DSG International 20F 2004 Annual report

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

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

¨	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)

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.

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

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.

Asia

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

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.

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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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
Name of beneficial owner	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.

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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DSG International Inactive 20-F2004 FY Annual report (foreign)

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