap rate plus 4.5% or a fixed rate of 5.175% per annum). The security for this loan is the manufacturing equipment in our joint venture and the joint venture receivables.

The Company was in compliance with covenants in 2003 and 2004.

16. RELATED PARTY TRANSACTIONS

As of December 31, 2004, the Company had a payable balance of $37 to Mr. Brandon Wang. The Company repaid $1,179 to Mr. Brandon Wang during 2004. This payable amount is classified as other current liabilities in the balance sheet.

During 2003 Mr. Brandon Wang, the Company’s Chief Executive Officer, and a Trust controlled by him repaid the entire shareholder loan, which had an outstanding balance of $8,551 on December 31, 2002. To repay the shareholder loan, Mr. Wang used funds from a shareholder dividend paid by the Company in March 2003, shares sold back to the Company and net proceeds from the sale of his London residence.

On March 19, 2003, 375,000 restricted shares were granted to Mr. Wang under the Company’s Equity Participation Plan. These restricted Ordinary Shares were considered bonus shares that had a six-month vesting period from the date of grant. After expiration of the vesting period on September 23, 2003, Mr. Wang sold these restricted Ordinary Shares back to the Company at the prevailing market price of $7.01 per share. Mr. Wang received payment of $5.00 per share ($1,875) at the time of the share repurchase. The Company has a remaining balance of $754 due Mr. Wang on the 375,000 restricted Ordinary Shares of $2.01 per share as of year ended December 31, 2003.

- 52 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands except shares and per share amount)

16. RELATED PARTY TRANSACTION - continued

On March 20, 2003, the Board of Directors of the Company authorized the purchase of the London residence of Mr. Wang, for its fair value of $12,297 as determined by an independent appraiser. The net proceeds of this transaction of $5,747 was used by Mr. Wang to repay a portion of the shareholder loan due to the Company. The Board of Directors authorized Mr. Wang and his wife’s use and lease of this London property from the Company at a market rate of $36 per month.

In 2004 and 2003, the Company received rental income of $432 and $216, respectively, from Mr. Brandon Wang and his wife for the use and lease of the London property.

During 2003 and 2002, Mr. Wang and a trust controlled by him repaid $8,551 and $4,061 respectively, to the Company. In 2002, the Company advanced $1,868 to Mr. Wang and to a trust of which he is a beneficiary. These advances were made under a loan and security agreement in which the Company agreed to make loans to Mr. Wang from time to time, subject to any limit on such loans which may be imposed by the Board of Directors. The loans were repayable on demand evidenced by promissory notes bearing interest at a rate equal to 1.5% over LIBOR or such other rate that the Board of Directors and the borrower shall agree in writing. Interest of $81 and $230 was charged on these advances in 2003 and 2002, respectively.

As a result of these series of transactions and the remaining payable balance of $754 due to shares repurchased from Mr. Wang, the Company had a balance of $1,215 payable to Mr. Wang and a Trust controlled by him as of December 31, 2003.

In 2004, certain directors and certain key employees of the Company purchased shares of the Company’s Thailand subsidiary at amounts below market value. The Company recognized $1,953 of compensation expense related to this transaction (see Note 3).

17. COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries lease land, facilities and equipment under operating leases, many of which contain renewal options and escalation clauses. Rental expense under operating leases was $3,159 in 2004, $4,319 in 2003 and $4,435 in 2002.

At December 31, 2004, the Company and its subsidiaries were obligated under operating leases requiring minimum rentals as follows:

Year ending December 31,
2005	$	2,510
2006		1,965
2007		1,071
2008		468
2009 and thereafter		469
Total	$	6,483

- 53 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands)

17. COMMITMENTS AND CONTINGENCIES - continued

In April 2003, the Company entered into a joint venture agreement with Mitsubishi Corporation and Japan Absorbent Technology Institute of Japan to establish a manufacturing facility in Shanghai, PRC. The joint venture will engage in manufacturing disposable hygiene related products. The Japanese joint venture partners will provide the proprietary patents, related technology and certain raw materials. The invested capital of the investment is $5,000 and the Company owns a 75% interest in the joint venture company. The Company is accounting for the operations of the joint venture on a consolidated basis of accounting.

In 2003, the Company acquired a land use right for approximately 130,000 square feet of land for 50 years in Waigaoqiao, Shanghai for $1,236 and commenced construction of the manufacturing equipment for the joint venture investment. The Company purchased the manufacturing equipment using the proceeds of an equipment loan of $11,679 (see Note 15) and its working capital in 2004. The Company commenced the building construction in 2004, the total remaining capital commitment was $606 as of December 31, 2004.

In August 2001, the Company signed a license agreement to purchase a license use right for $2,500 from the Japanese joint venture partners for the right to manufacture and use technology know-how and distribute and sell the products in certain territories for a 20 years period from the first payment in 2002. Royalty payments on products manufactured and sold by the joint venture are also required. As of year ended December 31, 2004, the Company has paid a total of $2,000 deposit for the license rights and recorded this amount as other assets in the consolidated balance sheet. The remainder of $500 will be paid in 2005.

For the entire joint venture investment project in Shanghai, the Company has committed a maximum of $20,250 in the investment. The Company has fulfilled its obligation of $16,781 for the necessary capital expenditure in respect of land use right, building construction, manufacturing equipment and license use right of the project in 2004.

At December 31, 2004 the Company has a commitment of $257 for the construction of a building in Thailand and a $191 commitment for the acquisition of spare parts in the United States. The Company has a commitment to the government of the PRC to invest a total of $3,000 in its wholly-owned PRC subsidiary for the construction of a manufacturing facility in Shanghai. The Company’s remaining requirement under this commitment at December 31, 2004 is $1,057. The Shanghai facility is expected to be completed in 2005.

The Company has recorded tax contingency reserves of approximately $700 and $200 at December 31, 2004 and 2003 respectively related to the tax treatment of intercompany servicing fees. Although the Company believes it has adequately provided for any liability that may result from settlement of claims as a result of reviews by tax authorities, the ultimate outcome of the reviews and related negotiations cannot be predicted with certainty.

The Company and its subsidiaries are, from time to time, involved in routine legal matters incidental to their business. The Company is currently not defending itself in any significant litigation matters. Although it cannot be certain, in management’s opinion, none of the legal proceedings in which the Company is currently involved, individually or in the aggregate, is expected to have a material adverse effect on the Company’s business, financial condition or results of operation.

- 54 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands except shares and per share amounts)

18. EMPLOYEE BENEFIT PLANS

The Company’s United States subsidiary has established a 401(k) plan under which the Company matches employee contributions up to 5% of employees’ base compensation. The Company’s other international subsidiaries have defined contribution plans, covering substantially all employees, which are determined by the boards of directors of the subsidiaries. These plans provide for annual contributions by the Company from 2% to 22.5% of eligible compensation of employees based on length of service.

Total expense related to the above plans was $1,250 in 2004, $1,296 in 2003 and $1,576 in 2002.

19. STOCK-BASED COMPENSATION

In March 2002, the Company adopted an Equity Participation Plan (the “Plan”). The Plan allows for the awarding of restricted shares, non-qualified stock options, incentive stock options and stock appreciation rights. The purpose of the Plan is to provide eligible employees of the Company an opportunity to acquire an equity interest in the Company. Subject to adjustment under the Plan, 1,500,000 Ordinary Shares are available for awards under the Plan and no more than 375,000 Ordinary Shares may be granted or awarded to a participant during a calendar year. There were no shares awarded under the Plan in 2002.

On March 19, 2003, the Company granted and issued 1,175,000 restricted shares and 195,000 stock options under the Plan to executive directors and key employees. Included in this amount were 375,000 restricted shares issued to Mr. Wang, the Company’s Chief Executive Officer. The vesting period of the restricted shares is six months for those awarded to Mr. Brandon Wang and one year for all others. The options vest over a period of two years.

The following table summarizes stock option activity for year ended December 31, 2004:

	Shares outstanding		Weighted average exercise price
Outstanding at December 31, 2002	—		$	—
Granted
Outstanding at December 31, 2003	195,000			1.86
Cancelled	(20,000	)		1.86
Outstanding at December 31, 2004	175,000			1.86

- 55 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands except shares and per share amounts)

19. STOCK-BASED COMPENSATION - continued

Information with respect to stock-based compensation plan stock options outstanding at December 31, 2004 is as follows:

Exercise price		Number outstanding at December 31, 2004	Weighted-average remaining contractual life (in years)	Weighted– average exercise price		Number exercisable at December 31, 2004	Weighted– average exercise price
$	1.86	175,000	0.45	$	1.86	—	—

20. SUPPLEMENTARY INFORMATION

Valuation and qualifying accounts:

	Balance at beginning of year		Disposal of a subsidiary			Charged to cost and expenses		Deductions			Balance at end of year
Year ended December 31, 2004
Allowances for doubtful accounts	$	2,774	$	—		$	31	$	(327	)	$	2,478
Provision for inventory obsolescence		1,300		—			415		(651	)		1,064
	$	4,074	$	—		$	446	$	(978	)	$	3,542
Year ended December 31, 2003
Allowances for doubtful accounts	$	1,956	$	(60	)	$	1,183	$	(305	)	$	2,774
Provision for inventory obsolescence		1,761		(35	)		1,096		(1,522	)		1,300
	$	3,717	$	(95	)	$	2,279	$	(1,827	)	$	4,074
Year ended December 31, 2002
Allowances for doubtful accounts	$	2,921	$	(41	)	$	1,454	$	(2,378	)	$	1,956
Provision for inventory obsolescence		1,710		(104	)		645		(490	)		1,761
	$	4,631	$	(145	)	$	2,099	$	(2,868	)	$	3,717

Deductions relate to write-offs of accounts receivable as bad debts and disposals of inventories. In addition, the reversal of a $300 allowance relating to the loan receivable recorded in 2002 (see Note 10) is included as a deduction in the table above.

- 56 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands)

21. FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of cash and cash equivalents, accounts and other receivables, loan receivable, receivable from shareholder, accounts payable, short-term borrowings, and long-term debt are reasonable estimates of their fair value. The interest rate on the Company’s long-term debt approximates that which would have been available at December 31, 2004 and 2003 for debt of the same remaining maturities.

The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies. The estimates presented herein are not necessarily indicative of the amounts that the Company could realize in a current market exchange.

22. SEGMENT INFORMATION

The Company is engaged in one industry segment, the manufacturing and marketing of disposable hygienic products. The Company had three principal segments in 2002 and expanded to four segments in 2003 and 2004 for operating management purposes. The principal measures of operating performance are operating income (loss) and income (loss) before income taxes. The corporate items shown below are provided to reconcile to the Company’s consolidated financial statement of operations, cash flows and balance sheets.

Within these industry segments, the Company derived its revenues of continuing operations from the following product lines for the years ended December 31, 2004, 2003 and 2002:

	2004		2003		2002
Products
Disposable baby diapers	$	176,573	$	169,214	$	180,646
Adult incontinence products		32,201		35,756		32,956
Training pants and youth pants		9,701		13,440		14,195
Total net sales from continuing operations	$	218,475	$	218,410	$	227,797

Certain financial information of continuing operations by geographic area are as follows:

	2004		2003		2002
Net sales
North America (principally the U.S.)	$	142,977	$	152,534	$	161,528
Asia		71,309		62,351		62,138
Europe		4,189		3,525		4,131
Net sales from continuing operations	$	218,475	$	218,410	$	227,797

- 57 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(dollars in thousands)

22. SEGMENT INFORMATION - continued

Inter-segment sales were not significant.

	2004			2003			2002
Operating income (loss)
North America (principally the U.S.)	$	7,121		$	3,239		$	4,290
Asia		4,153			2,317			4,543
Europe		(1,035	)		(929	)		(876	)
Corporate		(7,632	)		(10,453	)		(5,341	)
Shanghai, PRC joint venture		(448	)		(236	)		—
Operating income (loss) from continuing operations	$	2,159		$	(6,062	)	$	2,616
Income (loss) before income taxes and minority interest
North America (principally the U.S.)	$	6,330		$	2,214		$	2,540
Asia		3,912			2,461			4,916
Europe		(2,076	)		(1,005	)		(810	)
Corporate		(6,587	)		(9,985	)		(5,230	)
Shanghai, PRC joint venture		(1,007	)		(362	)		—
Income (loss) before income taxes and minority interest from continuing operations	$	572		$	(6,677	)	$	1,416

The operating income and income before income taxes and minority interest in 2004 included stock based compensation expenses of $2,804, restructuring costs and impairment loss of $1,491, primarily related to redundancy, asset held-for sales and trademark valuation in the Company’s North American operations.

The operating loss and loss before income taxes and minority interest in 2003 included stock-based compensation expenses of $3,901, impairment loss of $78 related to the asset held-for-sale in the Company’s North American operations, transaction cost on purchase of residence from Chairman of $496 and research and development cost of $201.

The income before income tax and minority interest in 2002 included impairment loss of $160 relating to Europe, and $1,230 relating to the Company’s North American operations.

	2004		2003		2002
Interest expense
North America (principally the U.S.)	$	860	$	1,084	$	1,576
Asia		339		272		257
Europe		9		10		7
Corporate		652		148		126
Shanghai, PRC joint venture		71		—		—
Interest expense from continuing operations	$	1,931	$	1,514	$	1,966

- 58 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(dollars in thousands)

22. SEGMENT INFORMATION - continued

	2004		2003		2002
Interest income
North America (principally the U.S.)	$	29	$	12	$	23
Asia		40		50		33
Europe		—		—		8
Corporate		81		257		264
Shanghai, PRC joint venture		3		—		—
Interest income from continuing operations	$	153	$	319	$	328
Assets, at end of year
North America (principally the U.S.)	$	59,572	$	57,820	$	63,683
Asia		48,155		40,083		35,155
Europe		2,411		141		1,053
Corporate		20,625		25,390		29,976
Shanghai, PRC joint venture		20,971		9,294		—
Assets, at the end of year of continuing operations	$	151,734	$	132,728	$	129,867
Expenditures for property, plant and equipment
North America (principally the U.S.)	$	3,596	$	4,464	$	2,112
Asia		5,457		1,981		3,831
Europe		218		175		30
Corporate		272		12,710		1,433
Shanghai, PRC joint venture		12,125		4,996		—
	$	21,668	$	24,326	$	7,406
Depreciation and amortization
North America (principally the U.S.)	$	5,882	$	5,519	$	4,484
Asia		2,124		2,133		2,792
Europe		81		76		141
Corporate		319		178		179
Shanghai, PRC joint venture		34		14		—
Depreciation and amortization from continuing operations	$	8,440	$	7,920	$	7,596
Property, plant and equipment, end of year
North America (principally the U.S.)	$	15,281	$	24,998	$	19,673
Asia		14,202		10,625		8,636
Europe		479		310		189
Corporate		11,389		11,868		768
Shanghai, PRC joint venture		17,113		4,982		—
Property, plant and equipment, end of year of continuing operations	$	58,464	$	52,783	$	29,266

- 59 -

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

(dollars in thousands)

22. SEGMENT INFORMATION - continued

A customer of the Company accounted for approximately 21%, 18% and 16% of the net sales in 2004, 2003 and 2002 respectively. Accounts receivable from this customer totaled approximately $3,414 and $2,314 of total receivables as of December 31, 2004 and 2003 respectively. Substantially all of such receivable balances have been collected subsequent to the year ended 2004. No other single customer accounted for 10% or more of the net sales in 2002, 2003 and 2004.

23. QUARTERLY DATA (UNAUDITED)

	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
2004
Net sales	$	56,426		$	54,219		$	53,639		$	54,191
Gross profit		14,845			14,386			13,542			14,747
Net income (1)(2)		174			515			546			1,670
Income per share:
Basic		0.02			0.07			0.08			0.23
Diluted		0.02			0.07			0.08			0.22
2003
Net sales	$	57,646		$	51,057			53,445			56,262
Gross profit		13,886			11,940			12,738			15,536
Net loss (3)		(1,238	)		(2,991	)		(1,918	)		(2,533	)
Loss per share:
Basic		(0.18	)		(0.44	)		(0.30	)		(0.35	)
Diluted (4)		(0.18	)		(0.44	)		(0.30	)		(0.35	)

⁽¹⁾ Includes restructuring costs of $510 and $71 on the Company’s North American operations and Singapore operation in the third and fourth quarter of 2004, respectively, and $308 and $602 on impairment loss of assets held-for-sale and the Drypers trademarks in the fourth quarter of 2004.

⁽²⁾ Net income includes charges of $691, $53,$53 and $2,007 related to stock based compensation expenses from the first quarter to fourth quarter of 2004.

⁽³⁾ Net loss includes charges of $213, $1,495, $1,396 and $797 related to stock based compensation expense from the first quarter to fourth quarter of 2003.

⁽⁴⁾ The restricted shares and stock options outstanding at December 31, 2003 have not been included in the computation of diluted earnings per share because to do so would be anti-dilutive for the year ended December 31, 2003.

- 60 -

SHAREHOLDER INFORMATION

Annual Meeting

The next annual meeting of shareholders will be held in Jakarta, Indonesia on November 16, 2005 at 10:00 a.m. local time. Notice of the meeting and proxy statement will be mailed to shareholders before the meeting.

Market Information

The Company’s shares are traded on the NASDAQ National Market System under the Symbol DSGIF.

Stock Transfer Agent

Mellon Investor Services LLC

P.O. Box 3315

South Hackensack

New Jersey 07606

U.S.A.

Phone	:	1-800-356 2017
		(1) 201-329-8660 (Foreign)
		1-800-231-5469 (TDD for Hearing-Impaired)
Website	:	www.melloninvestor.com

Independent Registered Public Accounting Firm

Deloitte & Touche LLP

Suite 1500

191 Peachtree St., NE

Atlanta, GA 30303-1924

USA

Principal Executive Office

DSG International Limited

17th Floor, Watson Centre

16-22 Kung Yip Street

Kwai Chung

Hong Kong

Phone :    (852) 2484-4820

Form 20-F

The Company’s 2004 report to the Securities and Exchange Commission on Form 20-F provides additional details about the Company’s business as well as other financial information not included in this annual report. A copy of this report is available to shareholders upon written request to the Company’s Principal Executive Office.

- 61 -

DSG COMPANIES

Asia	Shanghai DSG MegaThin Company Limited
	428 Yiwei Road
Disposable Soft Goods Limited	Waigaoqiao Free Trade Zone
17/F Watson Centre	Pudong, Shanghai 200131
16-22 Kung Yip Street	People’s Republic of China
Kwai Chung, N T	Telephone    :    (86) 21-5046 3382
Hong Kong	Facsimile     :    (86) 21-5835 5215
Telephone    :    (852) 2427 6951
Facsimile     :    (852) 2480 4491	North America
Disposable Soft Goods (S) Pte Limited	Associated Hygienic Products LLC
No. 1, Joo Koon Crescent	3400 River Green Court Suite 600
4th Floor, Yeow Heng Industrial Building	Duluth, GA 30096
Singapore 629087	U.S.A.
Telephone    :    (65) 6861 9155	Telephone    :    (1) 770-497 9800
Facsimile     :    (65) 6861 9313	Facsimile     :    (1) 770-623 8887
Disposable Soft Goods (Zhongshan) Limited	AHP Holdings, LP
Jin Chang Road	2805 Peachtree Industrial Blvd.
Jin Sha Industrial Zone	Suite 211
Shalang, Zhongshan, Guangdong	Duluth, GA 30097
People’s Republic of China	U.S.A.
Postal Code  :    528411	Telephone    :    (1) 678-957 9989
Telephone    :    (86) 760-855 9866	Facsimile     :    (1) 678-957 9985
Facsimile     :    (86) 760-855 8794
	Europe
DSG International (Thailand) Public Co. Limited
39 Moo 1, SIL Industrial Zone	Disposable Soft Goods (UK) Plc
Tumbon Bualoy, Amphur Nongkae	Boythorpe Works
Saraburi 18140	Goytside Road, Derbyshire
Thailand	Chesterfield, S40 2PH
Telephone    :    (66) 36-373 633	U.K.
Facsimile     :    (66) 36-373 753	Telephone    :    (44) 1246-221 228
	Facsimile     :    (44) 1246-210 169
PT DSG Surya Mas Indonesia
Jl. Pancatama Raya Kav. 18
Desa Leuwilimus, Cikande
Serang, Jawa Barat
Indonesia
Telephone    :    (62) 254-400 934
Facsimile     :    (62) 254-400 939
DSG (Malaysia) Sdn Bhd
Lot 542, Jalan Subang 2
Sg Penaga Industrial Park
47500 Subang Jaya, Selangor Darul Ehsan
Malaysia
Telephone    :    (60) 3-8023 1833
Facsimile     :    (60) 3-8024 9033

- 62 -

DSG International Limited

Principal Executive Office

17/F Watson Centre

16-22 Kung Yip Street

Kwai Chung, N T

Hong Kong

Telephone    :    (852) 2484 4820

Facsimile     :    (852) 2480 4491

- 63 -

EX-15.3

EXHIBIT 15.3

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-84898 on Form S-8 of our report dated June 24, 2005 relating to the consolidated financial statements of DSG International Limited and subsidiaries appearing in this Annual Report on Form 20-F of DSG International Limited for the year ended December 31, 2004.

DELOITTE & TOUCHE LLP

Atlanta, Georgia

June 24, 2005