<PAGE>

      AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 2005

================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

                         COMMISSION FILE NUMBER 0-30020

                           DELTA GALIL INDUSTRIES LTD.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                                     ISRAEL
                 (JURISDICTION OF INCORPORATION OR ORGANIZATION)

                    2 Kaufman Street, Tel Aviv 68012, Israel
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

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

                                      NONE
                              (Title of each class)

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

                               ORDINARY SHARES (1)
                                (Title of Class)

                         AMERICAN DEPOSITARY SHARES (2)
                                (Title of Class)

                               ------------------

(1)  Not for trading, but only in connection with the listing of the American
     Depositary Shares.

(2)  Evidenced by American Depositary Receipts, each American Depositary Share
     representing one ordinary share, par value NIS 1.00 per share.

     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 at the close of the period covered by the annual
report:

     AS OF DECEMBER 31, 2004 THE REGISTRANT HAD 19,947,849 ORDINARY SHARES
OUTSTANDING (INCLUDING 1,206,802 ORDINARY SHARES OWNED BY THE REGISTRANT AND
45,882 ORDINARY SHARES HELD BY A TRUSTEE IN CONNECTION WITH THE REGISTRANT'S
STOCK OPTION PLANS).

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                             Yes  X               No
                                -----               -----

     Indicate by check mark which financial statement item the Registrant
elected to follow:

                         Item 17             Item 18  X
                                -----               -----

================================================================================

<PAGE>
<TABLE>
<CAPTION>

                                     TABLE OF CONTENTS
                                                                                      PAGE
<S>                                                                                   <C>
Introduction  ..................................................................       3

Item 1        Identity of Directors, Senior Management and Advisers  ...........       4

Item 2        Offer Statistics and Expected Timetable ..........................       4

Item 3        Key Information ..................................................       4

Item 4        Information on the Company .......................................      11

Item 5        Operating and Financial Review and Prospects .....................      25

Item 6        Directors, Senior Management and Employees .......................      38

Item 7        Major Shareholders and Related Party Transactions ................      46

Item 8        Financial Information ............................................      48

Item 9        The Offer and Listing ............................................      49

Item 10       Additional Information ...........................................      50

Item 11       Quantitative and Qualitative Disclosures About Market Risk .......      60

Item 12       Description of Securities Other Than Equity Securities ...........      61

Item 13       Defaults, Dividend Arrearages and Delinquencies ..................      61

Item 14       Material Modifications to the Rights of Security
                 Holders and Use of Proceeds....................................      61

Item 15       Controls and Procedures ..........................................      61

Item 16       Audit Committee Financial Expert; Code of Ethics; Audit Fees .....      61

Item 17       Financial Statements .............................................      62

Item 18       Financial Statements .............................................      62

Item 19       Exhibits .........................................................      63


                                           -2-
</TABLE>

<PAGE>


                                  INTRODUCTION

        As used herein, references to "we," "our," "us," "Delta Galil" or the
"Company" are references to Delta Galil Industries Ltd. and to its consolidated
subsidiaries, except as the context otherwise requires. In addition, references
to our "financial statements" are to our consolidated financial statements
except as the context otherwise requires.

        In this document, references to "$," "US$," "U.S. dollars" and "dollars"
are to United States dollars and references to "NIS" and "shekels" are to New
Israeli Shekels.

        Our financial statements included in this annual report are prepared in
accordance with U.S. GAAP, and the accompanying discussion of the results of our
operations is based on our results under U.S. GAAP. See "Item 18. Financial
Statements" and "Item 5. Operating and Financial Review and Prospects --
Operating Results".

        Delta Galil had 19,947,849 ordinary shares outstanding as of June 20,
2005. Percentages of outstanding shares used herein are based on 18,695,165
ordinary shares outstanding as of June 20, 2005, which excludes 1,206,802
ordinary shares held by Delta Galil, and 45,882 ordinary shares held by a
trustee in connection with Delta Galil's stock option plans.







                                      -3-

<PAGE>

                                     PART I


ITEM 1:     IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not Applicable


ITEM 2:     OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable


ITEM 3:     KEY INFORMATION

SELECTED FINANCIAL DATA

        The selected consolidated statement of income data set forth below have
been derived from Delta Galil's audited consolidated financial statements, which
were prepared in accordance with U.S. GAAP. The selected consolidated financial
data set forth below should be read in conjunction with "Item 5. Operating and
Financial Review and Prospects" and Delta Galil's consolidated financial
statements and the notes to those financial statements included in Item 18 of
this annual report.



                                      -4-

<PAGE>
<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                               --------------------------------------------------------------------
                                   2000          2001          2002          2003          2004
                               ------------  ------------  ------------  ------------  ------------
                                              ($ IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                              <C>           <C>           <C>           <C>           <C>
STATEMENT OF INCOME DATA:
Net revenues..................   $  434,404    $  558,763    $  567,298    $  580,130    $  654,269
Cost of revenues..............      338,498       453,036       454,238       463,863       533,036
                               ------------  ------------  ------------  ------------  ------------
Gross profit..................       95,906       105,727       113,060       116,267       121,233

Selling, marketing, general
administrative
expenses, goodwill
amortization..................       60,631        82,067        84,135        82,089        98,646
Restructuring expenses........        1,810           900         1,065         1,007         1,100
Gain (loss) on sale of assets
and subsidiary shares ........         (117)         (553)          (92)        3,645           922
                               ------------  ------------  ------------  ------------  ------------
Operating income..............       33,348        22,207        27,768        36,816        22,409
Financial expenses - net......        6,608         4,751         5,456         5,637         6,231
Other income - net............          975           463           960           252           958
                               ------------  ------------  ------------  ------------  ------------

Income before taxes on income.       27,715        17,919        23,272        31,431        17,136
Taxes on income...............        5,511         5,876         5,779         7,340         2,846
                               ------------  ------------  ------------  ------------  ------------
Income after taxes on income..       22,204        12,043        17,493        24,091        14,290

Share in profits (losses) of
associated companies - net....          340           110           158          (300          (237)
Minority interests - net......         (563)         (729)       (1,025)         (439        (1,368)
                               ------------  ------------  ------------  ------------  ------------
Net income....................   $   21,981    $   11,424    $   16,626    $   23,352    $   12,685
                               ============  ============  ============  ============  ============

EPS
Basic.........................   $     1.23    $     0.60    $     0.88    $     1.28    $     0.69
                               ============  ============  ============  ============  ============
Diluted.......................   $     1.22    $     0.60    $     0.88    $     1.24    $     0.67
                               ============  ============  ============  ============  ============
Weighted average number of
shares used in
  computation(1)..............
    Basic.....................       17,771        19,175        18,914        18,313        18,478
    Diluted...................       17,996        19,199        18,927        18,763        18,834

Cash dividend per ordinary
shares (2)....................   $     0.37    $     0.30    $     0.37    $     0.52    $     0.45
</TABLE>
---------------------------
(1)     See note 13g of the notes to Delta Galil's consolidated financial
        statements included in Item 18 of this annual report for a discussion of
        the shares used to compute net income per share for the years ended
        December 31, 2002, 2003 and 2004.
(2)     Until 2001, dividends were declared and paid in NIS and such amounts
        have been translated into U.S. dollars here as a convenience. Beginning
        in 2002, dividends, if any, are declared and paid in dollars.

                                      -5-
<PAGE>
<TABLE>
<CAPTION>
                                                        YEAR ENDED DECEMBER 31,
                               --------------------------------------------------------------------
                                   2000          2001          2002          2003          2004
                               ------------  ------------  ------------  ------------  ------------
                                                         ($ IN THOUSANDS)
<S>                              <C>           <C>           <C>           <C>           <C>

BALANCE SHEET DATA:
Cash and cash equivalents.....   $    8,633    $   12,762    $   14,491    $   17,699    $   22,150
Working capital(1)............       68,079        74,020        67,945        56,612       127,382
Total assets(1)...............      371,044       424,965       441,058       450,884       534,497
Shareholders' equity..........      185,447       198,189       197,829       212,334       221,081
Amount of Share Capital.......       21,679        21,792        21,792        21,830        21,840
</TABLE>

(1)     The increase in the working capital and in total assets as of December
        31, 2004 versus previous years is attributed to the acquisition of
        Burlen in December 2004, and to Delta Galil's decision to increase its
        long-term loans and decrease short-term loans.


RISK FACTORS

        The following factors, in addition to other information contained in
this annual report, should be considered carefully.

        This annual report includes certain statements that are intended to be,
and are hereby identified as, "forward-looking statements" for the purposes of
the safe harbor provisions of the Private Securities Litigation Reform Act of
1995. We have based these forward-looking statements on our current expectations
and projections about future events. These forward-looking statements are
subject to risks, uncertainties, and assumptions about Delta Galil, including,
among other things:

        o       our anticipated growth strategies;

        o       our intention to introduce new products;

        o       anticipated trends in our business;

        o       future expenditures for capital projects; and

        o       our ability to continue to control costs and maintain quality.

        Forward-looking statements can be identified by the use of
forward-looking terminology such as "may," "will," "expect," "anticipate,"
"estimate," "continue" or other similar words. These statements discuss future
expectations, contain projections of results of operations or of financial
condition or state other "forward-looking" information. When considering such
forward-looking statements, you should keep in mind the risk factors and other
cautionary statements in this annual report.

        These statements may be found in Item 4: "Information on the Company"
and Item 5: "Operating and Financial Review and Prospects" and in this annual
report generally. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of various factors,
including all the risks discussed in "Risk Factors" and elsewhere in this annual
report.

        We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. In light of these risks, uncertainties and assumptions, the
forward-looking events discussed in this annual report might not occur.

RECENT CHANGES IN WORLD TRADE ORGANIZATION QUOTAS COULD PUT PRESSURE ON APPAREL
PRICES.

        Effective January 1, 2005, the World Trade Organization's 148 member
nations lifted all quotas on apparel and textiles. As a result, all textiles and
textile apparel manufactured in a member nation will no longer be subject to
quota restrictions. This will allow retailers, apparel firms and others to
import unlimited quantities of apparel and textile items from China, India and
other low-cost countries. As a result, prices of textiles and apparel, including
our products, have faced downward pressure and may continue to decline. If

                                      -6-
<PAGE>

prices decline faster than we are able to cut costs, our business and results of
operations could be affected adversely.

MOST OF DELTA GALIL'S SALES ARE TO A FEW SIGNIFICANT CUSTOMERS. ANY REDUCTION OF
PURCHASES BY ANY SIGNIFICANT CUSTOMER COULD MATERIALLY ADVERSELY AFFECT DELTA
GALIL'S REVENUES.

        A majority of Delta Galil's revenues is from sales to three customers.
In 2004, 28.9% of Delta Galil's revenues were from sales to Marks & Spencer,
Delta Galil's largest customer. Sales to Wal-Mart reached 13.2% of revenues and
sales to Target reached 10.7% of revenues. Delta Galil expects Wal-Mart to be
its largest customer in 2005, as a result of the December 2004 acquisition of
Burlen Corporation. Delta Galil's contracts with its customers, including Marks
& Spencer and Wal-Mart, are short-term and do not contain minimum purchase
requirements. It is possible that, in the future, Delta Galil's customers will
not purchase Delta Galil's products in the same volumes or on the same terms as
in the past. Any reduction of purchases by Marks & Spencer, Wal-Mart or other
key customers could adversely affect Delta Galil.

DELTA GALIL HAS BENEFITED FROM ITS SHIFT OF LABOR-INTENSIVE PRODUCTION TO LOWER
LABOR COST COUNTRIES. A RISE IN WAGE LEVELS IN THOSE COUNTRIES COULD ADVERSELY
AFFECT DELTA GALIL'S FINANCIAL RESULTS.

        Delta Galil owns production facilities and outsources production in
countries that have low labor costs. In 2004, Delta Galil produced goods in
Jordan, Egypt, Turkey, Honduras, Eastern Europe and the Far East that accounted
for approximately 82% of Delta Galil's revenues. Historically, Delta Galil's
operating results have benefited from this shift of labor-intensive production
to lower labor cost countries, and Delta Galil intends to increase its
production in low labor cost countries. Delta Galil's financial results could be
harmed if wage levels increased dramatically in the countries in which Delta
Galil produces. In addition, there can be no assurance that we will be able to
shift additional production to lower labor cost countries.

A DETERIORATION IN ISRAEL'S RELATIONSHIP WITH NEIGHBORING COUNTRIES IN WHICH
DELTA GALIL HAS PRODUCTION FACILITIES COULD INTERRUPT DELTA GALIL'S PRODUCTION
AND HARM ITS FINANCIAL RESULTS.

        Products produced in Egypt, Jordan and Turkey account for 38% of our
2004 revenues. Delta Galil's operations in these countries depend largely on
their relationship with the State of Israel. In the past, there have been
hostilities between Israel and Jordan and Egypt. In addition, since October
2000, there has been an increase in hostilities between Israel and the
Palestinians. As a result, several Arab states reduced the level of relations
with the State of Israel, principally regarding economic and commercial
activities. A deterioration in Israel's relations with Jordan or Egypt could
interrupt Delta Galil's foreign production operations and would adversely affect
Delta Galil.

DUE TO SEASONAL FLUCTUATIONS, DELTA GALIL'S OPERATING RESULTS IN ANY QUARTER MAY
NOT BE REPRESENTATIVE OF FUTURE PERFORMANCE.

        Delta Galil has experienced fluctuations in its annual and quarterly
operating results, and may continue to experience these fluctuations in the
future. Delta Galil's revenues fluctuate due to seasonal purchasing by
consumers. Revenues in the last two quarters of the year generally exceed
revenues in the first two quarters due to back-to-school and holiday purchases.
Because of these fluctuations, Delta Galil's operating results in any quarter
may not be representative of its future performance. These fluctuations may make
it difficult for investors to properly evaluate Delta Galil's prospects.

DELTA GALIL'S INTERNATIONAL OPERATIONS EXPOSE IT TO THE RISK OF FLUCTUATIONS IN
CURRENCY EXCHANGE RATES THAT COULD HARM ITS OPERATING RESULTS.

        Although Delta Galil is an Israeli company, its functional currency is
the U.S. dollar. Delta Galil has operations and sales in many countries that are
not denominated in dollars, and is therefore exposed to fluctuations in the rate
of exchange between the dollar and those currencies. In 2004, Delta Galil
derived 30% of its revenues from customers in pound sterling, 8% in NIS, and 9%
in euros. More than 10% of Delta Galil's expenses were in NIS in 2004.

        Some of Delta Galil's expenses in Israel are linked to the Israeli
consumer price index. Consequently, Delta Galil is exposed to risk to the extent
that the rate of Israeli inflation exceeds the rate of the NIS devaluation in
relation to the dollar and to the extent that the timing of such devaluation
lags behind inflation in Israel, resulting in a negative effect on Delta Galil's
profitability in those years.

                                      -7-
<PAGE>

        In order to limit Delta Galil's exposure to fluctuations in the exchange
rate between the dollar and other currencies, Delta Galil from time to time
purchases forward contracts for the exchange of foreign currencies into dollars
at a fixed rate. Nevertheless, these hedging transactions will not protect Delta
Galil if the decline in those currencies against the dollar continues for longer
than the term of the forward contracts. See Item 11: "Quantitative and
Qualitative Disclosure - About Market Risk".

INTEGRATION OF RECENT ACQUISITIONS WITH DELTA GALIL REQUIRES SUBSTANTIAL
MANAGERIAL RESOURCES, AND DELTA GALIL MAY BE UNABLE TO ACHIEVE INTEGRATION
SUCCESSFULLY.

        In December 2004, Delta Galil acquired Burlen Corporation, and in
November 2003 Delta Galil completed the acquisition of Auburn Hosiery Mills and
its subsidiaries. We are working towards integration with Delta Galil of the
facilities and personnel of these acquired companies. The integration diverts
substantial attention of our senior management team from Delta Galil's daily
operations, places significant pressure on our staff and other resources and
poses financial, operational and legal risks. The integration may be impeded by
general economic conditions, failure to integrate financial and operating
systems, adverse response of competitors or clients, or regulatory developments.
Furthermore, the acquired companies are located in North America and Ireland,
where we have limited operating experience. Any failure to complete the
integration successfully could adversely affect Delta Galil.

THE APPAREL INDUSTRY IS SUBJECT TO CHANGES IN FASHION PREFERENCES. IF DELTA
GALIL AND ITS CUSTOMERS MISJUDGE A FASHION TREND, SALES COULD DECLINE.

        Delta Galil's success depends, in part, on its ability to design and
manufacture products that will appeal to consumers' changing fashion
preferences. Delta Galil may not be successful in anticipating and responding to
fashion trends in the future. If Delta Galil and its customers misjudge a
fashion trend, the customer's orders may decline, which could adversely affect
Delta Galil.

DELTA GALIL MAY BE UNABLE TO COMPETE WITH OTHER MANUFACTURERS THAT HAVE
FINANCIAL, GEOGRAPHIC AND OTHER ADVANTAGES.

        Delta Galil competes directly with a number of manufacturers of apparel,
some of which have longer operating histories, are closer geographically to
customers and enjoy greater financial and marketing resources than Delta Galil.
Increased competition could result in pricing pressure or loss of market share
and adversely affect Delta Galil's revenues and profitability. There can be no
assurance that Delta Galil will be able to compete successfully against existing
or new competitors.

IF DELTA GALIL'S CUSTOMERS ARE UNABLE TO SUCCESSFULLY COMPETE IN THEIR MARKETS,
DELTA GALIL'S SALES COULD DECLINE.

        Delta Galil's customers operate in an intensely competitive retail
environment. In the event that any of its customers' sales decline for any
reason, whether or not related to Delta Galil or its products, Delta Galil's
sales to such customers could also decline.

DOV LAUTMAN AND SARA LEE OWN ALMOST 50% OF DELTA GALIL'S OUTSTANDING SHARES, AND
TOGETHER CAN CONTROL DELTA GALIL'S MANAGEMENT.

        Mr. Dov Lautman, the Chairman of the Board of Directors of Delta Galil,
beneficially owns 4,644,993 ordinary shares, representing approximately 24.8% of
the ordinary shares outstanding. Sara Lee beneficially owns 4,256,537 ordinary
shares, representing 22.8% of the ordinary shares outstanding. Mr. Lautman and
the companies that he controls have a shareholders' agreement with Sara Lee that
requires each party to vote the shares it beneficially owns to elect directors
designated by Sara Lee to compose 30% of the board of directors, other than
independent directors, and to elect Mr. Lautman's designees for the remainder of
the board, other than independent directors. In addition, the agreement provides
that the appointment of a new Chief Executive Officer requires the consent of
Sara Lee. Mr. Lautman and Sara Lee have also given one another the first
opportunity to buy any shares the other party wishes to sell. Mr. Lautman and
Sara Lee together have the power to elect all of the directors other than
independent directors, appoint management and, in practice, approve actions
requiring the approval of a majority of Delta Galil's shareholders.

SARA LEE COULD USE ITS OWNERSHIP POSITION TO INFLUENCE DELTA GALIL'S OPERATIONS
TO BENEFIT SARA LEE.

        Approximately 0.2% of Delta Galil's 2004 revenues were derived from
sales to affiliates of Sara Lee. Delta Galil is under no obligation to sell any
products to Sara Lee. However, Sara Lee may attempt to

                                      -8-
<PAGE>

use its ownership position to influence Delta Galil's operations. Israeli law
requires special approvals for extraordinary transactions with a controlling
shareholder, such as Sara Lee, and for transactions in which a director is
deemed to have a personal interest. In the event that a director of Delta Galil
also serves as the chief executive or as a director of an affiliate of Sara Lee,
that Delta Galil director would be deemed to have a personal interest in
transactions between that Sara Lee affiliate and Delta Galil, and such
transactions would be subject, under Israeli law, to special approvals. However,
if no Delta Galil director is a director or chief executive of the other party,
transactions, other than extraordinary transactions, between Delta Galil and
Sara Lee or its affiliates would not require special approvals.

DOV LAUTMAN, DELTA GALIL'S CHAIRMAN, FOUNDER AND PRINCIPAL SHAREHOLDER, HAS
SIGNIFICANTLY CONTRIBUTED TO ITS SUCCESS. IF DOV LAUTMAN WERE TO LEAVE, DELTA
GALIL COULD BE ADVERSELY AFFECTED.

        Dov Lautman, the Chairman of the Board of Directors, a founder and
principal shareholder of Delta Galil, has made significant contributions to its
growth. Delta Galil does not have an employment agreement with Mr. Lautman.
Should Mr. Lautman discontinue his service, Delta Galil's business may be
adversely affected.

DELTA GALIL HAS NO CONTROL OVER FLUCTUATIONS IN THE COST OF THE RAW MATERIALS IT
USES. A RISE IN COSTS COULD HARM DELTA GALIL'S PROFITABILITY.

        The primary raw materials used by Delta Galil in the manufacture of its
products are cotton yarn, Lycra(R) and elastics. Delta Galil's financial
performance is dependent to a substantial extent on the cost and availability of
these raw materials. The price of these raw materials fluctuates due to varying
supply and demand and other market factors over which Delta Galil has no
control. Delta Galil may not be able to transfer the increased costs due to a
rise in prices of raw materials to its customers. This would likely adversely
affect Delta Galil's profitability and financial condition.

BECAUSE DELTA GALIL OPERATES INTERNATIONALLY, IT IS EXPOSED TO CHANGES IN
FOREIGN REGULATIONS, TARIFFS, TAX LAWS AND OTHER RISKS INHERENT TO INTERNATIONAL
BUSINESS, ANY OF WHICH COULD AFFECT DELTA GALIL'S OPERATING RESULTS.

        Delta Galil's international purchases, sales and production expose it to
risks inherent in doing business in international markets such as:

        o       adverse changes in foreign regulations, export restrictions,
                tariffs, trade barriers and tax rules;

        o       difficulty in staffing and managing international operations;

        o       longer payment cycles and difficulties in collecting accounts
                receivable; and

        o       changes in social, political and economic conditions.

        Any of these factors could adversely affect Delta Galil's ability to
deliver or receive goods on a competitive and timely basis and its results of
operations.

DELTA GALIL HAS NO ESTABLISHED DIVIDEND POLICY AND CANNOT ASSURE THE AMOUNT OR
FREQUENCY OF FUTURE DIVIDENDS.

        Delta Galil does not have an established dividend policy. Delta Galil
distributed cash dividends to shareholders from time to time in the past and may
do so in the future. However, Delta Galil cannot assure the amount, frequency or
any distribution of future dividends. Delta Galil's board of directors will
determine future dividends, in light of several factors including Delta Galil's
earnings, financial condition and capital requirements. In addition, under
Israeli law, Delta Galil may pay dividends only out of accumulated earnings or
out of net earnings for the two years preceding the distribution of the
dividends.

A REVIVAL OF HOSTILITIES INVOLVING ISRAEL COULD ADVERSELY AFFECT DELTA GALIL'S
INTERNATIONAL TRADE AND OPERATIONS.

        Delta Galil is incorporated under the laws of the State of Israel, where
it also maintains its headquarters and a significant part of its manufacturing
facilities. Political, economic and military conditions in Israel directly
influence Delta Galil. Since the establishment of the State of Israel in 1948,
Israel and its

                                      -9-
<PAGE>

Arab neighbors have engaged in a number of armed conflicts. A state of
hostility, varying in degree and intensity, has led to security and economic
problems for Israel. Despite progress towards peace between Israel, its Arab
neighbors and the Palestinians, major hostilities may revive. Such hostilities
may hinder Israel's international trade and lead to economic downturn. This, in
turn, could have a material adverse effect on Delta Galil's operations and
business.

        Generally, male adult citizens and permanent residents of Israel are
obligated to perform military reserve duty annually. Additionally, these
residents may be called to active duty at any time under emergency
circumstances. The full impact on Delta Galil's workforce or business if some of
Delta Galil's officers and employees are called upon to perform military service
is difficult to predict.

DELTA GALIL BENEFITS FROM ISRAELI GOVERNMENT PROGRAMS THAT COULD BE REDUCED OR
ELIMINATED, INCREASING DELTA GALIL'S COSTS.

        Many of Delta Galil's existing production facilities in Israel are
entitled to Israeli government grants and tax benefits. Delta Galil received
grants totaling $1.6 million in 2002, $1.1 million in 2003 and $1.1 million in
2004 under these programs. The government of Israel has gradually reduced the
investment grants available from 38% of eligible capital expenditures in 1996 to
24% of eligible capital expenditures in 1998 and thereafter. This lower grant
rate applies to any applications for grants made in 1998 or thereafter. There
can be no assurance that the Israeli government will not further reduce these
investment grants. See Item 10: "Additional Information - Israeli Taxation."

        Due to existing losses for tax purposes, Delta Galil has not used any of
the tax benefits to which it is entitled under these government programs since
1999, except with respect to accelerated depreciation on real-estate property.
The remaining tax benefits may be available for use in future years. See Item
10: "Additional Information - Israeli Taxation."

        The termination or reduction of these Israeli government programs,
particularly benefits available to Delta Galil as a result of the "Approved
Enterprise" status of its existing facilities, would increase Delta Galil's
costs of acquiring machinery and equipment for its production facilities, which
could have an adverse effect on Delta Galil.

        In order to maintain eligibility for these grants and tax benefits,
Delta Galil must continue to meet various conditions, such as investment in
fixed assets and operations in specified zones. If Delta Galil fails to meet
these conditions in the future, it could be required to forego tax benefits and
to refund grants already received, in whole or in part, with interest, linked to
the consumer price index in Israel. To secure its obligations, Delta Galil gave
the Israeli government a security interest over all its assets in Israel.

DELTA GALIL BENEFITS FROM PRODUCING IN COUNTRIES THAT HAVE FREE TRADE AGREEMENTS
WITH COUNTRIES WHERE ITS CUSTOMERS ARE LOCATED. A LOSS OF THOSE FREE TRADE
ADVANTAGES WOULD ELIMINATE AN IMPORTANT COMPETITIVE ADVANTAGE.

        Delta Galil benefits from Israel's status as the only country in the
world enjoying free trade agreements with the United States, Canada, the
European Union and the European Free Trade Association. The agreements permit
Delta Galil to sell its Israeli manufactured products to these trade partners
free of customs duties and import quotas. Similar benefits are available to
Delta Galil's products manufactured in Egypt, since Egypt has a free trade
agreement with the European Union and with the United States. The benefits of
the Israel-United States Free Trade Area Agreement also apply to goods processed
in an area of Jordan in which Delta Galil produces

YOU MAY NOT BE ABLE TO ENFORCE CIVIL LIABILITIES IN THE UNITED STATES AGAINST
DELTA GALIL'S OFFICERS AND MOST OF ITS DIRECTORS.

        Most of Delta Galil's officers and directors reside outside the United
States. Service of process upon them may be difficult to effect within the
United States. Furthermore, because the majority of Delta Galil's assets are
located outside the United States, any judgment obtained in the United States
against Delta Galil or any of its directors and officers may not be collectible
within the United States.

                                      -10-
<PAGE>

ITEM 4:     INFORMATION ON THE COMPANY

HISTORY AND DEVELOPMENT OF THE COMPANY

        Delta Galil Industries Ltd. was incorporated in Israel in 1975 and
operates as a public company with liability limited by shares under the Israeli
Companies Law, 1999. Our registered offices are located at 2 Kaufman Street,
Tel-Aviv 68012, Israel and our telephone number is (972) 3-519-3636. Delta
Galil, with its consolidated subsidiaries, is a global manufacturer and marketer
of quality private label ladies' intimate apparel, men's underwear, socks,
shirts, babywear, bras, leisurewear and nightwear, knitted fabrics, dyeing,
trimmings and elastic ribbons. Delta Galil sells its products to leading
retailers, including:

o  Marks & Spencer (U.K.)      o  Victoria's Secret        o  Kmart (U.S.)
                                  (U.S.)
o  Wal-Mart (U.S.)             o  Hema (Holland)           o  Mervyn's (U.S.)
o  Target (U.S.)               o  JC Penney (U.S.)


and to marketers of leading brand names, including:

   o  Calvin Klein (U.S.)      o  Nike             o  Hugo Boss (Germany)


        Delta Galil also sells its products in Israel under the Delta brand
name.

        Delta Galil's ability to provide its customers with a comprehensive
package of services has enabled it to develop and maintain strong long-term
relationships with its customers. These services include:

        o       product line planning and design;

        o       manufacture of high quality knitted apparel using automated
                manufacturing processes; and

        o       marketing, packaging and distribution of finished products
                tailored to the requirements of the customers in Europe and the
                United States.

        Delta Galil designs and develops its products primarily in the United
States, England and Israel. Most of Delta Galil's products are manufactured in
lower labor cost countries, such as Egypt and Turkey as well as countries in the
Far East and in Central America.

COMPETITIVE STRENGTHS

        The apparel market is highly competitive and fragmented. Delta Galil's
products compete with the products of other manufacturers located throughout the
world.

        Competition in the apparel market is generally based on price, quality
and customer service. Delta Galil believes that it has a relative advantage over
its competitors for the following reasons:

        o       HIGH QUALITY INNOVATIVE PRODUCT LINES. Delta Galil produces a
                broad selection of fashionably designed product lines using high
                quality knitted materials and attractive packaging. In 1998,
                Delta Galil introduced seamless intimate apparel, known as
                "seam-free" products. These products are produced using
                techniques that minimize labor-intensive production functions.

        o       LONG-TERM RELATIONSHIPS WITH LEADING RETAILERS AND BRAND NAME
                MARKETERS. Delta Galil has developed long-term relationships
                with its customers, many of whom control significant market
                shares in their respective countries. Although Delta Galil's
                customer contracts are generally short-term and do not contain
                minimum purchase requirements, Delta Galil has enjoyed
                relationships of more than five years with most of its major
                customers. Delta Galil and its in-house design teams

                                      -11-
<PAGE>

                and technology experts work closely with customers to provide a
                comprehensive package of services, including design,
                development, manufacturing and marketing of new product lines.

        o       EFFECTIVE MANAGEMENT OF MANUFACTURING AND LOGISTICS. Delta Galil
                maintains an advanced infrastructure of computerized
                acquisition, production, inventory control, dispatching,
                shipping and billing functions. These systems have enabled Delta
                Galil to effectively manage its geographically dispersed
                operations. As a result, Delta Galil is able to shift
                labor-intensive production functions to lower labor cost
                countries while maintaining the high levels of quality and
                timely delivery standards that its customers require.

        o       UNIQUE FREE TRADE STATUS. Israel is currently the only country
                in the world that has free trade agreements with each of the
                United States, Canada, the European Union and the European Free
                Trade Association. Delta Galil's operations in Jordan and Egypt
                also benefit from advantageous trade agreements.

STRATEGY

        The key elements of Delta Galil's strategy are to:

        o       ENHANCE SALES TO EXISTING LARGE CUSTOMERS. Delta Galil seeks to
                increase sales of existing products and to introduce new product
                categories to existing customers. Delta Galil believes its broad
                product offerings, emphasis on customer service and proven
                reliability provide a competitive advantage as retailers
                consolidate purchases from a smaller number of suppliers. Delta
                Galil intends to continue capitalizing on this trend by
                expanding the scope of its existing customer relationships.

        o       DEVELOP RELATIONSHIPS WITH SELECTED NEW CUSTOMERS. Delta Galil
                is developing relationships with new customers who require high
                quality products to sell under their private labels or brands,
                are capable of ordering in significant volumes, demonstrate
                substantial growth potential and require Delta Galil's high
                level of service. Recent customer additions include Puma, Polo,
                and Levi's (Europe), Ann Taylor and Nicole Miller (North
                America), Carrefour and Metro.

        o       CONTINUOUSLY IMPROVE ITS MANUFACTURING EFFICIENCY. Delta Galil
                continuously seeks to increase manufacturing efficiencies by (1)
                moving labor intensive functions to lower cost countries, (2)
                further automating its operations and (3) introducing new
                technologies.

        o       PURSUE STRATEGIC ACQUISITIONS. In 2000 Delta Galil completed the
                acquisitions of Dominion Hosiery Mills and Wundies Industries,
                in 2001 of Inner Secrets. In 2003, Delta Galil acquired Auburn
                Hosiery Mills and in 2004 Delta acquired Burlen Corporation, as
                more fully described below. Delta Galil may pursue additional
                strategic acquisitions of businesses that would complement its
                product lines and customer relationships.

        o       BRANDING. The market positioning of brands is becoming more and
                more prominent. Behind each such brand there is a message, which
                brings the consumer, above all, the emotional attachment and the
                experience of buying. As part of this strengthening trend,
                Delta, strategically is going in this direction, by licensing
                leading brands in the market. The latest are Levi's Signature,
                for socks, men's and ladies underwear for the European market,
                and Nicole Miler worldwide. Both completely handled by Delta
                from the initial processes to finished products and inventory
                management. Delta Galil is looking for additional license
                agreements.

RECENT ACQUISITIONS

        ACQUISITION OF BURLEN

                                      -12-
<PAGE>

        In December 2004, Delta Galil acquired Burlen Corp., a leading private
label manufacturer of ladies intimate apparel with sales of $113 million in
2004. Burlen's customers are mass and mid-market retailers. Burlen has been
supplying Wal-Mart, its largest customer, for nearly 40 years. Burlen's design,
merchandising and marketing teams are located in New York and its logistics,
operations and distribution facilities are located in Tifton, Georgia. Burlen
manufactures primarily through subcontractors in the Far East and the Caribbean.

        Delta paid Burlen's selling shareholders $48.2 million in cash and $2.2
million in ordinary shares transferred from Delta's treasury shares. In
addition, Delta paid $8.2 million of Burlen's bank debt. Delta Galil also
accrued $1.0 million in other cost related to the transaction, which will be
paid in 2005. Delta is also obligated to pay the selling shareholders additional
amounts if Burlen meets specified sales and profitability targets for 2005,
2006, and 2007.

        The Burlen acquisition is a positive step in Delta's strategy to
increase its intimate apparel category of the mass market. We believe that there
are opportunities for synergies between Burlen's operations and Delta's existing
activities, which we expect to strengthen Delta's position in the mass market.

    ACQUISITION OF AUBURN

        In November 2003, Delta Galil acquired, the socks business of Kellwood
Company. Operating under the name Auburn Hosiery Mills, the business includes
operations in both the United States and Europe.

        Auburn manufactures, markets and sells branded sport socks under
exclusive licenses to brand names of Wilson(R) and Converse(R) in the United
States and Europe and Coca-Cola(R) in Europe. Auburn sources in the United
States, Mexico and Ireland and sells in North America and Europe. Wal-Mart is
Auburn's main customer in the United States.

        This acquisition is a favorable addition to Delta's socks business by
adding well-known brand names to the existing lines, penetrating into the US
mass market in the socks category and increasing Delta's marketing capabilities
in the United States and Europe.

        In 2003, Delta paid $10.8 million in cash to Kellwood and recorded
liabilities in respect of restructuring costs in the amount of $6.2 million.
During 2004 Delta Galil finalized the restructuring plan and actual liabilities
in respect of restructuring costs were $1.9 million less than originally
anticipated. As a result, goodwill, which was originally estimated at $1.4
million, was reduced to zero, and the value of the property, plant and equipment
was reduced by $0.5 million.

    ACQUISITION OF INNER SECRETS

        In 2001, Delta Galil, through its subsidiary, Wundies Industries Inc.,
completed the acquisition of Inner Secrets Inc., a New Jersey corporation, and
its subsidiaries. Inner Secrets manufactured and marketed private label
brassieres and other ladies' intimate apparel.

        At the time of the acquisition, Inner Secrets manufactured its products
in its factory in the Dominican Republic (which was closed in the first quarter
of 2002) and outsourced to sub-contractors in the Far East, including Hong Kong,
China, Indonesia and Bangladesh, as well as other countries including Guyana,
Mexico, Haiti, and Columbia. Inner Secrets had a distribution center in
Harrison, New Jersey.

        Inner Secrets had many quality customers, catering mainly to the mass
market, including Target, Wal-Mart and Kmart.

        As of December 31, 2001 Wundies Industries, which Delta Galil acquired
in 2000, and Inner Secrets were merged into a new company, Delta Galil USA Inc.

        As consideration for all of the share capital of Inner Secrets, Delta
Galil paid $48.7 million in cash, of which $14.4 million was for retirement of
bank and other debt, and $5.9 million in ordinary shares, comprised of 454,020
ordinary shares valued at $13.05 per ordinary share. The goodwill attributed to
the purchase of Inner Secrets amounted to approximately $24.3 million. In April
2003 and 2004, Delta Galil USA paid $2.0 million and $6.7 million respectively
in accordance with the acquisition agreement, as additional performance
payments. These payments were allocated as part of the goodwill.

                                      -13-
<PAGE>

PRODUCTS

        Delta Galil works closely with its customers to design and manufacture
high quality knitwear. Delta Galil produces a variety of products using cotton
and man-made fibers. Delta Galil's products are generally sold at all price
levels.

        The following table outlines representative products in each of Delta
Galil's product categories, key customers/brands and the percentage of total
revenues that each product category represented during 2002, 2003 and 2004.







                                      -14-
<PAGE>
<TABLE>
<CAPTION>
<S>                                                                           <C>
                                                                                           % OF REVENUES
                                                                                        YEAR ENDED DECEMBER 31,
PRODUCT CATEGORY     KEY PRODUCTS            KEY CUSTOMERS/BRANDS                    2002        2003        2004
----------------     ------------            --------------------                    ----        ----        ----

Ladies' Intimate     Fashion and basic       Marks & Spencer    Calvin Klein         59%         61%         54%
Apparel              panties and bras        Wal-Mart           Hema
                     Women's nightwear       Target             Kmart
                     Girl's nightwear        JC Penney
                                             Victoria's Secret

Socks                Men's, women's and      Marks & Spencer    Dim                  15%         16%         23%
                     children's leisure,     Nike               JC Penney
                     dress and sport socks   Wal-Mart           Matalan
                                             Hema               Sears
                                             Tchibo

Men's Underwear      Briefs                  Calvin Klein       Schiesser            11%         10%         13%
                     Boxer shorts            Gap                Target
                     Mini-briefs             Hema               J. Crew
                     Undershirts             Hugo Boss          Polo Ralph Lauren
                     Men's nightwear         Marks & Spencer

Babywear             Fashion and classic     Marks & Spencer                          7%          7%          4%
                     items, focusing on
                     newborns

Leisurewear          T-shirts                Marks & Spencer                          4%          3%          4%
                     Polo shirts
                     Sweatshirts
                     Leisure clothes

Others               Fabrics, elastic                                                 4%          3%          2%
                     tapes and other
                     operations
</TABLE>

        o       LADIES' INTIMATE APPAREL: Delta Galil's intimate apparel items
                include both fashion and basic underwear, as well as bras. Delta
                Galil has introduced machinery to produce seam-free panties,
                tops and control underwear. Delta Galil has been shifting its
                product mix to increase its focus on these products. The
                decrease in this category in 2004 is mainly due to a decrease in
                sales to US mass-market customers. Sales to this category in
                2005 are expected to increase due to the acquisition of Burlen.

        o       SOCKS: Delta Galil manufactures men's, women's and children's
                socks in the leisure, dress and sports categories. Among the
                varieties of socks that Delta Galil manufactures are socks with
                popular cartoon and other characters that Delta Galil licenses.
                The increase in this category in 2004 is mainly due to the
                consolidation of Auburn.

        o       MEN'S UNDERWEAR: Delta Galil manufactures men's fashion and
                basic underwear for customers that include marketers of fashion
                brands and department store private labels.

        o       BABYWEAR: Babywear includes fashion and classic daywear and
                sleepsuits in a wide variety of styles and fabrics, with a focus
                on newborns. Delta Galil products in this category are sold at
                medium to high retail prices. In the first quarter of 2005 the
                sales of this category continue to decrease and reached 2% of
                total sales.

        o       LEISUREWEAR: Delta Galil manufactures basic and fashion
                leisurewear in a wide variety of styles and fabrics. The
                products range from T-shirts, polo shirts, sweatshirts and
                jogging suits to leisure and fashionable blouson jackets that
                are sold at medium to high retail prices.

        o       OTHERS: This category includes sales of production overruns of
                fabrics and elastic tapes.

                                      -15-
<PAGE>

CUSTOMERS

        Delta Galil maintains long-term relationships with its customers, many
of whom control significant market shares in their respective countries. Delta
Galil premises its marketing strategy on its ability to offer customers a
package of services, including product planning and design tailored to the
customers' needs, high-tech quality manufacturing, distribution and logistics
setup and computer-linked accounts.

        Delta Galil has strong in-house creative teams of designers and
technology experts, consisting of fashion designers, textile designers, yarn
experts, knitting experts and dyeing and finishing experts. Delta Galil's design
specialists remain constantly apprised of technological innovations in textile
equipment and the state of the art in yarns, fabrics and accessories worldwide.
Delta Galil's presence in both the United States and Europe also enables its
design personnel to offer significant sales and marketing advice in both
markets. Although Delta Galil's products are sold predominantly under the
private labels and brands of its customers, Delta Galil's design specialists
collaborate closely with its customers to design and develop products. The
design teams prepare presentations for customers, including analysis of previous
season successes and failures, and, with the customer's participation, develop
the concept, product, packaging and product specifications, tailored to the
customer's specific needs. Delta Galil believes that the comprehensive nature of
the services it offers is a major factor in the strength of its relationship
with its customers.

    THE NORTH AMERICAN MARKET

        Recognizing the North American market's size and diversification, Delta
Galil has targeted this market as its major strategic market for growth and
profitability. Through internal growth and a series of acquisitions, Delta Galil
has been successful in rapidly increasing its presence in the North American
market. Sales to North America grew from $47.3 million (which represented 16% of
total sales) in 1998 to $334.8 million (which represented 51% of sales) in 2004.
Our five largest customers in North America, Wal-Mart, Target, Victoria's
Secret, JC Penney and Calvin Klein, represented approximately 79% of our 2004
sales in North America. We are expecting an increase in sales to this market in
2005 mainly due to the acquisition of Burlen.

    MARKS & SPENCER RELATIONSHIP

        Delta Galil is one of Marks & Spencer's five largest suppliers and has
been doing business with Marks & Spencer for more than 20 years. Marks & Spencer
sells all of its products under its own brand name and is one of the leading
retailers of men's underwear, women's underwear and men's socks in the United
Kingdom. Delta Galil sells, on an average basis, approximately, 7.0 million
units to the Marks & Spencer distribution center per month. Delta Galil is a
diversified supplier to Marks & Spencer, selling to over 15 different
departments of the chain. Each department is independently managed, has autonomy
in procurement decisions, and establishes its own product standards and supply
requirements.

        Delta Galil's sales to Marks & Spencer grew from $1 million in 1981 to
$49 million in 1990, to $92 million in 1995 and to $189 million in 2004,
representing 29% of Delta Galil's revenues in 2004. In 2004 sales were
positively affected by the strengthening of the pound sterling versus the US
dollar, which led to an increase of 6% in dollar terms, while in pound sterling
sales decreased by 4%, mainly due to a decrease in the children category.

    ISRAELI MARKET

        Delta Galil believes that it is among the market leaders in Israel for
men's underwear, ladies' intimate apparel and socks, with $46.5 million of sales
in 2004. These sales include products Delta Galil manufactures, as well as goods
it imports into Israel or purchases from other Israeli suppliers. Of Delta
Galil's sales in Israel, 43% were made through retail department stores and
supermarkets, and 57% were made through Delta Galil's Delta Plus factory
outlets. As of December 31, 2004 Delta Plus had 81 stores, of which we owned 48
directly and 33 were franchises.

SEASONALITY

        Delta Galil's revenues fluctuate due to seasonal purchasing by
consumers. Revenues in the last two quarters of the year generally exceed
revenues in the first two quarters due to back-to-school and holiday purchases.

                                      -16-
<PAGE>

MANUFACTURING

    MANUFACTURING PROCESS

        Delta Galil's manufacturing techniques enable it to provide its
customers with a wide array of consistently high quality products customized to
their individual needs at competitive prices. The production process includes
the following steps:

        o       RAW MATERIAL PROCUREMENT: The raw materials Delta Galil requires
                include, primarily, cotton yarns, blends of cotton and synthetic
                yarns (such as cotton-spandex, cotton-Lycra(R) and
                cotton-viscose) and other accessories such as elastic tapes,
                laces and other textile components. Delta Galil purchases its
                raw materials from several international and domestic suppliers
                and historically has not experienced any difficulty in obtaining
                raw materials to meet production requirements. The price of
                these raw materials fluctuates due to varying supply and demand
                and other market factors over which Delta Galil has no control.
                Delta Galil purchases its raw materials only against actual
                orders, except for basic cotton yarn. As a result, Delta Galil
                can effectively manage its raw material inventory. Typically,
                Delta Galil does not maintain inventory of raw materials for a
                period of more than eight weeks. From time to time, when market
                conditions are favorable, Delta Galil enters into contracts with
                various suppliers of basic cotton yarn for delivery over a
                period of three to six months.

        o       KNITTING: Delta Galil produces the knitted fabric required for
                the underwear and other garments it manufactures in Israel and
                in Egypt. Delta Galil produces various types of fabric. Delta
                Galil operates approximately 150 automatic knitting machines,
                with a total production capacity of approximately 550-570 tons
                of fabric per month depending on the type of fabric produced.
                During 2004, Delta Galil produced approximately 450 tons of
                fabric per month, approximately 96% of which Delta Galil used
                and the remainder of which was sold to third parties. Delta
                Galil does not have any long-term supply obligations and is able
                to adjust its capacity for its own use when necessary. Delta
                Galil outsources from various suppliers the rest of the knitted
                fabric it requires.

                Delta Galil operates approximately 2,000 knitting machines for
                the production of socks, including machines owned by
                sub-contractors, with a total production capacity of
                approximately 12 million pairs per month.

                DYEING AND FINISHING: Delta Galil has its own dyeing plants in
                Israel and North America for dyeing yarns, fabrics and products.
                The dyeing plants are principally engaged in supplying Delta
                Galil's own requirements. Delta Galil outsources the dyeing and
                finishing for production in Egypt. Delta Galil's ability to
                control the dyeing and finishing of its products and accumulated
                expertise in this area are key elements in its ability to
                provide quality products to its customers.

        o       CUTTING: Delta Galil uses computerized, automatic cutting
                equipment, which minimizes fabric waste.

        o       SEWING: Cut fabrics are sewn to complete the product, including
                the addition of accessories such as elastic waist and leg bands
                and labels. Delta Galil is currently operating at its sewing
                capacity, which is, on an average basis, approximately 12
                million units per month (depending on the type of product).
                Delta Galil operates 9 sewing plants, three in Jordan, four in
                Egypt, one in Honduras and one in Thailand. Delta Galil also
                subcontracts sewing functions, primarily to contractors in
                Israel, Egypt, Eastern Europe, the Far East and Central America.

        o       TESTING AND QUALITY ASSURANCE: Delta Galil places significant
                emphasis on quality control and uses quality assurance teams at
                each stage of the manufacturing process. Delta Galil's quality
                assurance procedures meet the very strict quality control
                standards of its customers.

                                      -17-
<PAGE>

    SEAM-FREE MANUFACTURING

        Applying technology utilized in the manufacture of hosiery, Delta Galil
produces one-piece seam-free panties and bras. Seam-free technology enables the
direct conversion of yarn into a nearly completed final product by a single
machine. After the machine knits the basic garment, all that is required to
complete the garment is dyeing and a limited amount of sewing and finishing.

        The seam-free process eliminates most stages of the manufacturing
process, which required special equipment such as knitting machines, cutting
equipment and extensive sewing machine operations, and personnel. This advanced
computer-intensive technology enables the production of a substantially wider
range of fabrics, styles and product lines. The use of the seam-free machines
also improves Delta Galil's potential to manufacture fashionable products with
consistently higher quality, durability and comfort.

        Delta Galil is making a major effort to capitalize on this unique and
new technology. Delta Galil continuously engages in research and development to
create additional products that use the seam-free technology. Nevertheless,
sales of seam-free products decreased from $40.2 million in 2000 to $17.4
million in 2003. In 2004 sales increased by 29% compared to 2003 and amounted to
$22.5 million. The growth in Delta Galil sales is due to major improvement made
in design and development of new products and increase in demand for seamless
garments primarily in the US mass market. As of December 31, 2004, Delta Galil
owned 275 seam-free knitting machines.

    OUTSOURCING OF PRODUCTS

        Subcontractors manufactured goods in Egypt (babywear and underwear),
Turkey (socks), Romania (bras and underwear), Bulgaria (socks) and Thailand,
Hong Kong, Vietnam, Dominican Republic and China (all ladies intimate apparel),
which in 2004 accounted for approximately 53% of Delta Galil's revenues. Delta
Galil personnel closely supervise the production by subcontractors in these
countries.

    JORDANIAN JOINT VENTURE

        In 1995, Delta Galil entered into a joint venture with Century
Investment Group, a Jordanian company. Delta Galil supplies cut fabric to the
joint venture and purchases sewing services. Delta Galil holds a controlling
interest in this joint venture and purchases virtually all of the goods produced
by the joint venture. As a result of the controlling interest, Delta Galil
consolidates this entity in its consolidated financial statements.

SALES AND MARKETING

        Delta Galil customizes its sales and marketing strategy according to
individual customers' geographic regions and the market segment. For example,
one sales and marketing group handles the Marks & Spencer account, another
handles sales to the U.S. mass market, and a third focuses on accounts for
middle and upper market customers in the United States. Depending on where a
target customer is located, Delta Galil's sales offices in Europe, North America
or Israel implement the marketing strategy in coordination with headquarters.
Delta Galil staffs sales offices with experienced personnel who maintain ongoing
contact with its customers and respond to customers' needs promptly and
effectively.

RESEARCH AND DEVELOPMENT

        Delta Galil has strong in-house creative teams of designers and
technology experts, consisting of fashion designers, textile designers, yarn
experts, knitting experts and dyeing and finishing experts. Delta Galil's design
and development expenses increased to approximately $25 million in 2004, as
compared to $23 million in 2003 and $21 million in 2002.

DELTA GALIL'S MANUFACTURING FACILITIES

        Delta Galil has manufacturing facilities in Israel, Jordan, Egypt, North
America, Honduras, and Thailand. Delta Galil has also sub-contracts to
manufacturers in Egypt, Turkey, Romania, Bulgaria, Central America and the Far
East. In 1995, Delta Galil began transferring labor-intensive production
functions from its plants in Israel and Scotland to Egypt, Jordan and East
Europe. As a result all manufacturing plants in Scotland were closed by 2003 and
the last sewing plant in Israel was closed on the first quarter of 2005. In
2004, 82% of Delta Galil's revenues were generated from the sale of products
produced in low labor cost

                                      -18-
<PAGE>

countries, up from 49% in 2000. In 2004, goods produced in Israel represented
12% of Delta Galil's revenues, down from 35% in 2000.













                                      -19-
<PAGE>

        The following table summarizes the distribution of Delta Galil's
revenues by location of production, stated as a percentage of total revenues for
the periods indicated:

<TABLE>
<CAPTION>
<S>                                                                           <C>
                                                                                 % OF REVENUES YEAR ENDED
                                                                                        DECEMBER 31
     COUNTRY                   ACTIVITY                       PRODUCTS            2002       2003     2004
     -------                   --------                       --------            ----       ----     ----
Far East            Purchase of finished products   Ladies intimate apparel        22%       30%       26%
                    Sewing(1)
                    Cutting

Egypt               Knitting(2)                     Ladies' intimate apparel       19%       20%       18%
                    Dyeing(1)                       Men's underwear
                    Cutting                         Babywear
                    Sewing(2)                       Leisurewear

                    Purchase of finished products

Israel              Design                          Ladies' intimate apparel       14%       14%       12%
                    Knitting(2)                     Men's underwear
                    Dyeing                          Socks
                    Cutting & sewing(2)             Knitted fabric
                    Production of fabrics &         Elastic bands
                    elastics

                    Distribution center
                    Purchase of finished products

Caribbean &         Sewing(2)                       Ladies' intimate apparel       15%       10%       10%
Central America     Cutting                         Socks
                    Knitting (1)

                    Purchase of finished products
Jordan              Sewing(2)(3)(5)                 Ladies' intimate apparel       13%        9%       13%
                                                    Men's underwear

Turkey              Purchase of finished products   Ladies intimate apparel,        7%         7%       6%
                                                    Socks

Eastern Europe      Knitting(1)                     Ladies' intimate apparel        5%         6%       9%
                    Sewing(2)                       Socks

                    Purchase of finished products

North America       Design                          Ladies' intimate apparel        4%         4%       6%
                    Cutting                          Socks
                    Dyeing
                    Knitting(2)
                    Distribution center

Scotland            Design                          Babywear                       1%         0%       0%
                    Cutting & sewing(4)             Leisurewear
                    Warehousing(4)
</TABLE>
-------------------------------
(1)     These activities are fully outsourced to local contractors.
(2)     A portion of these activities is outsourced to local contractors.
(3)     This activity is performed by a joint venture in which Delta Galil has a
        controlling interest.
(4)     These activities were discontinued starting 2003.
(5)     Fabric produced in Israel.


                                      -20-
<PAGE>

MANAGEMENT INFORMATION SYSTEMS

        Delta Galil has invested in information technology as a tool to reduce
overall costs, enhance the efficiency of its garment design and manufacturing,
and support the sale and distribution of its products to its customers. Delta
Galil's production software processes customer orders, schedules production for
such orders and monitors the products ordered during all stages of production,
from knitting to sewing and during packaging and distribution. Delta Galil
believes that its information technology system has been effective in meeting
its demands. Delta Galil spent approximately $7 million in 2004 and intends to
spend a similar amount in 2005 to enhance its system's capabilities in order to
support the growing demand for Delta Galil's products.

CONDITIONS IN ISRAEL

        Delta Galil is incorporated under the laws of, and a significant portion
of its offices and manufacturing facilities are located in, the State of Israel.
Accordingly, Delta Galil is directly affected by political, economic and
military conditions in Israel. The operations of Delta Galil would be materially
adversely affected if major hostilities involving Israel should occur or if
trade between Israel and its present trading partners should be curtailed.

    POLITICAL CONDITIONS

        Since the establishment of the State of Israel in 1948, a number of
armed conflicts have taken place between Israel and its Arab neighbors and a
state of hostility, varying from time to time in intensity and degree, has led
to security and economic problems for Israel. However, a peace agreement between
Israel and Egypt was signed in 1979, a peace agreement between Israel and Jordan
was signed in 1994 and, since 1993, several agreements between Israel and
Palestinian representatives have been signed. As of the date hereof, Israel has
not entered into any peace agreement with Syria or Lebanon. There can be no
assurance as to how the "peace process" will develop or what effect it may have
upon Delta Galil.

        Despite progress towards peace between Israel, its Arab neighbors and
the Palestinians, major hostilities may revive. Since October 2000, there has
been an increase in hostilities between Israel and the Palestinians. The unrest
in and around the areas administrated by the Palestinian Authority may hinder
Israel's international trade and lead to economic downturn. This, in turn, could
have a material adverse effect on Delta Galil's operations and business. In
addition, certain countries, companies and organizations continue to participate
in a boycott of Israeli firms. Delta Galil does not believe that the recent
violence or the boycott have had a material adverse effect on Delta Galil, but
there can be no assurance that further violence or restrictive laws, policies or
practices directed towards Israel or Israeli businesses will not have an adverse
impact on Delta Galil's business.

    TRADE AGREEMENTS

        Israel is a member of the United Nations, the International Monetary
Fund, the International Bank for Reconstruction and Development and the
International Finance Corporation. Israel is a member of the World Trade
Organization and is a signatory to the General Agreement on Trade in Services
and to the Agreement on Basic Telecommunications Services. In addition, Israel
has been granted preferences under the Generalized System of Preferences from
the United States, Australia, Canada and Japan. These preferences allow Israel
to export the products covered by such programs either duty-free or at reduced
tariffs.

        Delta Galil benefits from Israel's status that currently has free trade
agreements with the United States, Canada, the European Union and the European
Free Trade Association. The trade agreements permit Delta Galil to sell its
Israeli manufactured products to the United States, Canada and the member
countries of the European Union and the European Free Trade Association free of
customs duties and import quotas. The United States has extended the benefits of
the Israel-United States Free Trade Area Agreement to goods processed in the
area of Jordan in which Delta Galil has its facilities. Due to a free trade
agreement between the EU, US and Egypt, Delta Galil's products manufactured in
Egypt can enter the EU countries and into the US duty free as well. Delta Galil
is in a period of major changes in the global business environment, following
the elimination of quotas as part of the WTO agreement. The market has been
characterized by strong pressure to lower prices . In addition, the State of
Israel provides incentives that reduce the cost of equipment to Delta Galil and
which may not be available in other countries.

                                      -21-
<PAGE>

DELTA GALIL'S ORGANIZATIONAL STRUCTURE

        Delta Galil is an Israeli corporation that commenced operations in 1975.
It currently has 27 subsidiaries in which it holds at least a 50% interest. The
main operations are included in the following companies:

<TABLE>
<CAPTION>
<S>                                                                           <C>
                                       PLACE OF           OWNERSHIP
            COMPANY                 INCORPORATION          INTEREST                    FUNCTION
-------------------------------  --------------------  ---------------  ----------------------------------------
Delta Galil USA Inc.               Delaware, U.S.A.       100%           o   Manufactures ladies and girls
                                                                             intimate apparel and
                                                                             owns Auburn Hosiery
                                                                             Mills and Burlen Corp.

Auburn Hosiery Mills Inc.          Kentucky, USA          100%           o   Manufacturing and marketing socks.

Burlen Corp.                       Georgia, USA           100%           o   Manufacturing and marketing
                                                                             ladies intimate apparel.

Delta Galil Europe Ltd.            U.K.                   100%           o   Distribution center and marketing
                                                                             services.

Delta Galil Holland B.V.           Holland                100%           o   Contract manufacture and owns
                                                                             Delta Galil's interest
                                                                             in Delta Textile
                                                                             Egypt-Free Zone S.A.E.,
                                                                             Dominion Hosiery Inc.,
                                                                             Century Wear Corporation
                                                                             (WLL), Delta Galil
                                                                             Hungary KFT, Delta
                                                                             Textile Bulgaria Ltd.,
                                                                             Sport Socks and Thai
                                                                             Progress Garment Co. Ltd.

Delta Textile Egypt  - Free Zone   Egypt                  100%           o   Manufactures men's and women's
S.A.E.                                                                       underwear and
                                                                             leisurewear.

Dominion Hosiery Inc.              Canada                 100%           o   Manufactures ladies' socks in
                                                                             Canada.

Century Wear Corporation (WLL)     Jordan                 50%*           o   Joint venture in Jordan that
                                                                             performs sewing for the
                                                                             production of various
                                                                             products.

Sport Socks Co Ltd.                Ireland                100%           o   Manufacturing and marketing
                                                                             socks.

Thai Progress Garment Co. Ltd      Thailand               100%           o   Manufactures ladies intimate
                                                                             apparel.

Delta Textile Marketing Ltd.       Israel                 100%           o   Factory outlets and wholesale.

Delta Textile (New York) Ltd.      New York, U.S.A.       100%           o   Marketing

Delta Elastic Tapes Industries,    Israel                 90%            o   Manufactures elastic tapes and
Ltd.                                                                         other components used in
                                                                             underwear manufacture.
</TABLE>

*       Delta Galil effectively controls this joint venture as a result of its
        holding of an additional controlling share.


                                      -22-
<PAGE>

PROPERTY, PLANT AND EQUIPMENT

        Delta Galil has manufacturing facilities in Israel, Jordan, Egypt,
Turkey, Bulgaria, Canada, United States and Thailand. Delta Galil maintains its
principal Israeli manufacturing, warehousing and administrative facilities in
Carmiel, Daliat el-Carmel and Tel-Aviv. In Israel, Delta Galil owns six
facilities, including its principal production facility in Carmiel, and leases
nine facilities. The leases, including all extension options, for seven
facilities expire on various dates between 2006 and 2013. The remaining lease
expires in 2005, and Delta Galil is confident that it can renew that lease on
terms no less favorable than the existing lease. Delta Galil also owns
approximately 50 acres of undeveloped beachfront property surrounding its
Nahariya facility. This property is zoned mainly for tourism or residential
uses.

        In addition, Delta Galil leases a warehouse and development center
outside London and leases offices in London. Delta Galil leases manufacturing
and storage facilities in Egypt pursuant to 25-year leases that expire between
2019 and 2025. Delta Galil's joint venture in Jordan leases sewing and cutting
facilities in Irbid, and in Amman.

        Delta Galil leases manufacturing facilities in Canada, Honduras, and in
Pennsylvania, as well as facilities in New Jersey and a facility in Hong Kong.
These leases expire between 2005 and 2011. Delta Galil is confident that it can
renew these leases on terms no less favorable than existing leases. Delta Galil
also owns a facility in Rockingham, North Carolina, and other manufacturing
facilities in Bulgaria, Kentucky USA and Ireland. Management believes that Delta
Galil's existing facilities are well maintained, in good operating condition and
provide adequate space for Delta Galil's current level of operations. In
addition, Delta Galil believes that its facilities and operations are in
compliance with current governmental regulations regarding safety, health and
environmental pollution. Delta Galil generally has complied with these
regulations and such compliance has not had a material adverse effect on its
capital expenditures, earnings or competitive position.

        The following table shows Delta Galil's main owned and leased properties
and facilities as of June 20, 2005:

<TABLE>
<CAPTION>
<S>                                                                           <C>
           PLANT LOCATION               SQUARE FEET                   MAIN FUNCTION
-----------------------------------   ---------------    -----------------------------------------
Carmiel, Israel                           643,000          Textile manufacturing
Nahariya, Israel                          257,000          Dyeing
Rosh Ha'ain, Israel                        74,847          Offices and warehouse
Delta Plus retail chain, Israel            84,601          Retail
Yodfat, Israel                             41,964          Warehouse
Daliat El Carmel, Israel                   37,800          Elastic tape manufacturing
Tel Aviv, Israel                           10,750          Main office
London, U.K.                               25,000          Offices
Northampton, U.K.                         125,000          Warehouse
Ireland                                    60,000          Offices
Jordan                                    272,000          Sewing and warehouse
Egypt                                     335,000          Knitting, cutting, sewing, warehouse
                                                           and offices
New Jersey, U.S.                          130,000          Warehouse and offices
New York, U.S.                             5,000           Offices
Pennsylvania, U.S.                        380,000          Warehouse, logistic center and offices
Kentucky, U.S.                            250,000          Socks manufacturing, warehousing &
                                                           offices
Tifton Georgia, U.S.                      495,000          Logistic center, warehouse and offices
Honduras                                  108,000          Cutting, sewing and warehouse
Hong Kong                                  12,000          Offices and warehouse
Canada                                     92,000          Socks manufacturing
Hungary                                   129,000          Logistic center*
Bulgaria                                   95,000          Socks manufacturing
Thailand                                   18,000          Cutting and sewing
Guangzhou, China                          300,500          Cutting and sewing**
</TABLE>
*       Operation ceased during the first quarter of 2005.
**      Operation is scheduled to start in the third quarter of 2005.


                                      -23-
<PAGE>

    CAPITAL EXPENDITURES

        The following table shows Delta Galil's fixed assets purchases in
thousands US dollars for the last three years on a cash flow basis, broken down
by regions. These capital expenditures were financed from Delta Galil's
operating cash flow, and, in Israel, also by government grants.

                                                YEAR ENDED DECEMBER 31
                                           -------------------------------
                                             2002        2003       2004
                                           --------    -------     -------
Israel..................................     $5,892     $5,909      $6,602
Egypt...................................      2,899      3,927       3,253
Eastern Europe..........................      2,553      3,246       1,112
United Kingdom..........................        408        754         314
North America...........................      5,156        525         851
Jordan..................................        703        396         914
Others..................................        117        168         438
                                           --------    -------     -------
                                           $ 17,728    $14,925     $13,484
                                           ========    =======     =======
--------------------




                                      -24-
<PAGE>

ITEM 5:     OPERATING AND FINANCIAL REVIEW AND PROSPECTS

        THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
DELTA GALIL'S CONSOLIDATED FINANCIAL STATEMENTS AND THE NOTES TO THOSE FINANCIAL
STATEMENTS INCLUDED IN ITEM 18 OF THIS ANNUAL REPORT. DELTA GALIL'S CONSOLIDATED
FINANCIAL STATEMENTS ARE PREPARED IN CONFORMITY WITH US GAAP.

OVERVIEW

        Following is a discussion of certain topics that will help you to better
understand our results of operations discussed below:

    REVENUES

        Delta Galil's revenues in 2004 increased by 13% and amounted to $654.3
million compared to $580.1 million in 2003.

        The following table shows Delta Galil's revenues by geographical area,
stated in million U.S. dollars and as a percentage of total revenues, for the
years ended December 31, 2002, 2003 and 2004:

<TABLE>
<CAPTION>
                                                 YEAR ENDED DECEMBER 31,
                                 -----------------------------------------------------

                                      2002               2003                2004
                                 ---------------    ---------------    ---------------

                                    $        %         $        %         $        %
                                 ------   ------    ------   ------    ------   ------
<S>                               <C>       <C>      <C>       <C>      <C>       <C>
    North America........         303.1     53.4     300.7     51.8     334.8     51.2

    United Kingdom.......         181.3     32.0     187.9     32.4     202.8     31.0

    Europe (excluding U.K.)        44.4      7.8      48.7      8.4      64.7      9.9

    Israel...............          38.5      6.8      42.8      7.4      52.0      7.9
                                 ------   ------    ------   ------    ------   ------
    Total................         567.3    100.0     580.1    100.0     654.3    100.0
                                 ======   ======    ======   ======    ======   ======
</TABLE>

        In 2004, sales to North America increased by 11.3% to $334.8 million
representing 51.2% of total sales. The increase in sales to North America is
attributed mainly to the acquisitions of Auburn in 2003 and Burlen in 2004.
Delta Galil's sales to its top customer, the U.K. chain Marks & Spencer,
increased by 5.5% to $189.0 million in 2004, compared to $179.1 million in 2003.
The increase in the sales to Marks & Spencer is attributed to the strengthening
of the pound sterling versus the dollar. Delta Galil's sales to the European
market increased by 32.8% to $64.7 million in 2004 compared to $48.7 million in
2003, mainly due to acquisition of Auburn in 2003 and the strengthening of the
euro versus the dollar. Delta Galil's sales to the Israeli market increased by
21.5% to $52.0 million in 2004 compared to $42.8 million in 2003. The increase
in sales to the Israeli market is attributed mainly to different mix of products
and to the opening of new stores.

        Effective January 1, 2005, the World Trade Organization's 148 member
nations lifted all quotas on apparel and textiles. As a result, all textiles and
textile apparel manufactured in a member nation will no longer be subject to
quota restrictions. This will allow retailers, apparel firms and others to
import unlimited quantities of apparel and textile items from China, India and
other low-cost countries. As a result, prices of textiles and apparel, including
our products, have faced downward pressure and may continue to decline. If
prices decline faster than we are able to cut costs, our business and results of
operations could be affected adversely.

                                      -25-
<PAGE>

        The following table shows Delta Galil's revenues by product categories,
stated as a percentage of total revenues, for the years ended December 31, 2002,
2003, and 2004:

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31
                                             -------------------------------------
                                                 2002        2003         2004
                                             -----------  -----------  -----------
<S>                                              <C>          <C>          <C>
Ladies' Intimate Apparel.................        59.2%        61.1%        53.6%
Socks....................................        15.2         16.4         23.0
Men's Underwear..........................        11.2         10.1         12.9
Babywear.................................         7.2          6.8          4.4
Leisurewear..............................         3.6          3.0          3.7
Fabrics and Others.......................         3.6          2.6          2.4
                                             -----------  -----------  -----------
Total....................................        100%         100%         100%
                                             ===========  ===========  ===========
</TABLE>

The decrease in revenues in the Ladies Intimate Apparel in 2004 compared to 2003
is attributed to a decrease in sales to US mass-market customers. The increase
in revenues in the Socks category in 2004 compared to 2003 is attributed to the
acquisition of Auburn in the fourth quarter of 2003.

ACQUISITION OF BURLEN

        In December 2004, Delta acquired Burlen Corp., a leading private label
manufacturer of ladies intimate apparel.

        As consideration for all of the share capital of Burlen Corp., Delta
paid Burlen's selling shareholders $48.2 million in cash and $2.2 million in
ordinary shares comprised of 215,684 ordinary shares valued at $10.43 per share
transferred from Delta's treasury shares. In addition, Delta paid $8.2 million
of Burlen's bank debt. Delta Galil also accrued $1.0 million in other deal cost
related to the transaction, which will be paid in 2005. Delta is also obligated
to pay the selling shareholders additional amounts if Burlen meets specified
sales and profitability targets in 2005, 2006, and 2007.

        An intangible asset related to customer relations, which amounted to
$14.8 million will be amortized over a period of 20 years. The excess of cost of
acquisition over the fair value of net assets on acquisition date - $3.9 million
- was allocated to goodwill and is included as part of Delta USA segment.
Customer relations and goodwill are deductible for tax purposes.

ACQUISITION OF A MANUFACTURING PLANT IN THAILAND

        In December 2004, Delta Galil acquired a manufacturing sewing and
cutting facility in Thailand for a total consideration of $2.4 million. Of this
amount $0.9 million was paid for the shares and $0.8 million to pay off debt to
the former shareholders. In addition, Delta assumed bank debt of $0.7 million.
Delta Galil accounted for this acquisition as an acquisition of a business. The
excess of the cost of the acquisition over the fair value of the net assets on
the acquisition date, which was approximately $1.0 million, was allocated to
goodwill and is included as part of Europe segment.

    ACQUISITION OF AUBURN HOSIERY MILLS

        On November 13, 2003 Delta Galil completed the acquisition of the
outstanding shares of Auburn Hosiery Mills. Auburn manufactures, markets and
sells branded sport socks under exclusive licenses to brand names both in the
United States and Europe.

        As consideration for all of the share capital of Auburn Hosiery, Delta
Galil paid $10.8 million to Kellwood and recorded liabilities in respect of
restructuring costs in the amount of $6.2 million. The total purchase price
amounted to approximately $17.0 million. During 2004, Delta Galil finalized the
restructuring plan, and actual liabilities in respect of restructuring costs,
were $1.9 million less than originally anticipated which resulted in a decrease
in the excess of cost of the acquisition over the fair value of the net assets
on the acquisition date. The decrease was allocated $1.4 million to the goodwill
(which off set the entire goodwill initially recognized) and $0.5 million to
property, plant and equipment.

                                      -26-
<PAGE>

        LOGISTIC CENTER IN HUNGARY

        In November 2002, Delta Galil, through a wholly owned subsidiary,
purchased the operations of Komar Textile Trading, a logistic center, which
included real estate, movables and receivables from subcontractors in Hungary.
The acquisition price was $5.6 million, and the excess of the cost of the
acquisition over the fair value of net assets amounted to $0.8 million. During
the fourth quarter of 2004, Delta Galil decided to close the logistic center,
and accrued $1.5 million for restructuring expenses. During the first half of
2005 the logistic center was closed.

    ACQUISITION OF INNER SECRETS

        In 2001, Delta Galil , through its wholly owned subsidiary, Wundies
Industries Inc., completed the acquisition of all of the outstanding shares of
Inner Secrets Inc., a New Jersey corporation, and its subsidiaries. Inner
Secrets manufactures and markets private label brassieres and other ladies'
intimate apparel.

        As consideration for all of the share capital of Inner Secrets, Delta
Galil paid $48.7 million in cash, of which $14.4 million was for retirement of
bank and other debt, and $5.9 million in ordinary shares, comprised of 454,020
ordinary shares valued at $13.05 per ordinary share. The goodwill attributed to
the purchase of Inner Secrets amounted to approximately $24.3 million.

        In April 2003, Delta Galil USA paid $2.0 million as an adjustment to the
purchase price. A provision was made in 2002 for this payment, which was
allocated as part of the goodwill.

        In accordance with the acquisition agreement, and as a result of the
performance of Delta Galil USA in 2003 , Delta Galil paid the selling
shareholders of Inner Secrets additional performance payment of $6.7 million
during April 2004. This payment was allocated as part of the goodwill.

    SALE OF INTERESTS IN ARAD TOWELS AND STANDARD TEXTILE (EUROPE) LTD.

        On December 31, 1998, Delta Galil sold its 40.7% interest in Arad Towels
Ltd. to Standard Textile (Europe) Ltd. ("STE") for $12.4 million in cash and a
15% interest in STE. The capital gain on this transaction totaled $ 5.2 million,
of which $3.1 million was applied to income in 1998 and the balance of $2.1
million was applied to income in 1999.

        On August 6, 2000 Delta Galil entered into an agreement with S.T.I.
Industries and Technologies Ltd., S.T.I.A. Holdings Ltd. and STE , for the sale
of its 15% holdings in STE for $9 million. The transaction is to be carried out
in four installments, subject to adjustments as stipulated in the agreement. The
first installment, 25% of the shares held by Delta Galil, was transferred to the
buyers upon the signing of the agreement, for $2.25 million. The second
installment was transferred on January 15, 2002, for consideration of $2.48
million, the third installment was transferred on January 15, 2003 for
consideration of $2.57 million and the fourth and final installment was
transferred on January 15, 2004 for consideration of $2.64 million. Delta Galil
recognized a capital gain of $0.9 million in 2003 and a capital gain of $1.0
million in 2004 for this transaction.

        STOCK REPURCHASES

        In September 2001 Delta Galil's Board of Directors approved a plan for
the repurchase of up to $3 million of its ordinary shares within the following
12 months. By the end of 2002, Delta Galil completed the repurchase of 378,500
ordinary shares at an average price of $7.9 per share.

        In December 2002, Delta Galil successfully completed a self-tender offer
in which it purchased 565,000 ordinary shares at a price per share of $11.0, for
aggregate consideration of $6.2 million.

        EMPLOYEE STOCK OPTION PLAN

        In October 2002, Delta Galil's Board of Directors approved an employee
stock option plan for the grant, without consideration, of options exercisable
to purchase 1,100,000 ordinary shares. The plan provides for forfeited options
to return to the pool for future grants. In November 2002, the Company granted
1,004,500 options to 97 employees of the group (including 100,000 options
granted to the CEO) at an exercise price of $9.0 per share. In May 2003 Delta
Galil granted an aggregate of 30,000 options to three employees

                                      -27-
<PAGE>

at an exercise price of $10.76. In March 2004, Delta Galil granted 80,000
options to six employees at an exercise price of $15.35 and in August 2004 Delta
Galil granted an additional 30,000 options to one employee at an exercise price
of $12.74. The options granted in May 2003 and in 2004 are subject to the same
terms and conditions as those granted in 2002.

        The options are exercisable over a three-year period, following one year
after the vesting date of the first batch and on the vesting date of the second,
third and fourth batches. All options granted after January 1, 2003 may be
exercised only following the elapse of two years after the end of the year in
which the options were granted.

RESULTS OF OPERATIONS

        The following table sets forth Delta Galil's results of operations
expressed as a percentage of total revenues for the periods indicated:

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31
                                                               ----------------------------------
                                                                  2002        2003        2004
                                                               ----------  ----------  ----------
<S>                                                              <C>         <C>         <C>
Revenues....................................................     100.0%      100.0%      100.0%
Cost of revenues............................................     (80.1)      (80.0)      (81.5)
                                                               ----------  ----------  ----------
Gross profit................................................      19.9        20.0        18.5
Selling, marketing, general and administrative..............     (14.8)      (14.1)      (15.1)
Restructuring expenses......................................      (0.2)       (0.2)       (0.1)
Gain (loss) on sales of assets and subsidiary shares........       *           0.6         0.1
                                                               ----------  ----------  ----------
Operating income............................................       4.9         6.3         3.4
Financial expenses - net....................................      (1.0)       (0.9)       (1.0)
Other income- net...........................................       0.2         *           0.2
                                                               ----------  ----------  ----------
Income before taxes on income...............................       4.1         5.4         2.6
Taxes on income.............................................      (1.0)       (1.2)       (0.4)
                                                               ----------  ----------  ----------
Income after taxes on income................................       3.1         4.2         2.2
Share in profits (losses) of associated companies - net.....       *          (0.1)       (0.1)
Minority interests- net.....................................      (0.2)       (0.1)       (0.2)
                                                               ----------  ----------  ----------
Net income..................................................       2.9%        4.0%        1.9%
                                                               ==========  ==========  ==========
</TABLE>
--------------------
* Less than 0.1%.

        SEGMENT RESULTS

        We have five principal segments: Delta USA, U.S. Upper Market, Europe,
Socks and Delta Marketing Israel. Delta USA, U.S. Upper Market and Europe
segments are engaged in manufacturing and marketing of intimate apparel to
various customers in the U.S. and European markets. The Socks segment is engaged
in manufacturing and marketing of socks to various customers in the U.S. and
European markets. Delta Marketing Israel is engaged in marketing ladies intimate
apparel, men's underwear and socks to various customers in Israel through retail
and wholesale operations.


                                      -28-
<PAGE>

        The following table sets forth Delta Galil's revenues and operating
results relating to the various segments:

                                    SALES BY SEGMENT
                           ----------------------------------
                                     ($ MILLION)
                           ----------------------------------
                              2002        2003        2004
                              ----        ----        ----
Delta USA(1) ...........    $202.0       $213.2      $186.3
U.S. Upper Market(2)         111.1         88.3       111.9
Europe .................     171.0        177.4       193.8
Socks(3) ...............      83.9         89.4       144.2
Delta Marketing
Israel(3)...............      34.8         37.6        46.5
Adjustments(4)..........     (35.5)       (25.8)      (28.4)
                            ------       ------      ------

Total                       $567.3       $580.1      $654.3
                            ======       ======      ======

        (1)     2004 sales include $3.6 million for Burlen, which was acquired
                in the fourth quarter of 2004.
        (2)     US Upper Market and the textile divisions were merged. Numbers
                included above have been reclassified accordingly.
        (3)     Socks marketing operation in Israel was transferred to the
                managerial responsibility of Delta Marketing Israel. Numbers
                included above have been reclassified accordingly.
        (4)     Adjustments include inter-segment sales and results of hedging
                transactions.

        SALES BY SEGMENT IN 2004 VS. 2003

        The decrease in sales by Delta USA is attributed mainly to a decrease in
sales to Wal-Mart and Target. The increase in sales by the U.S. Upper Market
segment resulted primarily from an increase in sales to Calvin Klein and JC
Penney. The increase in sales by the European segment is attributed to the
strengthening of the pound sterling and the euro against the U.S. dollar as well
as sales to new customers. The increase in sales by the Socks segment is
attributed to the acquisition of European operation of Auburn. The increase in
sales by the Israeli market segment is attributed mainly to different mix of
products and to the opening of new stores.

        SALES BY SEGMENT IN 2003 VS. 2002

        The increase in sales by Delta USA segment resulted primarily from an
increase in sales to existing customers. The decrease in sales by the U.S. Upper
Market segment resulted primarily from Delta Galil's decision to reduce the
number of customers, as well as general weakness in this market, part of which
is reflected in a decrease in sales to Victoria's Secret, this segment's largest
customer. The increase in sales by the European segment is attributed to the
strengthening of the pound sterling and the euro against the U.S. dollar. In
pound sterling and euro terms, sales declined. The increase in sales by the
Socks segment is attributed to the consolidation of Auburn in the fourth quarter
of 2003.

                                      -29-
<PAGE>

                                       OPERATING INCOME (LOSS) BY SEGMENT
                                                  ($ MILLION)
                                          2002        2003        2004
                                          ----        ----        ----
Delta USA..........................      $14.6       $24.8        $5.9
U.S. Upper Market(1)...............       (4.7)       (8.9)       (0.6)
Europe(2)..........................       10.2         4.4         4.9
Socks(3)...........................        8.3         9.0         9.1
Delta Marketing Israel(3)..........       (1.3)        2.4         4.8
Adjustments and Capital Gains(4)...        0.7         5.1        (1.7)
                                         -----       -----       -----

Total                                    $27.8       $36.8       $22.4
                                         =====       =====       =====

        (1)     In the beginning of 2005, US upper market and the textile
                divisions were merged. Numbers included above have been
                reclassified accordingly.
        (2)     Operating profit in 2004 includes restructuring expenses
                relating to the closure of a logistic center in Hungary in the
                amount of $1.5 million, $1.0 million in 2003 for the closure of
                sewing facility in Scotland and in Israel, and $0.7 million in
                2002 for the closure of facilities in Scotland.
        (3)     Socks marketing operation in Israel was transferred to the
                managerial responsibility of Delta Marketing Israel. Numbers
                included above have been reclassified accordingly.
        (4)     Adjustments include mainly cancellation of unrealized profits
                and hedging transactions results. In 2003 adjustments include
                mainly capital gain from the sale of the real estate in London.

        OPERATING INCOME (LOSS) BY SEGMENT IN 2004 VS. 2003

        The decrease in the operating income of Delta USA was due primarily to a
decrease in sales and to losses from operations with certain customers. The
decrease in the operating loss in the U.S. Upper Market segment is primarily due
to an increase in sales volumes. The erosion in the operating margin in the
Socks segment is attributed to the acquisition of Auburn, which contributed to
an increase in sales, which had no substantial operating income. The increase in
operating income in Delta Marketing Israel is attributed to the improvement of
procurement sources and to increased in sales volumes.

        OPERATING INCOME (LOSS) BY SEGMENT IN 2003 VS. 2002

        The increase in operating income in Delta USA resulted from an increase
in sales in 2003, as well as the write-off of doubtful accounts receivable from
K-mart in 2002, which reduced operating income in 2002. The decrease in
operating income in the U.S. Upper Market segment is primarily due to reduced
sales volumes. The reduction in operating income was less than the reduction in
sales due to the change in the mix of customers, towards sales to more
profitable customers. The decline in operating income of the European segment,
despite the favorable exchange rates, is due primarily to costs associated with
the closure of a manufacturing and warehousing center in Scotland and the
integration of a new logistics center in Hungary that replaced part of the
Scottish operation. The increase in operating income of the Socks segment
resulted primarily from the strengthening of the pound sterling and the euro
against the U.S. dollar. The Adjustments in 2003 include mainly a capital gain
from the sale of real estate in London.

        YEAR ENDED DECEMBER 31, 2004 COMPARED WITH YEAR ENDED DECEMBER 31, 2003
- CONSOLIDATED

        REVENUES. Total revenues in 2004 increased by 12.8% and amounted to
$654.3 million compared to $580.1 million in 2003. Excluding sales of Burlen,
which was acquired in the fourth quarter of 2004, and Auburn, which was acquired
in the fourth quarter of 2003, sales from continuing operations increased by
4.5%, reaching $598.7 million in 2004 compared to $573.0 million in 2003. The
increase in revenues from continuing operations is due mainly to the
strengthening of the pound sterling and the Euro against the US dollar and to
the increase in sales in the Israeli market.

                                      -30-
<PAGE>

        COST OF REVENUES. Delta Galil's cost of revenues is comprised mainly of
cost of materials, salaries and related expenses, work performed by
subcontractors, depreciation and amortization and the changes in inventories of
finished products and products in process. While costs associated with
depreciation and indirect salaries are generally fixed, cost of materials, work
performed by subcontractors and direct salaries are variable. Cost of revenues
in 2004 increased by 14.9% and amounted to $533.0 million (81.5% of revenues)
compared to $463.9 million (80.0% of revenues) in 2003. Most of the increase in
the cost of revenues is attributed to an increase in sales volume.

        GROSS PROFIT. Gross profit in 2004 increased by 4.3% over 2003 and
totaled $121.2 million (18.5% of revenues), compared to $116.3 million (20.0% of
revenues) in 2003.

        SELLING AND MARKETING EXPENSES. Delta Galil's selling and marketing
expenses are comprised mainly of salaries and related expenses, professional
expenses, packaging, transportation and delivery, advertising, royalties,
depreciation and amortization, commissions and leases. While costs associated
with salaries, professional expenses, depreciation and amortization and leases
are generally fixed, packaging, transportation, delivery, advertising, royalties
and commissions are more variable. Selling and marketing expenses increased by
24.2 % to $ 81.2 million (12.4% of revenues) in 2004 compared to $65.4 million
(11.3% of revenues) in 2003. The increase in selling and marketing expenses is
attributed mainly to the acquisition of Auburn, to a $2.5 million increase in
salaries and related expenses due to the strengthening of the pound sterling and
the NIS versus the dollar, to a $1.4 million increase in lease expenses mainly
due to the strengthening of the pound sterling versus the dollar and to the
increased activity in the Israeli market.

        GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
are comprised mainly of salaries and related expenses, entertainment and travel
expenses, professional fees, doubtful accounts and bad debts, depreciation and
amortization and other office expenses. General and administrative expenses
increased from $16.7 million in 2003 to $17.4 million in 2004. The increase in
general and administrative expenses is attributed mainly to the acquisition of
Auburn.

        CAPITAL GAIN (LOSS) FROM REALIZATION OF FIXED ASSETS. In 2004 Delta
Galil recorded capital gain of $0.9 million mainly from the sale of real estate
in Ireland. In 2003 Delta Galil recorded a $3.9 million capital gain from the
sale of real estate in London, which was offset by $0.3 million of capital loss
from realization of other fixed assets.

        GOODWILL AMORTIZATION. Based on FAS 142, which Delta Galil adopted on
January 1, 2002, goodwill is no longer amortized. Prior to January 1, 2002 Delta
Galil amortized goodwill in equal annual installments usually over a period of
40 years. See "Critical Accounting Policies - Valuation of Intangible
Assets-Goodwill".

        RESTRUCTURING EXPENSES. Restructuring expenses in 2004 related to the
closure of the logistic center in Hungary. In 2003 restructuring expenses
related to the closure of sewing plants in Scotland and in Israel.

        OPERATING INCOME. Operating income in 2004 decreased by 39.1% compared
to 2003 and totaled $22.4 million (3.4% of revenues) compared to $36.8 million
(6.3% of revenues) in 2003. The decrease in the operating profit is primarily
due to losses from operations with certain of Delta USA's customers, and to
losses incurred from the operation of the logistic center in Hungary.

        FINANCIAL EXPENSES - NET. Financial expenses increased by 10.5% to $6.2
million in 2004 from $5.6 million in 2003 mainly due to increased bank loans due
to the acquisition of Auburn and to the increase in the average interest rate.
Financial expenses were composed mainly of interest and exchange differences.

        OTHER INCOME- NET. Other income in 2004 increased by $0.7 million
compared to 2003. In 2004 other income included $1.0 million capital gain from
realization of the investment in an associated company, as described above
"Sales of Arad Towels and Standard Textile (Europe) Ltd.", while in 2003 a
similar capital gain of $0.9 million was offset by the write-off of other
investments.

        TAXES ON INCOME. Income taxes for 2004 were provided for at an effective
tax rate of 16.6% compared to 23.4% in 2003. The decrease in the effective tax
rate in 2004 compared to 2003 is mainly due to a decrease in pre-tax earnings of
subsidiaries that are subject to higher tax rates.

        SHARE IN LOSSES OF ASSOCIATED COMPANIES. Delta Galil's share in losses
of associated companies includes its investment in Edomit Ltd., which is
accounted for by the equity method. In 2004 this share amounted to a loss of
$0.2 million compared to a loss of $0.3 million in 2003.

                                      -31-
<PAGE>

        MINORITY INTEREST- NET. Delta Galil operates sewing facilities in Jordan
through a partially owned subsidiary - Century Wear Corporation (WLL). Minority
interests in profit of this subsidiary and starting April 2003, also 10% of
Delta Elastic Tapes, amounted to $1.4 million in 2004 compared to $0.4 million
in 2003.

        NET INCOME. Net income in 2004 decreased by 45.7% and totaled $12.7
million (1.9% of sales) compared to $23.4 million (4.0% of sales) in 2003.

    YEAR ENDED DECEMBER 31, 2003 COMPARED WITH YEAR ENDED DECEMBER 31, 2002 -
CONSOLIDATED

        REVENUES. Total revenues in 2003 increased by 2.3% and amounted to
$580.1 million compared to $567.3 million in 2002. Sales in 2003 include $7.1
million that resulted from the consolidation of Auburn Hosiery starting in
November. Excluding these sales, the total sales in 2003 increased by 1% and
amounted to $573.0 million, compared to $567.3 million in 2002. Revenues in
North America decreased by 0.8% and amounted to $300.7 million in 2003 compared
to $303.1 million in 2002. The decrease is attributed to a decrease in Delta's
North America sales to specialty and department stores, which dropped 25% in
2003, totaling $75.8 million, compared to $101.1 million in 2002. This decrease
was offset by the revenues from the US mass market, which increased 11.3% in
2003 totaling $224.9 million, compared to $202.0 million in 2002. The increase
in revenues in the U.K. is attributed to the strengthening of the pound sterling
against the US dollar. Revenues from the Israeli market increased by 11.2% from
$38.5 million in 2002 to $42.8 million in 2003. The increase in revenues from
the Israeli market resulted from the increase of Delta Plus retail chain stores
activity reaching 79 stores, improved procurement sources, and the strengthening
of the NIS versus the dollar. Delta Galil's sales to the European market
increased by 9.7% to $48.7 million in 2003 compared to $44.4 million in 2002,
mainly due to the strengthening of the euro versus the US dollar.

        COST OF REVENUES. Cost of revenues in 2003 increased by 2.1% and
amounted to $463.9 million (80.0% of revenues) compared to $454.2 million (80.1%
of revenues) in 2002. While cost of work performed by sub-contractors increased
by 25% compared to 2002, materials consumption and wages and salaries decreased
by 14% and 6% respectively.

        GROSS PROFIT. Gross profit in 2003 increased by 2.8% over 2002 and
totaled $116.3 million (20.0% of revenues), compared to $113.1 million (19.9% of
revenues) in 2002.

        SELLING AND MARKETING EXPENSES. Selling and marketing expenses increased
by 4.3 % to $ 65.4 million (11.3% of revenues) in 2003 compared to $62.7 million
(11.1% of revenues) in 2002. The increase in selling and marketing expenses is
attributed mainly to a $1.8 million increase in salaries and related expenses
due to the strengthening of the pound sterling and the NIS versus the dollar and
$1.0 million increase in lease expenses due to the increase in the number of
stores in the Israeli local retail chain and to the strengthening of the pound
sterling versus the dollar.

        GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased from $21.4 million in 2002 to $16.7 million in 2003. The decrease in
general and administrative expenses is attributed mainly to a decrease in
provision for doubtful accounts receivable, which accounted for $3.9 million of
the decrease.

        CAPITAL GAIN (LOSS) FROM REALIZATION OF FIXED ASSETS. In 2003 Delta
Galil recorded a $3.9 million capital gain from the sale of real estate in
London, which was offset by $0.3 million of capital loss from realization of
other fixed assets, versus a loss of $0.1 million in 2002.

        RESTRUCTURING EXPENSES. Restructuring expenses, which are comprised in
large part of expenses relating to the closure of sewing plants, decreased from
$1.1 million in 2002 to $1.0 million in 2003.

        OPERATING INCOME. Operating income in 2003 increased by 32.6% compared
to 2002 and totaled $36.8 million (6.3% of revenues) compared to $27.8 million
(4.9% of revenues) in 2002. The increase in the operating profit margin is
primarily due to the capital gain from the sale of the real estate in London and
to the decrease in the general and administrative expenses as described above.

        FINANCIAL EXPENSES - NET. Financial expenses increased by 3.3% to $5.6
million in 2003 from $5.5 million in 2002. Financial expenses are comprised
mainly of interest and exchange differences.

                                      -32-
<PAGE>

        OTHER INCOME- NET. Other income in 2003 decreased by $0.7 million
compared to 2002, and consists of a $1.0 million capital gain from realization
of the investment in an associated company, as described above "Sales of Arad
Towels and Standard Textile (Europe) Ltd", offset by $0.7 million impairment of
other investments.

        TAXES ON INCOME. Income taxes for 2003 were provided for at an effective
tax rate of 23.4% compared to 24.8% in 2002. The decrease in the effective tax
rate in 2003 compared to 2002 is mainly due to an increase in pre-tax earnings
of subsidiaries that are subject to lower tax rates.

        SHARE IN PROFITS (LOSSES) OF ASSOCIATED COMPANIES. Delta Galil's share
in profits (losses) of associated companies includes its investment in Edomit
Ltd., which is accounted for by the equity method, and in 2002 also its
investment in STE. In 2003 this share amounted to a loss of $0.3 million in 2003
compared to a profit of $0.2 million in 2002.

        MINORITY INTEREST- NET. Delta Galil operates sewing facilities in Jordan
through a partially owned subsidiary - Century Wear Corporation (WLL). Minority
interests in profit of this subsidiary in 2003 amounted to $0.4 million compared
to $1.0 million in 2002. Starting April 2003, following the sale of 10% of Delta
Galil's holding in Delta Elastic Tapes, minority interest includes income of
$0.1 million relating to this activity.

        NET INCOME. Net income in 2003 increased by 40.4% and totaled $23.4
million (4.0% of sales) compared to $16.6 million (2.9% of sales) in 2002.


CRITICAL ACCOUNTING POLICIES

        To improve your understanding of Delta Galil's financial statements, it
is important to obtain some degree of familiarity with Delta Galil's principal
or significant accounting policies. These policies are described in Note 1 to
the Consolidated Financial Statements listed in Item 18. Delta Galil, in
conjunction with its audit committee and its external auditors, reviews its
financial reporting, disclosure practices and accounting policies annually to
ensure that the financial statements developed, in part, on the basis of these
accounting policies provide complete, accurate and transparent information
concerning the financial condition of Delta Galil. As part of this process,
Delta Galil has reviewed the selection and application of its critical
accounting policies and financial disclosure as at December 31, 2004, and it
believes that the Consolidated Financial Statements listed in Item 18 present
fairly, in all material respects, the consolidated financial position of Delta
Galil as at that date.

        In preparing Delta Galil's financial statements in accordance with GAAP,
Delta Galil's management must often make estimates and assumptions that may
affect the reported amounts of assets, liabilities, revenues, expenses and
related disclosures as at the date of the financial statements and during the
reporting period. Some of those judgments can be subjective and complex, and
consequently actual results may differ from those estimates. However, Delta
Galil believes that, given the facts and circumstances before it at the time of
making the relevant judgments, estimates or assumptions, it is unlikely that
applying any such other reasonable judgment would cause a material adverse
effect on Delta Galil's consolidated results of operations, financial position
or liquidity for the periods presented in the Consolidated Financial Statements
listed in Item 18.

        Delta Galil is also subject to risks and uncertainties that may cause
actual results to differ from estimates and assumptions, such as changes in the
economic and political environment, competition, foreign exchange, taxation and
governmental programs. Certain of these risks, uncertainties and assumptions are
discussed in Item 3 - Risk Factors.

        Delta Galil considers its most significant accounting policies to be
those relating to fixed assets and inventory valuation, both of which, as well
as Delta Galil's accounting policy relating to goodwill valuation are discussed
below.

    FIXED ASSETS VALUATION

        Fixed assets are stated at cost, net of related investment grants.
Depreciation is computed using the straight - line method on the basis of the
estimated useful life of the assets. Due to rapid changes in technology and in
the specifies of the business and due to the materiality of the fixed assets and
depreciation rates on its financial results, Delta Galil considers this to be a
critical issue. On January 1, 2002 Delta Galil

                                      -33-
<PAGE>

adopted FAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". FAS 144 requires that long-lived assets be held and used by an entity,
be reviewed for impairment and, if necessary, written down to the estimated fair
value, whenever events or changes in circumstances indicate the carrying amount
of assets may not be recoverable through undiscounted future cash flows.

        Delta tests long-lived assets for impairment, in the event an indication
of impairment exists. An impairment loss would be recognized, and the assets
would be written down to their estimated fair values, if the sum of the expected
future cash flows (undiscounted and without interest charges) of the long-lived
assets is less than the carrying amount of such assets.

    INVENTORY VALUATION

        Inventory, which is a material part of Delta Galil's total assets, is
valued at the lower of cost or market value. Cost of raw and packaging materials
and purchased products is determined mainly on a "moving average" basis. Cost of
finished products and products in process is determined as follows: the raw
material and packaging component -is determined mainly on a "moving average"
basis; while labor and overhead is determined on an average basis over the
production period. If actual market prices for finished goods prove less
favorable than those projected by management, additional inventory write-downs
may be required. Inventory is written down for estimated obsolescence based upon
assumptions about future demand and market conditions. Likewise, favorable
future demand and market conditions could positively impact future operating
results if inventory that has been written down is sold.

    VALUATION OF INTANGIBLE ASSETS - GOODWILL

        Goodwill represents the excess of cost of investments in subsidiaries
acquired over the fair value of the net assets at acquisition. Until December
31, 2001, Goodwill was amortized in equal annual installments usually over a
40-year period, the maximum allowed period under U.S. GAAP. As from January 1,
2002, pursuant to FAS 142," Goodwill and Other Intangible Assets," goodwill is
no longer amortized but rather is tested for impairment annually. Delta
completed the transitional impairment review of goodwill on June 30, 2002, as
required by FAS 142. The various reporting units, for which separately
identifiable cash flow information is available, were identified and the fair
values of such reporting units were determined using the net income multiple of
comparable publicly traded companies in the textile industry . Consequently,
Delta has determined that there is no indication of impairment with respect to
goodwill as of January 1, 2002. Delta has selected September 30 as the date on
which it will perform its annual impairment test for indefinite life intangible
assets. As of December 31, 2004, based on the review made by Delta Galil, no
impairment was required.

NEW ACCOUNTING STANDARDS UNDER US GAAP

        FAS 151

        In November 2004, the FASB issued FAS No. 151, "Inventory Costs - an
amendment of ABV43, Chapter 4" (FAS 151). FAS 151 amends the guidance in ARB No.
43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material.
FAS 151 requires that those items be recognized as current-period charges. In
addition, FAS 151 requires that allocation of fixed production overheads to the
costs of conversion be based on the normal capacity of the production
facilities. FAS 151 is required to be implemented by Delta Galil for inventory
costs incurred during fiscal years beginning January 1, 2006, but earlier
application of FAS 151 is permitted. The provisions of this Statement shall be
applied prospectively. Delta Galil does not expect this Statement to have a
material effect on its financial statements or its results of operations.

        FAS 153

        In December 2004, the FASB issued FAS No. 153, "Exchanges of Nonmonetary
Assets-An Amendment of APB Opinion No. 29" (FAS 153). FAS 153 amends APB Opinion
No. 29, "Accounting for Nonmonetary Transactions" (Opinion 29). The amendments
made by FAS 153 are based on the principle that exchanges of nonmonetary assets
should by measured based on the fair value of the assets exchanged. Further, the
amendments eliminate the exception for nonmonetary exchanges of similar
productive assets and replace it with a general exception for exchanges of
nonmonetary asset that do not have commercial substance. The provisions in FAS
153 are effective for Delta Galil for nonmonetary asset exchanges occurring in
fiscal periods beginning July 1, 2005. Early application of the FAS 153 is
permitted. The

                                      -34-
<PAGE>

provisions of this Statements shall be applied prospectively. Delta Galil does
not expect the adoption of FAS 153 to have a material effect on its financial
statements or its results of operations.

        FAS 123R

        In December 2004, the Financial Accounting Standards Board ("FASB")
issued the revised Statement of Financial Accounting Standards ("FAS") No. 123,
Share-Based Payment (FAS 123R), which addresses the accounting for share-based
payment transactions in which a Company obtains employee services in exchange
for (a) equity instruments of the Company or (b) liabilities that are based on
the fair value of the Company's equity instruments or that may be settled by the
issuance of such equity instruments. FAS 123R eliminates the ability to account
for employee share-based payment transactions using APB Opinion No. 25,
Accounting for Stock Issued to Employees, and requires instead that such
transactions be accounted for using the grant-date fair value based method. FAS
123R will be effective as of the beginning of the first interim or annual
reporting period that begins after June 15, 2005 (July 1, 2005 for Delta Galil).
Early adoption of FAS 123R is encouraged.

        On April 15, 2005, the Securities and Exchange Commission approved a new
rule, under which FAS 123R is effective for public companies at the beginning of
their next fiscal year that begins after June 15, 2005 (January 1 of 2006 for
Delta Galil). FAS 123R applies to all awards granted or modified after it's
effective date. In addition, compensation cost for the unvested portion of
previously granted awards that remain outstanding on the effective date of FAS
123R shall be recognized on or after the effective date, as the related services
are rendered, based on the awards' grant-date fair value as previously
calculated for the pro-forma disclosure under FAS 123R.

        Delta Galil expects that upon the adoption of FAS 123R, it will apply
the modified prospective application transition method, as permitted by FAS
123R. Under such transition method, upon the adoption of FAS 123R, Delta Galil
financial statements for periods prior to the effective date of FAS 123R will
not be restated. The impact in 2006 and beyond will depend upon various factors,
among them Delta Galil's future compensation strategy.

        In March 2005, the SEC issued Staff Accounting Bulletin No. 107,
"Share-Based Payment" ("SAB No. 107"). SAB No. 107 provides guidance on the
initial implementation of FAS No. 123(R). In particular, the statement includes
guidance related to share-based payment awards with non-employees, valuation
methods and selecting underlying assumptions such as expected volatility and
expected term. It also gives guidance on the classification of compensation
expense associated with share-based payment awards and accounting for the income
tax effects of share-based payment awards upon the adoption of FAS No. 123(R).
The Company is currently assessing the guidance provided in SAB No. 107 in
connection with the implementation of FAS No. 123(R).

        Delta Galil does not expect FAS 123R to have a material effect on its
results of operations in future periods.

        FAS 154

        In May 2005, the FASB issued FAS No. 154, "Accounting Changes and Error
Corrections". FAS No. 154 is a replacement of Accounting Principles Board
Opinion ("APB") No. 20 and FASB Statement No. 3. FAS No. 154 provides guidance
on the accounting for and reporting of accounting changes and error corrections.
It establishes retrospective application as the required method for reporting a
change in accounting principle. FAS No. 154also requires that a change in
depreciation, amortization, or depletion method for long-lived, nonfinancial
assets be accounted for as a change in accounting estimate effected by a change
in accounting principle. The Statement carries forward the guidance contained in
APB No. 20 for reporting the correction of an error in previously issued
financial statements and a change in accounting estimate.

FAS No. 154 is effective for accounting changes and corrections of errors made
in fiscal years beginning after December 15, 2005 (January 1, 2006 for the
Company). The Company does not expect this standard to have a material effect on
the Company's financial statements or results of operations.

                                      -35-
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

        Delta Galil finances its operations mainly from cash flow from
operations, supplemented, if needed, by revolving short-term bank loans and
long-term bank loans. Delta Galil repays short-term bank loans if the cash flow
from operations exceeds the cash needs for operations and investment.

        Following is a breakdown of Delta Galil's cash flows for the last three
years in US $ millions:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31
                                                       ----------------------------------
                                                          2002       2003        2004
                                                       ----------  ----------  ----------
<S>                                                      <C>         <C>         <C>
Net cash flow provided by operating activities......     $26.3       $42.9       $27.2
Net cash flow used in investing activities..........     (19.7)      (18.4)      (73.7)
Net cash flow provided by financing activities
(excluding dividends to shareholders and cost of
acquisition of treasury shares).....................      10.5       (11.8)       59.1
Dividends to shareholders...........................      (7.0)       (9.5)       (8.3)
Cost of acquisition of treasury shares..............      (8.4)          -           -
Translation differences on cash and cash equivalents
of foreign currency consolidated subsidiary.........         -           -         0.1
                                                       ----------  ----------  ----------
Increase in cash and cash equivalents...............      $1.7        $3.2        $4.4
                                                       ==========  ==========  ==========
</TABLE>

        In 2002, 2003 and 2004 Delta Galil generated excess cash flow from
operations of $26.3 million, $42.9 million and $27.2 million respectively. The
decrease in net cash flow provided by operating activities from $42.9 million in
2003 to $27.2 million in 2004 is mainly attributed to the decrease in net
income. The increase in the net cash flow used in investing activities is mainly
attributed to the acquisition of Burlen in the fourth quarter of 2004. Net cash
flow used in financing activities in 2004 amounted to $59.1 million while in
2003 the net cash flow provided by financing activities amounted to $11.8
million. The decrease in cash flow used in financing activities is attributed
mainly to the increase in bank debt in connection with the acquisition of
Burlen.

    DEBT

        Set forth in the table below are Delta Galil's bank debt for the last
three years in US $ millions:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31
                                                           2002      2003       2004
                                                           ----      ----       ----
<S>                                                      <C>        <C>        <C>
SHORT-TERM:
    Bank loans.......................................     $96.4      $94.5      $55.6
    Current maturities of long-term loans ...........      10.3       10.4       27.9
                                                        --------   --------   --------
       Total Short-term..............................     106.7      104.9       83.5
                                                        --------   --------   --------
LONG-TERM:
       Total Long-term bank loans....................      23.0       13.6       98.4
                                                        --------   --------   --------
       Total Debt....................................    $129.7     $118.5     $181.9
                                                        ========   ========   ========
</TABLE>

        Delta Galil has incurred bank debt mainly for acquisitions, working
capital, capital expenditures and general corporate purposes. Delta Galil's bank
loans bear interest at annual variable rates ranging from approximately 3.8% to
5.5% (mainly 3.8%) and are secured by liens on Delta Galil's assets. Delta
Galil's bank loans are issued under secured bank lines of credit of up to $332.4
million of which, as of December 31, 2004, Delta Galil had $150.5 million
available for additional borrowings under the same prevailing rates.

        Delta Galil's bank lines of credit permit either short-term or long-term
borrowings. All of Delta Galil's short-term loans have maturities of up to three
months. Part of Delta Galil's borrowings is for shorter periods in order to
maintain cash management flexibility. Long-term bank loans mature in periods up
to December 2009.

        Delta Galil USA Inc. is a party to a credit agreement, which was amended
as of December 2004, with Bank Leumi USA and Bank Hapoalim B.M. Borrowings under
the credit agreement are secured by substantially all of the assets of Delta
Galil USA Inc. The credit agreement provides for up to $130 million in loans of
which $70 million are term loans and the remainder is revolving credit. The
principal of the term loans are payable in 20 equal quarterly installment of
approximately $3.5 million each until December 1,

                                      -36-
<PAGE>

2009. As of December 31, 2004 $15.2 million of this credit line was unutilized.
Under this agreement Delta Galil USA is obliged to preserve certain financial
covenants.

    WORKING CAPITAL AND CAPITAL EXPENDITURES

        Working capital at December 31, 2004 was $127.4 million, compared to
$56.6 million at December 31, 2003. The increase is attributed to the
acquisition of Burlen and to the decrease in short-term loans. Delta Galil
believes that its working capital is sufficient for its present requirements.
Delta Galil has no material commitment for capital expenditures, but is
currently constructing a production facility in China in which it expects to
invest approximately $5.0 million in 2005.

        Set forth below are our contractual obligations and other commercial
commitments as of December 31, 2004:

<TABLE>
<CAPTION>
                                                     PAYMENTS DUE BY PERIOD
                                                     ----------------------
                                                 LESS THAN                 MORE THAN 5
CONTRACTUAL OBLIGATIONS                  TOTAL     1 YEAR     2- 4 YEARS      YEARS
                                        -------  ----------  ------------  -----------
                                                      (U.S. $ IN MILLIONS)
<S>                                      <C>        <C>         <C>          <C>
Long-Term Debt (1)...............        $137.9     $32.1        $82.8        $23.0
Capital Lease Obligations........           1.0       0.1          0.2          0.7
Operating Leases.................          43.3       7.6         19.1         16.6
Letter of credits and bank
guarantees.......................          32.0      26.5          2.7          2.8
                                         ------     -----       ------       ------
Total Contractual Cash
Obligations......................        $214.2     $66.3       $104.8        $43.1
                                         ======     =====       ======       ======
</TABLE>

(1) Includes expected interest expenses on long-term debt, based on interest
rates in effect as of December 31, 2004.

See Item 11: "Quantitative and Qualitative Disclosures About Market Risk"
regarding obligations related to forward currency contracts.


                                      -37-
<PAGE>

ITEM 6:     DIRECTORS AND SENIOR MANAGEMENT AND EMPLOYEES

        DIRECTORS AND SENIOR MANAGEMENT

        The directors and executive officers of Delta Galil are as follows:

<TABLE>
<CAPTION>
<S>                                                                           <C>

        NAME                                 AGE     POSITION

        Dov Lautman                          69      Chairman of the Board of Directors
        Arnon Tiberg                         61      President, Chief Executive Officer and General Manager
        Yossi Hajaj                          37      Senior Vice President & Chief Financial Officer
        Aviram Lahav                         46      Senior Vice President & CEO of US Upper Market Division
        Michael Fitzgerald                   62      Senior Vice President & Business Development USA
        Imad Telhami                         46      Senior Vice President & CEO of European Division
        Esti Maoz                            57      Senior Vice President & Global Development and Marketing
        Eytan Stiassnie                      49      Senior Vice President & CEO of Socks Division
        Moshe Grencel                        52      Senior Vice President - Supply Chain Management
        David Kostman                        40      Senior Vice President & CEO of Delta Galil USA
        Aharon Dovrat                        74      Director
        Harvey M. Krueger                    76      Director
        Noam Lautman                         36      Director
        Giora Morag(1) (2)                   60      Director
        Amnon Neubach(1) (2)                 60      Director
        Dan Propper                          64      Director
        Zalman Shalev(2)                     82      Director
        Mark Silver(3)                       34      Director
        Amior Vinocourt(2)                   78      Director
        J. Randall White (3)                 50      Director
        Ann E. Ziegler(3)                    47      Director
</TABLE>
        (1)     External Director.
        (2)     Member of the Audit Committee.
        (3)     Mr. Mark Silver, Mr. J. Randall White and Mrs. Ann E. Ziegler
                are nominees of Sara Lee International Corporation pursuant to a
                Shareholders Agreement among Sara Lee and the Lautman Group
                concerning the election of directors.

        DOV LAUTMAN is the founder of Delta Galil and has served as the Chairman
of the Board of Directors since 1975. From 1975 to 1996, Mr. Lautman was the
Chief Executive Officer of Delta Galil. From 1986 to 1993, Mr. Lautman served as
President of the Manufacturers Association of Israel and as the Chairman of the
Coordinating Bureau of Economic Organizations of Israel. From 1993 to 1995, Mr.
Lautman was the Prime Minister's Special Emissary for Economic Development.
Since May 2001, Mr. Lautman has served as the chairman of the executive council
of Tel Aviv University.

        ARNON TIBERG has been the President and Chief Executive Officer of Delta
Galil since 1996. Mr. Tiberg served as a Director of Delta Galil from 1990 until
becoming the Chief Executive Officer in 1996. He is presently a Director of
Nilit Ltd., Strauss-Elite Holding Ltd., Kali Insurance Agency Ltd., and The
First International Bank of Israel Ltd. Mr. Tiberg is also a member of the
Executive Council of the Association of Publicly Traded Companies (of The Tel
Aviv Stock Exchange).

        YOSSI HAJAJ has served as Senior Vice President and Chief Financial
Officer of Delta Galil since March 2004. From 1999 to 2004 he served as
controller and corporate secretary of Delta Galil and from 1997 to 1999 he was
Delta Galil's Chief Economist and controller of foreign subsidiaries. Mr. Hajaj
is a certified public accountant (Isr.) and holds a B.A. in Accounting and
Economics from Tel Aviv University. He is a member of the Investment Committee
of Tel Aviv University.

        AVIRAM LAHAV has been Senior Vice President since 1997. He served as CEO
of Delta Galil's Innerwear USA operations from March 2004, and was recently
appointed as CEO of the newly created US Upper Market Division of Delta, which
merged the former Textile and Innerwear divisions. From 1997 to 2004 he served
as the Chief Financial Officer of Delta Galil. From 1993 to 1997, Mr. Lahav was
Chief Executive Officer of Europcar/Eurodollar Israel, a car rental company and,
from 1991 to 1993, Chief Financial Officer of Mediterranean Car Agency Ltd. Mr.
Lahav is a certified public accountant (Isr).

                                      -38-
<PAGE>

        MICHAEL FITZGERALD Recently appointed Corporate Senior Vice President of
Business Development responsible for creating growth opportunities across all
divisions doing business in the USA. He served as CEO of Delta Galil USA from
1999 until April 1 2005 , and was named Senior Vice President of Delta Galil in
2002. Mr. Fitzgerald was formerly Chief Executive Officer of Wundies Industries
from 1989 until the company was acquired by Delta Galil in 1999.Mr. Fitzgerald
started with Wundies in 1974 as manager of the ladies underwear division. He
became Vice President of Marketing in 1983. Between 1966 and 1974 Mr. Fitzgerald
held various marketing posts at the Buick Division of General Motors, Allied
Chemical Fibers Division, and the Coated Fabric Division of Occidental
Petroleum. Mr. Fitzgerald holds a Bachelor of Arts Degree from Fordham
University and an MBA from the Bernard Baruch College of the City University of
New York.

        IMAD TELHAMI has served as Senior Vice President and CEO of Delta's
Innerwear USA Operation since 2002. He started his career at Delta in 1983 as a
sewing plant manager. He managed several sewing plants until he was re-located
to manage Delta's facilities in Scotland. In 1996 he returned to Israel when he
was promoted to Lingerie Operation Director. In 1999 he was promoted to Director
of Delta's Marks and Spencer Operations. Mr. Telhami holds a B.Sc in Industrial
Management from Shenkar College in Israel. In March 2004 Mr. Telhami was
promoted to SVP and CEO of Delta Galil's European operation.

        ESTI MAOZ has been with Delta Galil since its inception in 1975, and has
served as Senior Vice President, Global Development and Marketing since November
2002. From September 1991 through October 2002, Ms. Maoz served as the President
of Delta Textiles (New York) Ltd. During these years, Ms. Maoz developed and
managed the marketing operations within North America. In 1987 Ms. Maoz
established the new Ladies Underwear Division and managed the Division through
1991. From 1984 through 1987 Ms. Maoz served as the Corporate Director of
Product Development and Design. From 1978 through 1984 Ms. Maoz served as the
Manager of all the sewing plants in Delta Galil. Ms. Maoz studied Business and
Marketing at the Haifa University in Haifa, Israel. Since April 2005, Ms. Maoz
has served on the Board of Directors of Bagir Ltd.

        EYTAN STIASSNIE has been Vice President and C.E.O. of Delta Galil's
Socks Division since January 2002 and was named Senior Vice President of Delta
Galil Industries in May 2004. He joined Delta Galil in 1989, serving as the
manager of information technology for the Sock Division until 1993, when he
became the production manager of the Sock Division, a position he held until
1997. From 1997 until 2001 he was operations manager of the Sock Division, and
during 2001 he served as vice president of logistics in the Sock Division. Mr.
Stiassnie holds a B. Sc. in Industrial Engineering, specializing in Information
Technology, from the Technion, Israel Institute of Technology.

        MOSHE GRENCEL joined Delta Galil in 2004 as a Senior Vice President
Supply Chain Management. From 2001 to 2004 he served as an Executive VP for
Global Operations and Supply Chain of Lumenis Ltd. a medical device company.
From 1998 until 2000 he served as a General Manager of Elscint Industrial
Solutions. In the sixteen years before that he held several managerial positions
in Elscint Ltd. Mr. Grencel holds a B.Sc in industrial and management
engineering from the Technion, Israel Institute of Technology.

        DAVID KOSTMAN has served as Senior Vice President and Chief Executive
Officer of Delta Galil USA since April 2005. From 2002 to 2004 he served as
Chief Operating Officer of Delta Galil USA. From 2000 to 2002 he served as Chief
Operating Officer of Verticalnet, Inc. (Nasdaq: VERT). Prior to that he was a
Managing Director at Lehman Brothers' Investment Banking Division in New York
where he worked from 1994 to 2000. Mr. Kostman worked at NM Rothschild's
Investment Banking Division in London from 1992-1994. Mr. Kostman is a Director
of NICE Systems Ltd. (Nasdaq: NICE) and of Utopy, Inc. He holds an MBA from
Insead, Fontainebleau (France) and an LL.B. from Tel Aviv University Law School.

        AHARON DOVRAT has served as a Director of Delta Galil since December
1998. Mr. Dovrat is the chairman of Dovrat & Co. Mr. Dovrat serves as a Director
of Cognifit Ltd., DS Polaris Ltd., and Solgood Communication Ltd. Until April
2005 Mr. Dovrat served as a Chairman of Isal Ltd. and as a Director of
Technomatix Technologies Ltd. . Until 2004 he served as a Chairman of Alvarion
Ltd. . From 1992 to 1998.Mr. Dovrat was the chairman of the Dovrat, Shrem & Co.
S.A., an investment banking firm established in 1991, as well as a Director of
Domicar Ltd., Investment Company of Bank Hapoalim Ltd., Oshap Technologies Ltd.
and Ordan Industries Ltd. Until 1991 Mr. Dovrat served as managing Director of
Clal (Israel) Ltd., one of Israel's largest public investment companies.

        HARVEY M. KRUEGER has served as a Director of Delta Galil since August
1999. Mr. Krueger is Vice Chairman of Lehman Brothers and has been involved with
that firm and Kuhn Loeb & Co., one of its

                                      -39-
<PAGE>

constituent firms, since 1959. Mr. Krueger currently serves as a Director of
Automatic Data Processing Inc., Chaus Inc., and is also Chairman of Stockton
Partners Inc. In addition, Mr. Krueger is former Chairman of the Peres Center
for Peace, former Chairman of Cooper-Hewitt National Design Museum and the
Smithsonian Institution, former and honorary Chairman of the Hebrew University
of Jerusalem, and a member of the Board of Directors of and Beth Israel Medical
Center (NY) and Continuum Health Partners.

        NOAM LAUTMAN has been a Director of Delta Galil since October 2001. Mr.
Lautman has been Director for New Ventures and Strategic Business Planning at
Teva Pharmaceutical Industries Ltd since 2002. Mr. Lautman previously served in
various managerial positions in several Israeli companies operating in the
high-tech field. Mr. Lautman holds a B.Sc in Computer Science and Mathematics
and an MBA from New York University. Mr. Lautman is the son of Dov Lautman, the
Chairman of the Board of Directors of the Company.

        GIORA MORAG has served as a director of Delta Galil since September
2003. Mr. Morag worked at Bank Hapoalim B.M., for 27 years, until 2002. Mr.
Morag held a variety of managerial positions during his career, most recently as
the General Manager of the bank's UK branches. From 1996 to 1999 Mr. Morag
served as General Manager of American Israel Bank Ltd,. a wholly owned
subsidiary of Bank Hapoalim. Mr. Morag studied economics and political science
at the Hebrew University.

        AMNON NEUBACH has been an independent business consultant since 1997.
From January 2001 until May 2003, Mr. Neubach served as the Chairman of the
Board of Directors of Pelephone Communications Ltd., an Israeli mobile phone
company. From 1995 to 1997, Mr. Neubach served as country advisor to Goldman
Sachs in Israel, and from 1990 to 1994 he served as the Minister of Economic
Affairs at the Israeli Embassy in Washington, D.C. Mr. Neubach serves as an
external director of Mind CTI Ltd. (Nasdaq: MNDO), a software company, Aspen
Building and Development Ltd. (TASE: ASBD), a real estate company, and Arelnet
Ltd. (TASE: ARNT), a VOIP switch company; and as a director of Direct Insurance
- IDI Ltd., a private Israeli insurance company. Mr. Neubach received a B.A. in
economics and business administration and an M.A. in Economics from Bar-Ilan
University.

        DAN PROPPER has served as a Director of Delta Galil since 1986. Mr.
Propper has been the Managing Director of the OSEM Group of Companies since
1981. Until June 1999, Mr. Propper was the President of the Manufacturers
Association of Israel and Chairman of the Coordinating Bureau of Economic
Organizations of Israel. Mr. Propper is also a member of the Board of Directors
of Weizmann Institute and the Technion, Israel Institute of Technology, and
Chairman of the Boards of Directors of various industrial companies.

        ZALMAN SHALEV has served as a Director of Delta Galil since 1988. Mr.
Shalev is the former Chairman of the Board of Directors of ORT Israel and a
Director of World ORT Union and Israel Technical Incubators. Mr. Shalev is also
a member of the Israeli Chief Scientist Advisory Board. Mr. Shalev was a member
of the Board of Directors of Leumi & Co. until 1998. From 1967 to 1987 Mr.
Shalev served as a Director and President of Elisra Electronic Company. From
1962 to 1966 Mr. Shalev served as director of communication electronics of the
Israel Defense Forces.

        MARK SILVER has been a director since June 2005. He has been Executive
Director - Corporate Development of Sara Lee Corporation since October 2003.
From July 2000 until October 2003, Mr. Silver was Chief Counsel - Mergers &
Acquisitions of Sara Lee Corporation. Mr. Silver joined Sara Lee in 2000 after
being an attorney with the law firm Kirkland & Ellis. Mr. Silver earned a
Bachelor of Arts degree in political science from the University of Illinois and
a J.D. from Harvard Law School.

        AMIOR VINOCOURT has served as a Director of Delta Galil since December
1996. Mr. Vinocourt was a Director of Industrial Building Corporation Ltd., of
Ofis Textile Ltd. and Alliance Tyre (1992) Ltd. Until 1995, Mr. Vinocourt was a
Director of Neshua Underwriting and Issuing Ltd. and, from 1994 to 1997 a
Director of Bank Hapoalim Ltd. Mr. Vinocourt is a Chartered Accountant (F.C.A.)
(England) and a Certified Public Accountant (Isr). From 1972 to 1993 Mr.
Vinocourt was managing Director of Industrial Finance Corp. Ltd. and the
Investment Company for Industrial Development in Israel Ltd.

        J. RANDALL WHITE has served as a Director of Delta Galil since September
2003. Mr. White has served as Vice President - Corporate Affairs for Sara Lee
Corporation since 2001. He joined Sara Lee in 1988 and has served in a variety
of executive capacities at Sara Lee. Mr. White is a trustee and former Chairman
of the Board of Hubbard Street Dance Chicago, Vice President and a trustee of
the Goodman Theatre, a member of the Board of Trustees of Ravinia Festival and a
member of the Board of Advisors of

                                      -40-
<PAGE>

Catalyst. Mr. White earned a Bachelor of Arts degree in economics and
mathematics from Dartmouth College and a Master of Business Administration from
Harvard Business School.

        ANN E. ZIEGLER has served as a Director of Delta Galil since July 1998.
Ms. Ziegler is a Senior Vice President for Sara Lee Corporation and CFO and
SVP-Administration of Sara Lee Food and Beverage. From March 2003 to March 2005,
Ms. Ziegler was CFO and SVP-Administration of Sara Lee Bakery Group and from
October 2000 until March 2003, Ms. Ziegler was Senior Vice President - Corporate
Development for Sara Lee Corporation. Ms. Ziegler joined Sara Lee in 1993 after
being an associate with the law firm Skadden, Arps, Slate, Meagher & Flom. Ms.
Ziegler serves on the Board of Directors of Unitrin Inc., Lifeline Theater and
Chicago Shakespeare Theatre. Ms. Ziegler earned a Bachelor of Arts Degree from
the College of William and Mary and a J.D. from the University of Chicago Law
School.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

        The directors of Delta Galil, other than Dov Lautman who is also an
employee of Delta Galil, and the directors designated by Sara Lee, receive a
fixed annual compensation of approximately $8,200 for their services on the
board of directors or on any committee thereof. In addition, a sum of
approximately $300 is paid for attending each Board meeting. In 2004, Delta
Galil's expenses for directors' compensation amounted to a total of
approximately $97,000.The following table sets forth the aggregate compensation
paid to or accrued on behalf of all directors and executive officers of Delta
Galil as a group for the year ended December 31, 2004.

<TABLE>
<CAPTION>
                                               SALARIES, DIRECTORS' FEES,          PENSION, RETIREMENT AND
                                                 COMMISSIONS AND BONUSES               SIMILAR BENEFITS
                                                 -----------------------               ----------------
<S>                                                    <C>                               <C>
All directors and executive officers
(consisting of
24 persons).........................                   $3.9 million                      $0.3 million
</TABLE>

        As of June 20, 2005, 707,713 options to purchase Delta Galil's ordinary
shares were outstanding to certain executive officers and key employees
(consisting of 9 persons who were granted options). See "Stock Option Plans"
below and note 10 of the notes to Delta Galil's consolidated financial
statements included in Item 18 of this annual report.

BOARD PRACTICES

    TERMS OF DIRECTORS

        Delta Galil's directors are elected at the Annual Shareholders Meeting
to serve until the next annual meeting of shareholders and until their
respective successors are elected and qualified. Delta Galil's Articles of
Association provide that the directors may appoint additional directors (whether
to fill a vacancy or to expand the Board), provided the number of directors is
less than fifteen or such other maximum number approved at a general meeting of
shareholders. The Articles of Association also provide that the Board of
Directors may delegate all of its powers to committees of the Board as it deems
appropriate.

        Delta Galil or its subsidiaries have not entered into any service
contracts with its non-employee directors that provide benefits upon termination
of services.

    EXTERNAL DIRECTORS AND AUDIT COMMITTEE

        Under the Israeli Companies Law, public companies are required to elect
two external directors who must meet specified standards of independence. The
external directors may not have any economic relationship with the company.
External directors are elected by the shareholders. The votes in favor of their
election must include at least one-third of the votes of the shareholders
attending and voting who are non-controlling shareholders of the company,
without taking abstentions into account. This approval requirement need not be
met if the total votes of such non-controlling shareholders who vote against the
election represent 1% or less of all of the voting rights in the company.
External directors serve for a three-year term, which may be renewed for only
one additional three-year term. External directors can be removed from office
only by the shareholders at the same majority required to elect them, or by a
court. External directors may be removed from office only if they cease to meet
the statutory qualifications with respect to their appointment or if they breach
their duty of loyalty to the company.

                                      -41-
<PAGE>

        If, when an external director is elected, all members of the board of
directors of a company are of one gender, the external director to be elected
must be of the other gender.

        Any committee of the board of directors must include at least one
external director. An external director is entitled to compensation as provided
in regulations adopted under the Companies Law and is otherwise prohibited from
receiving any other compensation, directly or indirectly, in connection with his
or her service.

        Messrs. Giora Morag and Amnon Neubach serve as external directors of
Delta Galil. Their terms expire on September 30, 2006 and December 16, 2006,
respectively.

        The Companies Law also provides that publicly traded companies must
appoint an audit committee. The responsibilities of the audit committee include
identifying irregularities in the management of the company's business and
approving related party transactions as required by the Companies Law. An audit
committee must consist of at least three members and include all of the
company's external directors. The chairman of the board of directors, any
director employed by the company or providing services to the company on a
regular basis, any controlling shareholder or any relative of a controlling
shareholder may not be members of the audit committee. An audit committee may
not approve an action or a transaction with a controlling shareholder or with an
office holder, unless at the time of approval two external directors are serving
as members of the audit committee and at least one of the external directors was
present at the meeting in which an approval was granted.

        In addition, the Companies Law requires the board of directors of a
public company to appoint an internal auditor nominated by the audit committee.
A person who does not satisfy the Companies Law's independence requirements may
not be appointed as an internal auditor. The role of the internal auditor is to
examine, among other things, the compliance of the company with applicable law
and orderly business practice.

        Pursuant to the listing requirements of the Nasdaq National Market,
Delta Galil is required to have at least two independent directors on its board
of directors and to establish an audit committee, at least a majority of whose
members are independent of management. Messrs. Morag, Neubach, Shalev and
Vinocourt, who we believe meet the definitions of independence under the rules
of the Securities and Exchange Commission and the Nasdaq National Market,
currently serve on Delta Galil's audit committee.


                                      -42-
<PAGE>

EMPLOYEES

        As of December 31, 2004, Delta Galil employed approximately 14,200
employees of these, approximately 12,000 were engaged in production, and the
remainder performed administrative, marketing, logistics and other functions.

        The following table shows the geographical distribution of Delta Galil's
employees, as of December 31, 2004:

        COUNTRY                                 NUMBER OF EMPLOYEES
        -------                                 -------------------
        Egypt                                           4,355
        Israel                                          2,930
        Jordan                                          2,452
        Honduras                                        1,973
        United States                                   1,015
        Far East (mainly Thailand)                        913
        United Kingdom                                    220
        Hungary                                           117
        Canada                                            207
        Other                                              18
                                                       ------
        Total                                          14,200
                                                       ======

        Following restructuring plans implemented by the Company during the
first half of 2005, the number of employees in Israel has decreased to
approximately 2,550 as of May 15,2005.

        Many factory employees are eligible for bonuses based upon the number of
units such employees produce in any given day. Delta Galil has not experienced
any significant labor stoppages.

        Certain collective bargaining agreements between the General Federation
of Labor in Israel, known as the "Histadrut," and the Coordination Bureau of
Economic Organizations (including the Industrialists' Association of Israel) are
applicable to Delta Galil's employees in Israel. In addition, a collective
bargaining agreement relating to members of the Industrialists' Association,
which governs employee relations in the textile and clothing industry, applies
to all of Delta Galil's textile employees in Israel. These agreements concern,
among other things, the maximum length of the work day and the work week,
minimum wages, contributions to a pension fund, insurance for work-related
accidents, procedures for dismissing employees, determination of severance pay
and other conditions of employment. Furthermore, under these agreements, the
wages of most of Delta Galil's employees are automatically adjusted in
accordance with the cost-of-living adjustments as determined on a nationwide
basis and under agreements with the Histadrut based on changes in the Israeli
consumer price index. The amounts and frequency of such adjustments are modified
from time to time.

        Israeli law generally requires the payment by employers of severance pay
upon the retirement or death of an employee or upon termination of employment by
the employer or, in certain circumstances, by the employee. Delta Galil
currently funds its on-going severance obligations by making monthly payments to
pension funds, employee accounts in a provident fund and insurance policies. In
addition, according to the Israeli National Insurance Law, Israeli employees and
employers are required to pay specified amounts to the National Insurance
Institute. Since January 1, 1995, such amounts also include payments for
national health insurance payable by employees. Until June 30, 2005 the payments
to the National Insurance Institute are determined progressively in accordance
with the wages and range from 10.4% to 16.3% of wages, of which the employee
contributes between 43% and 64% and the employer contributes the balance. Due to
a change in the Israeli National Insurance Law, starting July 1, 2005, these
payments will be increased gradually until January 1, 2009 and the range will be
7.69% to 15.81% of wages, of which the employee contributes between 59% and 66%.
A majority of Delta Galil's permanent employees are covered by life and pension
insurance policies providing customary benefits to employees, including
retirement and severance benefits. Delta Galil generally contributes up to 15.8%
(depending on the employee) of base wages to such plans and the permanent
employees contribute 5.0% of their base wages.

        In addition, some employees of Delta Galil's U.S. subsidiary are subject
to a collective bargaining agreement.

                                      -43-
<PAGE>

SHARE OWNERSHIP

        See table under Item 7: "Major Shareholders and Related Party
Transactions" below.

STOCK OPTION PLANS

        Delta Galil has four stock option plans and has separately issued
options to one executive. The total shares that may be issued upon exercise of
all outstanding options represent approximately 9% of the outstanding share
capital of Delta Galil after taking into account shares issuable upon exercise
of these options, as of May 15, 2005. In May 1998, Delta Galil adopted an option
plan to retain and attract qualified persons as employees and officers and to
motivate such persons by providing them with an equity participation. The stock
option plan is designed to afford the participants tax benefits under Section
102 of the Israeli Income Tax Ordinance.

        Options issued under the stock option plan are to be held in trust by
Investec Clali Trust Company Ltd., as trustee, for a period of at least two
years from the date of grant pursuant to the requirements of the Income Tax
Ordinance. Shares issued upon exercise of options will be held by the trustee
until the option holder pays applicable taxes. Unexercised options are not
entitled to a vote while held by the trustee.

        Options granted under the stock option plan vest over a period of three
years in four equal tranches, the first of which vested in August 1998. The
options are subject to restrictions on transfer, sale or hypothecation. Options
may only be exercised commencing on the date that is two years after the date
such options vested and they expire five years after vesting. Restrictions on
disposition of options lapse according to the terms of the stock option plan
under which those options are granted.

        As of December 31, 2004, Delta Galil had outstanding under this plan
options to purchase up to 65,696 ordinary shares at an exercise price of $8.297
per ordinary share, converted to NIS on the date of the exercise. The exercise
price is equal to 90% of the Tel Aviv Stock Exchange closing price on the last
day of trading prior to the board of directors' approval of the plan. All of
these options were granted to executive officers of Delta Galil and its
subsidiaries.

        In addition, Delta Galil has granted to Arnon Tiberg, Delta Galil's
President and Chief Executive Officer, options to acquire 100,000 ordinary
shares. The options were approved by the board of directors and the audit
committee in September 1998, and at a shareholders' meeting on October 14, 1998.
The option's exercise price is $7.90 per share converted to NIS on the date of
the exercise. The exercise price is equal to 90% of the Tel Aviv Stock Exchange
closing price on the last day of trading prior to the board of directors'
approval of the plan. As of December 31, 2004 all of the said options are fully
vested. As of December 31, 2004, Delta Galil had outstanding under this plan
options to purchase up to 50,000 ordinary shares.

        In June 2000, Delta Galil adopted a new stock option plan. Under the new
plan, options to purchase 809,000 ordinary shares, including an additional
100,000 options to Arnon Tiberg, Delta Galil's President and Chief Executive
Officer, will be granted to 70 employees. As of June 20, 2005, 121,875 options
that were granted to 19 employees were forfeited, upon the termination of their
employment. The options vest over a three-year period and have an exercise price
of $21.07, equal to the Tel Aviv Stock Exchange closing price on the last day of
trading prior to the board of directors' approval. The options are to be held in
trust by Investec Clali Trust Company Ltd., as trustee, for a period of at least
two years from the date of grant pursuant to the requirements of the Income Tax
Ordinance.

        In October 2002 Delta Galil adopted a fourth stock option plan, under
which options to purchase up to 1,100,000 ordinary shares may be granted. Under
the new plan, options to purchase up to 1,004,500 ordinary shares were granted
to 97 employees, including an additional 100,000 options to Arnon Tiberg, Delta
Galil's President and Chief Executive Officer. The options vest over a four-year
period and have an exercise price of $9.00. The options are to be held in trust
by Investec Clali Trust Company Ltd., as trustee, for a period of at least two
years from the date of grant pursuant to the requirements of the Israeli Income
Tax Ordinance. The options vest in four equal batches. The first, second, third
and fourth batches will vest in November 2003, 2004, 2005 and 2006 respectively.
The options are exercisable over a three-year period, commencing one year after
the vesting date of the first batch and on the vesting date of the second, third
and fourth batch. In May 2003 the Company granted 30,000 options to three
employees of the group at an exercise price of $10.76. The options are
exercisable over a three years period, commencing one year after the vesting
date of the first batch and on the vesting date of the second, third and fourth
batch. On March and August 2004 the Company granted 80,000 and 30,000 options
respectively to six and one employees of the

                                      -44-
<PAGE>

group respectively at an exercise price of $15.35 and $12.74, respectively. The
options are exercisable over a three-year period, commencing one year after the
vesting date of the first batch and on the vesting date of the second, third and
fourth batch. All options granted after January 1, 2003 may be exercised only
following the elapse of two years after the end of the year in which the options
were granted. As of June 20, 2005 options to purchase an additional 75,750
shares remain available for grant under the plan. As of June 20, 2005, 120,250
options that were granted to fourteen employees were forfeited upon the
termination of their employment.

        As of June 20, 2005, 1,827,071 options to purchase Delta Galil's
ordinary shares were outstanding to certain executive officers and key employees
(consisting of 110 persons who were granted options).






                                      -45-
<PAGE>

ITEM 7.     MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

MAJOR SHAREHOLDERS

        The following table sets forth stock ownership information (including
all ordinary shares represented by ADSs) as of June 26, 2005, with respect to:

        1)      Each person who is known by Delta Galil to be the beneficial
                owner of more than 5% of Delta Galil's outstanding ordinary
                shares; and

        2)      Directors and senior management (on an individual basis);

Except where otherwise indicated, Delta Galil believes, based on information
furnished by such owners, that the beneficial owners of the ordinary shares
listed below have sole investment and voting power with respect to such shares.
The shareholders listed below do not have any different voting rights from any
other shareholders of Delta Galil. Other than as disclosed below, none of Delta
Galil's directors beneficially owns 1% or more of Delta Galil's outstanding
ordinary shares.

<TABLE>
<CAPTION>
                                                      NUMBER OF             PERCENT OF
                                                   ORDINARY SHARES        ORDINARY SHARES
         NAME                                     BENEFICIALLY OWNED       OUTSTANDING(1)
         ----                                     ------------------       --------------
<S>                                                    <C>                     <C>
         Dov Lautman(2)                                4,644,993                24.8%
         Sara Lee International Corporation            4,256,537                22.8%
         Bank Leumi Le Israel Ltd                      1,476,987                 7.9%
         Arnon Tiberg(3)                                 497,588                 2.7%
         Amior Vinocourt(4)                               63,501                 0.3%
         Aharon Dovrat                                    20,050                0.05%
         Harvey Krueger                                    5,000                0.03%
</TABLE>
        (1)     Based on 18,695,165 ordinary shares outstanding, excluding
                1,206,802 ordinary shares held by the Company and excluding
                45,882 ordinary shares held by a trustee in connection with
                Delta Galil's stock option plans.
        (2)     Includes 3,264,336 shares held by Nichsei Adinoam Ltd. and
                1,380,657 shares held by N.D.R.L. Investments (1998) Ltd., each
                of which is a company controlled by Dov Lautman.
        (3)     Includes 439,150 shares held by Ha'lakucah Ha'Neeman (65) Ltd.,
                a company controlled by Mr. Tiberg. Arnon Tiberg was also
                granted options to acquire 300,000 ordinary shares. Options to
                acquire 100,000 ordinary shares have an exercise price of $7.90
                per share converted to NIS on the date of the exercise, and vest
                in four equal tranches over three years commencing in November
                1998, of them 50,000 have been exercised during 2003. Options to
                acquire an additional 100,000 ordinary shares have an exercise
                price of $21.07 per share converted to NIS on the date of the
                exercise, and vest in four equal tranches over three years
                commencing in August 2000. All of these options are exercisable
                commencing on the date that is two years after the date such
                options vested and expire five years after vesting. Options to
                acquire an additional 100,000 Ordinary Shares have an exercise
                price of $9.00 per share converted to NIS on the date of the
                exercise. These options vest in equal tranches over four years
                commencing in November 2003, and expire three years after
                vesting. The first two tranches are not exercisable until
                November 2004.
        (4)     Held through Vinocourt Achzakot Ltd., a company controlled by
                Mr. Vinocourt.


                                      -46-
<PAGE>

SHAREHOLDERS AGREEMENTS

        Dov Lautman, the Chairman of the Board of Directors of Delta Galil, and
two companies through which he holds shares in Delta Galil, N.D.R.L. Investments
(1998) Ltd. and Nichsei Adinoam Ltd., (collectively, the "Lautman Group"), have
a shareholders agreement with Sara Lee Corporation and Sara Lee International
Corporation.

        The shareholders agreement provides, among other things, that:

        o       Sara Lee International Corporation is entitled to nominate 30%
                of the members of Delta Galil's board of directors, excluding
                independent directors , with fractions rounded up to the next
                whole number, and Mr. Lautman is entitled to nominate the
                remainder of the members of the board, excluding independent
                directors;

        o       Delta Galil may not issue, allot or grant options over or
                conversion rights into its unissued share capital without the
                prior consent of Sara Lee International Corporation unless as
                part of a pro rata distribution of fully paid up bonus shares;
                and

        o       New appointments of a chief executive officer of Delta Galil
                shall require the consent of Sara Lee International Corporation.

        In addition, the Lautman Group and Sara Lee International Corporation
each granted the other a right to purchase any Delta Galil shares that the other
party beneficially owns and proposes to sell to unaffiliated third parties.

        The term of the shareholders agreement will expire on the earlier to
occur of: (i) the date on which Sara Lee holds less than 18% of the equity
rights of Delta Galil and (ii) the transfer by Sara Lee of its shares to a
competitor of Delta Galil, which is defined as an entity engaged in the United
States, Israel or Western Europe in the manufacture of socks and underwear,
including pantyhose and hosiery but excluding brassieres.

        In March 2004, Mr. Lautman sold 1,700,000 ordinary shares representing
9.2% of Delta Galil's outstanding shares for an aggregate selling price of $24.8
million. The price per share received by Mr. Lautman was 2% beneath the
then-current market price.

        In January 1998, Mr. Lautman purchased from Sara Lee ordinary shares
representing 12.52% of Delta Galil's then outstanding shares for an aggregate
purchase price of $10.3 million. The price per share paid by Mr. Lautman was
41.9% above the then-current market price.

        As of June 20, 2005, the Lautman Group owned 24.8% and Sara Lee owns
22.8% of the outstanding ordinary shares of Delta Galil.

        As of June 20, 2005, Delta Galil has 25 shareholders of record resident
in the United States, accounting for 24.7% of the outstanding ordinary shares.

RELATED PARTY TRANSACTIONS

    SALES TO SARA LEE AFFILIATES

        Delta Galil derived 0.2% of its revenues in 2004 from sales to
subsidiaries of Sara Lee that own or license brands, such as Dim and Playtex.
Delta Galil believes that these sales were on terms no less favorable to Delta
Galil than sales to other third parties.

        See "Item 10: Additional Information--Approval of Related Party
Transactions under Israeli Law."


                                      -47-
<PAGE>

ITEM 8:     FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

        See Delta Galil's consolidated financial statements included in Item 18
of this annual report. No significant change has occurred since the date of the
consolidated financial statements included herein, except as otherwise described
in this report or in other published reports of Delta Galil.

LEGAL PROCEEDINGS

        From time to time, Delta Galil is involved in legal proceedings relating
to claims arising out of its operations in the normal course of business,
including claims made by employees and former employees.

        Delta Galil believes that there are no legal proceedings pending or
threatened against it or any of its properties that may have significant effects
on its financial position or profitability.

DIVIDENDS

        Delta Galil has distributed cash dividends to its shareholders from time
to time in the past and will continue to consider, on a quarterly basis, the
payment of dividends to its shareholders. However, Delta Galil does not have an
established dividend policy, and the amount of future dividends, if any, will be
determined from time to time by the board of directors in light of Delta Galil's
earnings, financial condition, capital requirements and other factors.

        Following is a breakdown of dividends per ordinary share paid in the
last four fiscal years:

                 2001            2002           2003           2004
                 ----            ----           ----           ----
                $0.30           $0.37          $0.52          $0.45
                =====           =====          =====          =====


                                      -48-
<PAGE>

ITEM 9:     OFFER AND LISTING

        Delta Galil's ordinary shares have been listed on the Tel Aviv Stock
Exchange since 1982. The ordinary shares are not listed on any other stock
exchange and have not been publicly traded outside Israel.

        In the United States, ADSs evidenced by American Depositary Receipts
(ADRs) represent fully paid ordinary shares of Delta Galil and each ADS
represents one fully paid ordinary share. The ADSs are issued pursuant to a
Deposit Agreement entered into by Delta Galil and The Bank of New York, as
depositary. The Bank of New York's address is 101 Barclay Street, New York, New
York 10286. On March 25, 1999, trading of Delta Galil's ADSs commenced on the
Nasdaq National Market under the symbol DELT.

        The table below sets forth for the periods indicated (i) the high and
low last reported prices of the ordinary shares (in nominal NIS and dollars) on
the TASE, and (ii) the high and low sales prices of the ADSs as reported on the
Nasdaq since December 2000. The translation into dollars is based on the daily
representative rate of exchange on the last day of each period, as published by
the Bank of Israel.

<TABLE>
<CAPTION>

                                                     ORDINARY SHARES                      ADS
                                     ------------------------------------------        EQUIVALENTS
                                                   HIGH                  LOW         HIGH        LOW
                                         NIS        $          NIS        $           $           $
                                         ---        -          ---        -           -           -
<S>                                    <C>        <C>         <C>       <C>         <C>         <C>
YEAR ENDING DECEMBER 31, 2000:         101.57     24.98       48.05     11.71       25.19       11.75
YEAR ENDING DECEMBER 31, 2001:          59.18     14.38       33.33      7.64       14.63        7.58
YEAR ENDING DECEMBER 31, 2002:          49.35     10.99       32.89      6.76       10.83        6.69
YEAR ENDING DECEMBER 31, 2003:
    First Quarter.............          55.46     11.47       46.71      9.76       11.15        9.33
    Second Quarter............          62.60     14.45       51.14     10.98       13.67       10.81
    Third Quarter.............          67.60     15.22       58.30     13.14       14.51       12.83
    Fourth Quarter............          76.80     17.19       64.12     14.53       16.97       14.37
YEAR ENDING DECEMBER 31, 2004:
      First Quarter...........          74.40     16.81       66.60     14.72       15.72       14.31
      Second Quarter..........          72.60     16.14       66.60     14.72       16.15       13.91
      Third Quarter...........          72.82     16.25       52.75     11.63       15.48       11.76
      Fourth Quarter..........          55.10     12.34       40.20      9.19       12.65        9.35
MOST RECENT SIX MONTHS
      December 2004...........          46.27     10.70       40.53      9.28       10.82        9.41
      January 2005............          48.38     11.05       42.86      9.74       11.20        9.90
      February 2005...........          48.19     11.01       45.47     10.44       11.35       10.50
      March 2005..............          47.80     11.04       38.92      8.89       11.16        9.14
      April 2005..............          40.69      9.32       39.51      9.05        9.62        8.84
      May 2005................          41.67      9.53       36.18      8.26        9.81        8.20
</TABLE>

        As of June 23, 2005, the last reported price of the ordinary shares on
the TASE was NIS 31.34 ($6.92) and on June 22, 2005 the last reported price per
ADS on Nasdaq was $ 6.85. Fluctuations in the exchange rate between the NIS and
the dollar may affect the price of the ordinary shares on the TASE and, as a
result, may affect the market price of the ADSs in the United States.

                                      -49-
<PAGE>

ITEM 10:    ADDITIONAL INFORMATION

MEMORANDUM AND ARTICLES OF ASSOCIATION

        Delta Galil is registered with the Israeli Registrar of Companies as a
public company, with registration number 52-002560-2. Delta Galil's Articles of
Association provide that Delta Galil's objects may include any activity
permitted by law, and that Delta Galil can also contribute reasonable amounts to
worthwhile causes even if such contributions are not based on profit-oriented
business considerations.

APPROVAL OF RELATED PARTY TRANSACTIONS UNDER ISRAELI LAW

        The Companies Law governs the relationships between a company and its
"OFFICE HOLDERS." Under the Companies Law, an Office Holder is a director,
general manager, chief business manager, deputy general manager, vice general
manager, any other person assuming the responsibilities of any of the foregoing
positions without regard to such person's title or any other manager directly
subordinate to the general manager.

    DISCLOSURE OF PERSONAL INTEREST

        A director who has a personal interest in a transaction that is
considered at a meeting of the board of directors or the audit committee may not
be present during the board of directors or audit committee discussions and may
not vote on that matter. If a majority of the members of the audit committee or
of the board of directors has a personal interest in the matter, the director
can participate and vote at such audit committee or board meeting, provided,
however, that if the majority of the members or the directors has a personal
interest in the transaction, shareholder approval will be also required.

        The Companies Law requires that an office holder and any controlling
shareholder promptly disclose to the company any personal interest that he may
have, including disclosure of any corporation in which he is a 5% or greater
shareholder, director or general manager or in which he has the right to appoint
at least one director or the general manager. In addition, an office holder and
any controlling shareholder must disclose any and all material information known
to him, in connection with any existing or proposed transaction by the company.
In addition, if the transaction is an "EXTRAORDINARY TRANSACTION", the office
holder or controlling shareholder must also disclose any personal interest held
by such person's spouse, siblings, parents, grandparents, descendants, spouse's
descendants and the spouses of any of the foregoing. An Extraordinary
Transaction is a transaction that is not in the company's ordinary course of
business, or not at market terms or that may materially affect the company's
profitability, assets or liabilities.

    DIRECTORS' COMPENSATION

        Delta Galil's Articles provide that, unless otherwise approved at a
general meeting, each director shall be paid the same remuneration as paid to
each of Delta Galil's external directors. Remuneration of external directors is
limited by regulations issued under the Companies Law. The directors will be
entitled to be reimbursed for reasonable expenses incurred by them in performing
their services as directors.

    BOARD APPROVAL

        As more fully described below, depending on the circumstances, approvals
of related-party transactions may be required at three levels: board approval,
audit committee approval and shareholder approval.

        The Companies Law provides that transactions between a company and its
office holders, , as well as transactions with a company in which an office
holder has a personal interest, which are not Extraordinary Transactions,
require the approval of the board of directors, unless another manner of
approval is provided by the articles of association. The transaction may not be
approved if it is adverse to the company's interest. All arrangements as to
compensation of the General Manager, the Chief Executive Officer and the
President require approval of Delta Galil's board of directors. Unless otherwise
determined by the board of directors, the compensation arrangements of office
holders, other than the directors, General Manager, CEO and/or President, are at
the discretion of the General Manager of Delta Galil. With respect to
transactions that are related to the terms of service of a director see
"SHAREHOLDER APPROVAL" below.

                                      -50-
<PAGE>

    AUDIT COMMITTEE AND BOARD APPROVAL

        The Companies Law requires approval by both the audit committee and the
board of directors for, inter alia, the following types of actions or
transactions:

        o       proposed transactions in which an office holder has a direct or
                indirect personal interest and which is beyond the scope of the
                ordinary course of the company's business, which is not in
                accordance with market conditions or which may materially
                influence the earnings, assets or liabilities of the company;
                and

        o       transactions concerning exculpation, indemnification or
                insurance of an office holder, other than a director.

    SHAREHOLDER APPROVAL

        The Companies Law also provides that, in addition to approval of the
audit committee and the board of directors, the shareholders must approve the
following, unless there in the Companies Law or the regulations promulgated
thereunder provides an exemption for such a case:

        o       an Extraordinary Transaction between a public company and a
                controlling shareholder, including a private placement;

        o       an Extraordinary Transaction with a third party in which a
                controlling shareholder of the company has a personal interest;

        o       the terms of employment of a controlling shareholder (or of such
                person's spouse, siblings, parents, grandparents, offspring,
                spouse's offspring and the spouses of any of the foregoing), if
                he is an employee of the company; and if he is an office holder
                of the company - the terms of his engagement or service; and

        o       terms of service of directors, including exculpation,
                indemnification, insurance or compensation and terms of their
                employment in other positions in the company).

        The shareholder approval required for such an Extraordinary Transaction
must constitute at least one-third of the voting shareholders who have no
personal interest in the transaction and does not include abstentions. The
transaction can be approved by shareholders without the required one-third
approval, if the total holdings of those shareholders who have no personal
interest and voted against the transaction do not represent more than 1% of the
voting rights in the company.

BORROWING POWERS

        Article 50 of Delta's Articles of Association provides that Delta Galil
may, from time to time, at its discretion, borrow or secure the payment of any
sum or sums of money for its purposes. Article 51 provides that Delta Galil may
raise the funds for or secure the repayment of such sums in such manner, at such
times and upon such terms and conditions as it deems fit and, in particular, by
the issuance of bonds, perpetual or redeemable debentures, debenture stock, or
any mortgages or charges, on the present or future property of Delta Galil,
including its uncalled capital at that time and its called but unpaid capital.

CHANGE OF CONTROL

        The Companies Law provides that an acquisition of shares in a public
company must be made by means of a tender offer if, as a result of the
acquisition, the purchaser would become a 25% shareholder of the company. This
rule does not apply if there is already another 25% shareholder of the company
or if the acquisition is from a shareholder that holds 25% or more of the voting
rights of the company. Similarly, the Companies Law provides that an acquisition
of shares in a public company must be made by means of a tender offer if, as a
result of the acquisition, the purchaser would become a holder of more than 45%
of the voting rights of the company, unless there is another person holding at
that time more than 45% of the voting rights of the company or if the
acquisition is from a shareholder that holds 45% or more of the voting rights of
the company.

        The Companies Law provides that mergers require the approval of the
board of directors and the shareholders of the merging parties. Under a recent
amendment to the Companies Law, a merger with a wholly owned subsidiary does not
require the approval of the target company's shareholders. Furthermore, a

                                      -51-
<PAGE>

merger does not require approval of the surviving company's shareholders if (i)
the merger does not require amending the surviving company's memorandum of
association or articles of association and (ii) the surviving company does not
transfer more than 25% of its voting power as a result of the merger and
pursuant to the transfer no shareholder would become a controlling shareholder.
Approval of the surviving company's shareholders would, nevertheless, be
required if the other party to the merger, or a person holding more than 25% of
the outstanding voting shares or means of appointing the board of directors of
the other party to the merger, holds any shares of the surviving company. For
purposes of the shareholder vote of each party, unless a court rules otherwise,
the merger will not be deemed approved if a majority of the shares not held by
the other party, or by any person, including that person's relatives and any
company that person controls, who holds 25% or more of the shares or has the
right to appoint 25% or more of the directors of the other party, have voted
against the merger. Shareholder approval of mergers will be by a simple majority
vote cast at a general meeting of shareholders, not counting abstentions.

SHAREHOLDER MEETINGS

        Annual general meetings of shareholders are held once every year at such
time, within a period of not more than 15 months after the last annual general
meeting, and convene at such place as determined by the board of directors. The
board of directors may call an extraordinary general meetings of shareholders
and is obligated to do so upon a written request in accordance with the
Companies Law as described below. The Companies Law provides that an
extraordinary general meeting of shareholder may be called by the board of
directors or by a request by two directors or 25% of the directors in office, or
by shareholders holding at least 5% of the issued share capital of the company
and at least 1% of the voting rights, or of shareholders holding at least 5% of
the voting rights of the company. Delta Galil generally must give advanced
notice of a general meeting to its shareholders of record at least twenty-one
days prior to the meeting.

    QUORUM; VOTING RIGHTS; RECORD DATE

        The required quorum for any general meeting is two or more shareholders
present in person or by proxy and holding at least thirty-three and one-third
percent (331/3%) of the issued voting shares. On all matters submitted to a vote
of shareholders, holders of ordinary shares have one vote for each ordinary
share. Such voting rights may be affected by the grant of any special voting
rights to the holders of a class of shares with preferential rights that may be
authorized in the future. Under the Companies Law, the board of directors can
set a record date for the purpose of a shareholder vote. The record date may be
between four and twenty one days before the date of the meeting.

DIRECTORS

    ELECTION OF DIRECTORS

        Delta Galil's ordinary shares do not have cumulative voting rights with
regard to the election of directors. As a result, the holders of ordinary shares
that represent at least 51% of the voting power have the power to elect all the
directors. Directors are elected annually by the shareholders at the annual
meeting. Directors hold office until the conclusion of the next annual meeting
or until their removal or resignation at an earlier date. A director is not
required to retire at a certain age and need not be a shareholder of Delta
Galil.

    MEETINGS OF THE BOARD OF DIRECTORS

        The required quorum for any Board at least thirty percent (30%) of the
current number of directors.

DESCRIPTION OF SHARE CAPITAL

    AUTHORIZED SHARES

    Delta Galil's authorized share capital consists of 26,000,000 ordinary
shares, par value NIS 1.00 per share.

    TRANSFER OF SHARES; NON-ASSESSABILITY

        Fully paid ordinary shares are non-assessable and are issued in
registered form. They may be freely transferred pursuant to the Articles of
Association unless such transfer is restricted or prohibited by another
instrument.

                                      -52-
<PAGE>

    FOREIGN OWNERSHIP

        Delta Galil's Memorandum and Articles of Association do not restrict in
any way the ownership of ordinary shares by nonresidents of Israel and neither
the Memorandum of Association nor Israeli law restricts the voting rights of
non-residents of Israel, other than citizens or residents of countries that are
in a state of war with Israel.

    DISTRIBUTION OF DIVIDENDS

        Delta Galil's ordinary shares are entitled to the full amount of any
cash or share dividend, declared by the Company. Delta Galil may declare a
dividend to be paid to the holders of ordinary shares in accordance with their
rights and interests in the profits of Delta Galil. In the event of liquidation,
after satisfaction of liabilities to creditors, the assets of Delta Galil will
be distributed to the holders of ordinary shares in proportion to the nominal
value of their respective holdings. This right may be affected by the grant of
preferential dividend or distribution rights to the holders of a class of shares
with preferential rights that may be authorized in the future by a special
resolution of the shareholders of Delta Galil.

        Under the Companies Law, dividends may be paid only out of accumulated
earnings or out of net earnings for the two years preceding the distribution of
the dividends as calculated under the Companies Law. Dividends may be paid only
if there is no reasonable concern that the distribution of dividends will
prevent the company from meeting its existing and foreseeable obligations as
they become due.

        The Articles provide that the distribution of cash dividends and the
amount to be distributed is made by the board of directors. The distribution of
dividends in kind requires shareholder approval after receiving the
recommendations of the board of directors.

    MODIFICATION OF CLASS RIGHTS

        The Articles may be amended by a resolution approved by the holders of
at least 66% of the shares represented at the shareholders' general meeting and
voting thereon, without taking abstentions into account. The rights attached to
any class of shares such as voting, dividends and the like, unless otherwise
provided for by the terms of issue of such class, may be varied with the consent
in writing of all of the holders of the issued shares of the class, or with the
adoption of a resolution by at least 66% of the ordinary shares present and
voting at a shareholders meeting. This special majority is greater than the
simple majority required by the Companies Law.

        AMERICAN DEPOSITARY RECEIPTS

        The description of American Depositary Receipts appearing in Delta
Galil's Registration Statement on Form F-1 (Registration No. 333-10062) filed
with the Securities and Exchange Commission on February 26, 1999 is incorporated
herein by reference.

DIRECTORS AND OFFICERS INDEMNIFICATION AND INSURANCE

        Delta Galil has obtained directors' and officers' liability insurance
covering the officers and directors of Delta Galil and its subsidiaries for
claims arising from wrongful acts they committed in their capacity as an officer
or a director. Delta Galil has also issued indemnity undertakings to its office
holders to indemnify them for amounts that they may be obligated to pay in
litigation related to their service to Delta Galil arising in one of the types
of events enumerated in the undertaking. Such indemnification is capped at an
aggregate of $15 million for all office holders in respect of the same series of
events, less any amount reimbursed by Delta Galil's directors and officers
insurance, PROVIDED however, that the total amount of indemnity may not exceed
25% of the shareholders' equity of Delta Galil on the date of the payment of
amounts pursuant to the undertaking.

MATERIAL CONTRACTS

        During 2004, Delta Galil completed the acquisition of Burlen
Corporation. For a description of this acquisition see Item 4 "Informaiton on
the Company - Recent Acquisitions".

                                      -53-
<PAGE>

        For a description of a recent amendment to the credit facility of Delta
Galil USA Inc. see "Item 5 - Operating and Financial Review and Prospects -
Liquidity and Capital Resources - Debt."

        During 2003, Delta Galil completed the acquisition of Auburn Hosiery
Mills. For a description of this acquisition see Item 4: "Information on the
Company - Recent Acquisitions."

EXCHANGE CONTROLS

        Non-residents of Israel who acquire any of the ADSs or ordinary shares
using non-Israeli currencies will be able to convert dividends, liquidation
distributions and the proceeds from the sale of such ADSs or ordinary shares,
into non-Israeli currencies at the rate of exchange prevailing at the time of
conversion provided that Israeli income tax has been paid (or withheld) on such
amounts.

        Israeli residents are eligible to purchase securities of Israeli and
non-Israeli companies, and are eligible to purchase the ADSs or ordinary shares.

ISRAELI TAXATION

        Following is a short summary of the tax regime applicable to
corporations in Israel, with special reference to its effect on Delta Galil.
This discussion also includes specified Israeli tax consequences to holders of
our ordinary shares and Israeli Government programs benefiting us. The following
is not intended, and should not be construed, as legal or professional tax
advice and is not exhaustive of all possible tax considerations.

    CORPORATE TAX RATE

        The regular tax rate in Israel in 2004 is 35%. This rate is currently
scheduled to decrease as follows: in 2005-34%, 2006-32%, 2007 and onward-30% for
undistributed earnings. However, the effective tax rate of a company, which
derives income from an approved enterprise, may be considerably less, as further
discussed below.

    LAW FOR THE ENCOURAGEMENT OF INDUSTRY (TAXES), 1969 (THE "INDUSTRY
ENCOURAGEMENT LAW")

        Delta Galil believes that it currently qualifies as an Industrial
Company pursuant to the Industry Encouragement Law. As such, Delta Galil
qualifies for certain tax benefits, including amortization of the purchase price
of a good-faith acquisition of a patent or of certain other intangible property
rights at the rate of 12.5% per annum and the right to file consolidated tax
returns. The tax laws and regulations dealing with the adjustment of taxable
income for local inflation provide that industrial enterprises such as Delta
Galil which qualify as an Industrial Company can claim special rates of
depreciation such as up to 40% on a straight line basis for industrial
equipment.

        Eligibility for the benefits under the Industry Encouragement Law is not
subject to receipt of prior approval from any government authority. Delta Galil
cannot assure you that it presently qualifies as an "Industrial Company," it
will continue to qualify as such in the future, or that the benefits will be
granted in the future.

    LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS, 1959 (THE "INVESTMENT
LAW")

        Industrial projects of Delta Galil have been granted the status of an
"Approved Enterprise" under the Investment Law. This law provides that capital
investments in production facilities may, upon application to the Israel
Investment Center, be designated as an Approved Enterprise. Each certificate of
approval for an Approved Enterprise relates to a specific investment program
delineated both by its financial scope, including its capital sources, and by
its physical characteristics, i.e., the equipment to be purchased and utilized
pursuant to the program. The tax benefits derived from any such certificate of
approval relate only to taxable profits attributable to the specific program,
based upon criteria set in the certificate of approval. In the event that Delta
Galil, which has been granted Approved Enterprise status, is operating under
more than one approval or that its capital investments are only partly approved
(a "Mixed Enterprise"), its effective corporate tax rate will be the result of a
weighted combination of the various applicable rates.

        Income derived from an Approved Enterprise is subject to a tax rate of
25%, rather than the usual rate in 2005 of 34% (as mentioned above, gradually
scheduled to be reduced to 30% in 2007), for a period of seven years, commencing
with the year in which the Approved Enterprise first generates taxable income.

                                      -54-
<PAGE>

This period cannot extend beyond 12 years from the year of commencement of
operations or 14 years from the year in which approval was granted, whichever is
earlier. Income derived from an Approved Enterprise located in Area A, which
have been approved after January 1, 1997 are exempt from income tax in the first
two years.

        Delta Galil first derived income from some of the abovementioned
Approved Enterprises in 1999. In the said years, Delta Galil used tax benefits
estimated at approximately $ 1.6 million. Due to losses for tax purposes
accumulated prior to 1999 and in the years 2000 - 2004, Delta Galil had not used
any of the tax benefits to which it is entitled under these government programs
in these years, except with respect to accelerated depreciation on real estate
property. The remaining tax benefits may be available for use in future years.

        Under the Approved Enterprise programs, Delta Galil has received grants
totaling $ 1.6 million in 2002, $ 1.1 million in 2003 and $1.1 million in 2004.
The government of Israel has gradually reduced the investment grants available
from 38% of eligible capital expenditures in 1996 to 24% of eligible capital
expenditures in 1998 and thereafter.

        This lower grant rate applies to any applications in 1998 or thereafter.
There can be no assurance that the Israeli government will not further reduce
these investment grants.

        Delta Galil is a "Foreign Investors Company" ("FIC"), as defined by the
Investment Law, and is entitled to extended period of ten years (rather than
seven years), commencing with the year in which the Approved Enterprise first
generates taxable income. This ten-year period cannot extend beyond 12 years
from the year of commencement of operations or 14 years from the year in which
approval was granted, whichever is earlier. Unless extended, Benefits under the
Investment Law are granted to enterprises seeking approval not later than
January 1, 2005. Delta Galil cannot assure you that it will continue to qualify
as an FIC in the future, or that the benefits will be granted in the future.

        The benefits available to an Approved Enterprise are contingent upon
Delta Galil's fulfilling the conditions stipulated by the Investment Law,
regulations published thereunder and the conditions of approval for the specific
investments in Approved Enterprises.

        In the event that Delta Galil fails to comply with these conditions, the
benefits may be cancelled and Delta Galil may be required to refund the amount
of the benefits, in whole or in part, with the addition of linkage differences
to the Israeli consumer price index and interest.

        The Israeli Government has enacted legislation in April 2005 that
extensively changes the Investment Law. However, according to a provision in
this legislation, changes in the Investment Law should not affect approved
enterprises plans that were approved as of December 31, 2004 or investments made
as of December 31, 2004. For the meantime, this would seem to preserve the
benefits for Delta Galil's approved enterprises, as described above. However,
there is currently no administrative or judicial guidance relating to the new
legislation. Additionally, there are indications that some of the new sections
may undergo revision or technical correction. Accordingly, Delta Galil provides
no assurances regarding the ongoing application of the Investment Law to current
or future Approved Enterprises.

        TAXATION OF NON-ISRAELI SUBSIDIARIES

        Non- Israeli subsidiaries are generally taxed based on the tax laws in
their countries of residence.

        CAPITAL GAINS AND INCOME TAXES APPLICABLE TO ISRAELI SHAREHOLDERS

        Prior to the tax reform, sales of our ordinary shares by individuals
were generally exempt from Israeli capital gains tax so long as (1) our ordinary
shares were quoted on Nasdaq or listed on a stock exchange in a country
appearing on a list approved by the Controller of Foreign Currency and (2) we
qualified as an Industrial Company within the definition of the Law for the
Encouragement of Industry (Taxes), 5729-1969. We believe that we currently
qualify as an Industrial Company, but no assurance can be given that we will
continue to qualify as an Industrial Company.

        Pursuant to the Tax Reform, generally, capital gains tax is imposed on
Israeli residents at a rate of 15% on real gains derived on or after January 1,
2003 from the sale of shares in : (1) companies publicly traded on the Tel Aviv
Stock Exchange; or (2) Israeli companies publicly traded on Nasdaq or a
recognized stock exchange or a regulated market outside of Israel as defined in
income tax order (definition stock

                                      -55-
<PAGE>

exchange), 2004; or (3) companies dually traded on both the Tel Aviv Stock
Exchange and Nasdaq or a recognized stock exchange or a regulated market outside
of Israel. This tax rate is contingent upon the shareholder not claiming a
deduction for financing expenses, and does not apply to: (1) dealers in
securities; or (2) shareholders that report in accordance with the Inflationary
Adjustments Law, (3) shareholders who acquired their shares prior to an initial
public offering (that are subject to a different tax arrangement); (4) a sale to
a related party.

        The tax basis of shares acquired prior to January 1, 2003, with respect
of which the shareholders had been exempt from capital gains tax prior to
January 1, 2003, will be determined in accordance with the average closing share
price in the three trading days preceding January 1, 2003. However, a request
may be made to the tax authorities to consider the actual adjusted cost of the
shares as the tax basis if it is higher than such average price.

        Beginning January 1, 2005, 15% tax rate applies to real capital gains
derived from a sale of Non-Israeli tradable shares subject to the limitations
described above. A non-Israeli tradable shares are: shares traded in a
recognized stock exchange outside of Israel, except for (a) Israeli companies
shares; (b) non Israeli companies shares dually traded on both the Tel Aviv
Stock Exchange and a foreign stock exchange or a regulated market outside of
Israel. Concerning non-Israeli tradable shares that were purchased before
January 1, 2005, a 35% tax rate applies to real capital gain derived from the
sale of the shares, which attributed to the holding period up to December 31,
2004 and 15% to reminder of the capital gain. The total real capital gain is
divided to the aforementioned periods on a linear basis.

        TAX REFORM LEGISLATION

        In July 2002, the Israeli Parliament approved a law introducing
extensive changes to Israel's tax law generally effective January 1, 2003. Among
the key provisions of this reform legislation are (1) changes which may result
in the imposition of taxes on dividends received by an Israeli company from its
foreign subsidiaries; and (2) the introduction of the controlled foreign
corporation concept according to which an Israeli company may become subject to
Israeli taxes on certain income of a non-Israeli subsidiary if the subsidiary's
primary source of income is passive income (such as interest, dividends,
royalties, rental income or capital gains). An Israeli company that is subject
to Israeli taxes on the income of its non-Israeli subsidiaries will receive a
credit for income taxes paid by the subsidiary in its country of residence.

        CAPITAL GAINS AND INCOME TAXES APPLICABLE TO NON-ISRAELI SHAREHOLDERS

        CAPITAL GAINS. The basic capital gains tax rate applicable to
corporations effective until December 31, 2002 had been 36%, and the maximum tax
rate for individuals was 50%. Effective January 1, 2003, the capital gains tax
rate imposed upon sale of capital assets acquired after that date was reduced to
25%; capital gains realized from assets acquired before that date are subject to
a blended tax rate based on the relative periods of time before and after that
date that the asset was held. In addition, if the ordinary shares are traded on
a recognized stock exchange (including the Tel Aviv Stock Exchange and the
NASDAQ), gains on the sale of ordinary shares held by non-Israeli tax resident
investors will generally be exempt from Israeli capital gains tax.
Notwithstanding the foregoing, dealers in securities in Israel are taxed at
regular tax rates applicable to business income.

        Under an amendment to the Inflationary Adjustments Law, effective
January 1, 1999, corporate investors that hold listed securities (other than
corporations solely owned by individuals), will generally be subject to the
provisions of the Inflationary Adjustments Law. The Inflationary Adjustments Law
stipulates a comprehensive set of rules for determining the gains or losses from
the sale of listed securities. Gains from sale of negotiable shares which are
subject to the Inflationary Adjustments Law, are taxable at the regular
corporate tax rate. A literal reading of the Inflationary Adjustments Law, may
suggest that its provisions also apply to foreign corporations, although the
foreign corporation may have no activity in Israel other than the shareholding
in an Israeli company. Consequently, unless a tax treaty exemption is
applicable, the capital gain exemption available for individual shareholders may
not apply.

        Under the treaty between the United States and Israel, the capital gain
derived by a U.S. taxpayer from the sale, exchange or other disposition of stock
in an Israeli corporation would generally be tax exempt when the shareholder did
not own, within the 12 month period preceding such sale, exchange or other
disposition, shares constituting 10% or more of the voting power in the Israeli
corporation.

        DIVIDENDS. Individuals who are non-Israeli residents are subject to a
graduated income tax on income derived from sources in Israel. On the
distribution of dividends other than share dividends, income tax is withheld at
the rate of 25%, or 15% in the case of dividends distributed from taxable income

                                      -56-
<PAGE>

attributable to an Approved Enterprise, unless a different rate is provided in a
treaty between Israel and the shareholder's country of residence.

        Under the United States-Israel Tax Treaty, the maximum withholding tax
in Israel on dividends paid to a holder of ordinary shares who is a resident of
the United States is 25%. This tax rate is reduced to 12.5% for a corporation
that has been holding in excess of 10% of the voting rights of Delta Galil
during Delta Galil's tax year preceding the distribution of the dividend and the
portion of Delta Galil's tax year in which the dividend was distributed.
Dividends of an Israeli company derived from the income of an Approved
Enterprise will be subject to a dividend withholding tax of only 15%. The
withheld tax is the final tax in Israel on dividends paid to non-residents who
do not conduct business in Israel.

        Residents of the United States will generally have withholding tax in
Israel deducted at the source. They may be entitled to a credit or deduction for
U.S. federal income tax purposes in the amount of the taxes withheld, subject to
detailed rules contained in the United States-Israel Tax Treaty and in U.S. tax
legislation.

        A non-Israeli resident who has derived interest, dividend or royalty
income from or accrued in Israel, from which tax was withheld at the source, is
generally exempt from the duty to file tax returns in Israel with respect to
such income, provided such income was not derived from a business conducted in
Israel by the taxpayer.

UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

        The following discussion is a general summary of the material U.S.
federal income tax considerations applicable to U.S. Holders (as defined below)
of ADSs or ordinary shares, who hold such instruments as capital assets
(generally, property held for investment). This summary is based on provisions
of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), existing and
proposed U.S. Treasury regulations promulgated thereunder and administrative and
judicial interpretations thereof, all in effect as of the date of this annual
report and all of which are subject to change (possibly with retroactive effect)
and to differing interpretations. In addition, this summary does not discuss all
aspects of U.S. federal income taxation that may be applicable to U.S. Holders
in light of their particular circumstances or to U.S. Holders who are subject to
special treatment under U.S. federal income tax law (including, for example,
life insurance companies, dealers in stocks or securities, financial
institutions, tax-exempt organizations, persons having a functional currency
other than the U.S. dollar, and persons who have directly, indirectly or
constructively owned 10% or more of the outstanding voting shares of Delta Galil
at any time during the twelve months preceding the date of this annual report or
of a disposition of ADRs, ADSs, or ordinary shares). EACH U.S. HOLDER IS URGED
TO CONSULT WITH ITS TAX ADVISOR REGARDING THE TAX CONSEQUENCES OF ITS HOLDINGS,
INCLUDING THE EFFECTS OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.

        As used herein, the term "U.S. Holder" signifies a holder of an ADR
evidencing an ADS or of an ordinary share, who is a citizen or resident of the
United States, or that is (i) a corporation or a partnership created or
organized in or under the laws of the United States or any political subdivision
thereof; (ii) an estate the income of which is subject to U.S. federal income
taxation regardless of its source or; (iii) a trust if (A) a U.S. court is able
to exercise primary supervision over the trust's administration and (B) one or
more U.S. persons have the authority to control all of the trust's substantial
decisions.

        This summary is based in part on representations of The Bank of New
York, Delta Galil's depositary, and assumes that each obligation provided for
in, or otherwise contemplated by, Delta Galil's deposit agreement with The Bank
of New York and any related agreement will be performed in accordance with its
terms. In general, for U.S. federal income tax purposes, U.S. Holders of ADRs
evidencing ADSs will be treated as the owners of the ordinary shares represented
by the ADSs.

    DIVIDENDS PAID ON THE ADSS OR ORDINARY SHARES

        A U.S. Holder will generally be required to include in gross income as
ordinary dividend income the amount of any distributions paid on the ADSs or
ordinary shares (including the amount of any Israeli taxes or depositary fees
withheld therefrom) to the extent that such distributions are paid out of Delta
Galil's current or accumulated earnings and profits as determined for U.S.
federal income tax purposes. Distributions in excess of such earnings and
profits will be applied against and will reduce the U.S. Holder's tax basis in
its ADSs or ordinary shares and, to the extent that they are in excess of such
tax basis, they will

                                      -57-
<PAGE>

be treated as a gain from a sale or exchange of such ADSs or ordinary shares.
Such dividends will not qualify for the dividends-received deduction applicable
in certain cases to U.S. corporations.

        Any dividends paid by us to a US holder on the ordinary shares or ADSs
will be treated as foreign source income and will be categorized as "passive
income" or, in the case of certain US holders, "financial services income" for
US foreign tax credit purposes. Under recently enacted legislation, for taxable
years beginning January 1, 2007, dividend income generally will constitute
"passive category income" or, in the case of certain US holders, "general
category income". Subject to the limitations in the Code, as modified by the US
Treaty, a US holder may elect to claim a foreign tax credit against its US
federal income tax liability for Israeli income tax withheld from dividends
received in respect of ordinary shares or ADSs. The US Treasury has expressed
concerns that parties to whom ADSs are released may be taking actions that are
inconsistent with the claiming of foreign tax credit for US holders of ADSs.
Accordingly, the discussion above regarding the creditability of the Israeli
withholding tax on dividends could be affected by future actions that may be
taken by the US Treasury. US holders who do not elect to claim the foreign tax
credit may instead claim a deduction for Israeli income tax withheld, but only
for a year in which the US holder elects to do so with respect to all foreign
income taxes. A deduction does not reduce US tax on a dollar-for-dollar basis
like a tax credit. The deduction, however, is not subject to the limitations
applicable to foreign tax credits. The rules relating to the determination of
the foreign tax credit are complex. Accordingly, if you are a US holder of
ordinary shares or ADSs, you should consult your own tax advisor to determine
whether and to what extent you would be entitled to the credit.

        Certain US holders (including individuals) are eligible for reduced
rates of US federal income tax (at a maximum rate of 15%) in respect of
"qualified dividend income" received in taxable years beginning before January
1, 2009. For this purpose, qualified dividend income generally includes
dividends paid by a non-US corporation if, among other things, the US holders
meet certain minimum holding periods and the non-US corporation satisfies
certain requirements, including that either (i) the shares (or ADSs) with
respect to which the dividend has been paid are readily tradable on an
established securities market in the United States, or (ii) the non-US
corporation is eligible for the benefits of a comprehensive US income tax treaty
(such as the US Treaty) which provides for the exchange of information. We
currently believe that dividends paid with respect to our ordinary shares and
ADSs, should constitute qualified dividend income for US federal income tax
purposes. The United States Treasury and the IRS have announced their intention
to promulgate rules pursuant to which holders of shares and ADSs, among others,
will be permitted to rely on certifications from issuers to establish that
dividends are treated as qualified dividend income. Each individual US holder of
ordinary shares or ADSs is urged to consult his own tax advisor regarding the
availability to him of the reduced dividend tax rate in light of his own
particular situation and regarding the computations of his foreign tax credit
limitation with respect to any qualified dividend income paid by us, as
applicable.

    FOREIGN TAX CREDIT

        Any dividends paid by Delta Galil to a U.S. Holder with respect to the
ADSs or ordinary shares will be generally treated as foreign source income for
U.S. foreign tax credit purposes. Subject to the limitations set forth in the
Code, as modified by the treaty concerning double taxation between the United
States and Israel, U.S. Holders may elect to claim a foreign tax credit against
the U.S. federal tax liability for Israeli income tax withheld from dividends
received in respect of ADSs or ordinary shares. A U.S. Holder will be denied a
foreign tax credit with respect to Israeli income tax withheld from dividends
received in respect of ADSs or ordinary shares if such U.S. Holder has not held
the ADSs or ordinary shares for a minimum period or to the extent that such U.S.
Holder is under an obligation to make certain related payments with respect to
substantially similar or related property. The rules relating to the
determination of the foreign tax credit are complex, and each U.S. Holder should
consult with its tax advisor to determine whether and to what extent it is
entitled to such credit. U.S. Holders who do not elect to claim a foreign tax
credit may instead claim a deduction for Israeli income tax withheld, but only
for a year in which the U.S. Holder does so with respect to all foreign income
taxes.

    DISPOSITION OF ADSS OR ORDINARY SHARES

        Upon the sale or other disposition of ADSs or ordinary shares, a U.S.
Holder will generally recognize capital gain or loss equal to the difference
between the amount realized on the disposition and such Holder's adjusted tax
basis in the ADSs or ordinary shares. Gain or loss upon the disposition of the

                                      -58-
<PAGE>

ADSs or ordinary shares will be long-term if, at the time of the disposition,
the holding period for the ADSs or ordinary shares exceeds one year. Long-term
capital gains realized by U.S. Holders that are individuals are generally
subject to a marginal U.S. federal income tax rate that is lower than the
ordinary marginal income tax rate. The deductibility of capital losses by a U.S.
Holder is subject to limitations.

        In general, any gain recognized by a U.S. Holder on the sale or other
disposition of ADSs or ordinary shares will be U.S. source income for U.S.
foreign tax credit purposes. However, pursuant to the treaty concerning double
taxation between the United States and Israel, gain from the sale or other
disposition of ADSs or ordinary shares by a Holder who is a U.S. resident (for
treaty purposes) and who sells the ADSs or ordinary shares in Israel may be
treated as foreign source income for U.S. foreign tax credit purposes. Any loss
on the sale or other disposition of ADSs or ordinary shares may be required to
be allocated against foreign source income for U.S. foreign tax credit
limitation purposes.

        Exchanges, deposits and withdrawals by U.S. Holders of ordinary shares
in exchange for ADSs will not result in the realization of gain or loss for U.S.
federal income tax purposes.

    PASSIVE FOREIGN INVESTMENT COMPANY

        A non-US corporation will be classified as a Passive Foreign Investment
Company (a "PFIC") for any taxable year if at least 75% of its gross income
consists of passive income (such as dividends, interest, rents, royalties (other
than rents or royalties derived in the active conduct of a trade or business and
received from an unrelated person), or gains on the disposition or certain
minority interests), or at least 50% of the average value of its assets consist
of assets that produce, or are held for the production of, passive income. We
currently believe that we were not a PFIC for the year ended December 31, 2004.
However, this conclusion is a factual determination that must be made at the
close of each year and is based on, among other things, a valuation of our
ordinary shares, ADSs and assets, which will likely change from time to time. If
we were characterized as a PFIC for any taxable year, a US holder would suffer
adverse tax consequences. These consequences may include having gains realized
on the disposition of ordinary shares or ADSs treated as ordinary income rather
than capital gains and being subject to punitive interest charges on certain
dividends and on the proceeds of the sale or other disposition of the ordinary
shares or ADSs. Furthermore, dividends paid by a PFIC are not eligible to be
treated as "qualified dividend income" (as discussed above).

        Application of the PFIC rules is complex. US holders should consult
their own tax advisors regarding the potential application of the PFIC rules to
the ownership of our ordinary shares or ADSs.

    INFORMATION REPORTING AND BACKUP WITHHOLDING

        Dividend payments with respect to ordinary shares or ADSs and proceeds
from the sale, exchange or other disposition of ordinary shares or ADSs may be
subject to information reporting to the IRS and possible US backup withholding
at a current rate of 28%. Backup withholding will not apply, however, to a
holder who furnishes a correct taxpayer identification number or certificate of
foreign status and makes any other required certification or who is otherwise
exempt from backup withholding. US persons who are required to establish their
exempt status generally must provide IRS Form W-9 (Request for Taxpayer
Identification Number and Certification). Non-US holders generally will not be
subject to US information reporting or backup withholding. However, such holders
may be required to provide certification of non-US status (generally on IRS Form
W-8BEN) in connection with payments received in the United States or through
certain US-related financial intermediaries.

        Backup withholding is not an additional tax. Amounts withheld as backup
withholding may be credited against a holder's US federal income tax liability,
and a holder may obtain a refund of any excess amounts withheld by filing the
appropriate claim for refund with the IRS and furnishing any required
information.

DOCUMENTS ON DISPLAY

        Delta Galil files reports and other information with the SEC. These
reports include certain financial and statistic information about Delta Galil,
and may be accompanied by exhibits. You may read and copy any document Delta
Galil files with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
Washington D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference rooms.

        The SEC maintains an Internet website at http://www.sec.gov that
contains reports and other material that are filed through the SEC's Electronic
Data Gathering, Analysis and Retrieval ("EDGAR") system. Delta Galil began
filing through the EDGAR system beginning in October 2002.

                                      -59-
<PAGE>

ITEM 11:    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Although Delta Galil is an Israeli company, its functional currency is
the U.S. dollar. Delta Galil has operations and sales in many countries that are
not denominated in dollars, and is therefore exposed to fluctuations in the rate
of exchange between the dollar and those currencies. In 2004, Delta Galil
derived 31% of its revenues from customers in pound sterling, 8% of its revenue
were in NIS, and 10% were in euros. More than 10% of Delta Galil's expenses were
in NIS in 2004.

        Some of Delta Galil's expenses in Israel are linked to the Israeli
consumer price index. Consequently, Delta Galil is exposed to risk to the extent
that the rate of Israeli inflation exceeds the rate of the NIS devaluation in
relation to the dollar and to the extent that the timing of such devaluation
lags behind inflation in Israel.

        In order to reduce the exposure to exchange rate fluctuations between
the dollar and other currencies Delta Galil carries out currency transactions
that hedge part of its exposure in respect of its net income in non-dollar
currency for periods of up to 12 months. The financial results in respect of
these hedging transactions are reflected in Delta Galil's consolidated financial
statements, together with the results of the hedged items, such as revenues and
cost of revenues.

        As of December 31, 2004, Delta Galil had not entered into hedging
transactions. In 2004, Delta Galil carried out sales of the pound sterling and
the Euro in the amount of $72 million and $8 million, respectively. The loss on
these transactions amounted to $2.3 million. $1.7 million of that loss is
reflected in revenues, and $0.6 million, which reflects the ineffective portion
of changes in the fair value is presented among financial expenses.

        Based on current sales volumes, expenses and exchange rates, each one
percent devaluation in pound sterling or euro against the dollar would result in
a decrease of approximately $1.4 million or $0.4 million, respectively, in Delta
Galil's yearly operating income, and a strengthening of the pound sterling or
euro would have the opposite effect. Each one percent appreciation of the NIS
against the dollar would result in a decrease of $0.3 million in yearly
operating income, and a devaluation of the NIS would have the opposite effect.
Delta Galil's bank debt generally is denominated in U.S. dollars, and,
therefore, is not materially exposed to changes in currency exchange rates.

        For further discussion of Delta Galil's use of financial derivatives and
instruments in the management of risks relating to currency and interest rate
fluctuations, see notes 1(r) and 13 of the notes to Delta Galil's consolidated
financial statements included in Item 18 of this annual report.


                                      -60-
<PAGE>

ITEM 12:    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not Applicable

PART II

ITEM 13:    DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not Applicable


ITEM 14:    MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
            PROCEEDS

Not Applicable

ITEM 15:    CONTROLS AND PROCEDURES

        DISCLOSURE CONTROLS AND PROCEDURES. Delta Galil's Chief Executive
Officer and Chief Financial Officer have evaluated the effectiveness of its
disclosure controls and procedures within the 90 days prior to the date of
filing of this Annual Report on Form 20-F. Based upon such review, the Chief
Executive Officer and Chief Financial Officer have concluded that Delta Galil
has in place appropriate controls and procedures designed to ensure that
information required to be disclosed by Delta Galil in the reports it files or
submits under the Securities Exchange Act of 1934, as amended, and the rules
thereunder, is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms.

        INTERNAL CONTROLS. Since the date of the evaluation described above,
there have not been any significant changes in Delta Galil's internal controls
or in other factors that could significantly affect those controls.

ITEM 16:

ITEM 16A:   AUDIT COMMITTEE FINANCIAL EXPERT

        The Board of Directors and the Audit Committee have determined that
Amior Vinocourt is an independent director under the definition of independence
under the rules of the Nasdaq National Market, and that Mr. Vinocourt is the
financial expert serving on the Audit Committee of Delta Galil.

ITEM 16B:   CODE OF ETHICS

        Delta Galil has adopted a code of ethics applicable to all employees and
directors. A copy is available upon request to the Chief Financial Officer,
Delta Galil Industries Ltd., 2 Kaufman Street, Tel-Aviv 68012, Israel.

ITEM 16C:   PRINCIPAL ACCOUNTANT FEES AND SERVICES

        Delta Galil paid the following fees to Pricewaterhouse Coopers during
the last two fiscal years:

                                       2003           2004
                                       ----           ----
Audit fees                           $385,660       $383,000
Tax fees                               75,000         67,000
                                     --------       --------
Total                                $460,660       $450,000
                                     ========       ========

                                      -61-
<PAGE>

        Audit fees consist of audit work performed in the preparation of
financial statements and services that are normally provided in connection with
statutory and regulatory filings. Tax fees consist of audit work performed in
the preparation of tax returns and other tax planning.

POLICY ON PRE-APPROVAL OF AUDIT AND NON-AUDIT SERVICES

        Delta Galil's audit committee charter provides that the audit committee
shall approve in advance all audit services and all non-audit services provided
by the independent registered public accounting firm based on a policy attached
to the charter.

        Under the policy, proposed services either (i) may be pre-approved by
the audit committee without consideration of specific case-by-case services as
"general pre-approval"; or (ii) require the specific pre-approval of the Audit
Committee as "specific pre-approval". The appendices to the policy set out the
audit, audit-related and tax services that have received the general
pre-approval of the audit committee, including those described in the footnotes
to the table, above. These services are subject to annual review by the audit
committee.

        All other audit, audit-related, tax and other services not mentioned in
the appendices to the charter must receive a specific pre-approval from the
audit committee. Requests or applications to provide services that require
specific approval by the audit committee are submitted to the audit committee by
the chief executive officer, the chief financial officer and the internal
auditor.

ITEM 16D:   EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.

None

ITEM 16E:   PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
            PURCHASERS

Not applicable.

                                    PART III

ITEM 17:    FINANCIAL STATEMENTS

Not applicable

ITEM 18:    FINANCIAL STATEMENTS

        The Consolidated Financial Statements and related notes thereto required
by this item are contained on pages F-1 through F-49 hereof.



                                      -62-
<PAGE>

ITEM 19:    EXHIBITS

(A)     INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE

<TABLE>
<CAPTION>
<S>                                                                           <C>
        Report of Independent Registered Public Accounting Firm.....................................  F-2
        Consolidated Statements of Income for the Years Ended December 31, 2002, 2003 and 2004......  F-3
        Consolidated Balance Sheets at December 31, 2002 and 2003...................................  F-4
        Consolidated Statements of Changes in Shareholders' Equity for the Years Ended December 31,
           2002, 2003 and 2004......................................................................  F-6
        Consolidated Statements of Cash Flows for the Years Ended December 31, 2002,2003 and 2004...  F-7
        Notes to Consolidated Financial Statements..................................................  F-10
        Schedule I..................................................................................  F-51
        Reports of Independent registered public accounting firms with respect to consolidated
           subsidiaries.............................................................................  F-52
</TABLE>

(B)     EXHIBITS

1.1     Memorandum of Association, as amended**

1.2     Articles of Association**

2.1     Form of Deposit Agreement and ADR*

4.1     Stock Purchase Agreement dated as of December 8, 2004 by and among
        Steven Klein, Kristina Nettesheim, and Gary Beggs, as selling
        shareholders and Delta Galil Industries Ltd. and Delta Galil USA Inc. as
        Purchaser relating to the acquisition of Burlen Corp. +

4.2     Second Amended and Related Credit and Security Agreement dated as of
        December 9, 2004 by and among Delta Galil USA Inc., as Borrower; Bank
        Leumi USA and Bank Hapoalim B.M., as Lenders and Bank Leumi USA, as
        Agent.

4.3     Agreement for Purchase and Sale of Stock of Auburn Hosiery Mills, Inc.
        dated October 30, 2003, by and among Delta Galil USA Inc., Delta Galil
        Industries Ltd., Delta Galil Holland B.V., CGW Holdings, Inc., GCI
        Spainco, S.L. and Kellwood Company ****

4.4     Option Plan to 13 employees of Delta Galil and/or its subsidiaries*

4.5     Option Plan to Arnon Tiberg*

4.6     Option Plan to 70 employees of Delta Galil and/or its subsidiaries***

4.7     Delta Galil Industries Ltd. 2002 Share Option Plan*****

4.8     Form of Indemnification Undertaking******

8.1     List of subsidiaries

14.1    Consent of PricewaterhouseCoopers LLP

14.2    Consent of Baker Tilly

14.3    Consent of Ernst and Young

12.1    Section 302 Certification of Arnon Tiberg

12.2    Section 302 Certification of Yossi Hajaj

13.1    Section 906 Certification of Arnon Tiberg

13.2    Section 906 Certification of Yossi Hajaj

-------------------------------
* Previously filed as an exhibit to Delta Galil's Registration Statement on Form
F-1 (Registration No. 333-10062) filed with the Securities and Exchange
Commission on February 26, 1999 and incorporated herein by reference.
** Previously filed as an exhibit to Delta Galil's Annual Report on Form 20-F
(File No.0-30020) filed with the Securities and Exchange Commission on June 8,
2001 and incorporated herein by reference

                                      -63-
<PAGE>

*** Previously filed as an exhibit to Delta Galil's Registration Statement on
Form S-8 (Registration No. 333-12608) filed with the Securities and Exchange
Commission on September 26, 2000 and incorporated herein by reference.
**** Previously filed as an exhibit to Delta Galil's Annual Report on Form 20-F
(File No. 0-30020) filed with the Securities and Exchange Commission on June 23,
2004 and incorporated herein by reference.
***** Previously filed as an exhibit to Delta Galil's Registration Statement on
Form S-8 (Registration No. 353-102247) filed with the Securities and Exchange
Commission on December 30, 2002 and incorporated herein by reference.
****** Previously filed as an exhibit to Delta Galil's Annual Report on Form
20-F (File No. 0-30020) filed with the Securities and Exchange Commission on
June 26, 2003 and incorporated herein by reference.
+Portions of this exhibit have been omitted and will be filed separately with
the secretary of the Securities and Exchange Commission pursuant to a
confidential treatment request.







                                      -64-
<PAGE>


                                    SIGNATURE

        The registrant hereby certifies that it meets all of the requirements
for filing on Form 20-F and that it has duly caused and authorized the
undersigned to sign this annual report on its behalf.




                                       DELTA GALIL INDUSTRIES LTD.



                                       By:  Yossi Hajaj
                                            -----------
                                       Name: Yossi Hajaj
                                       Title: Chief Financial Officer


Date:   June 27, 2005




                                      -65-

<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
                        CONSOLIDATED FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED DECEMBER 31, 2004

<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
                        CONSOLIDATED FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED DECEMBER 31, 2004


                                TABLE OF CONTENTS


                                                                      PAGE
REPORT OF INDEPENDENT REGISTERED PUBLIC
   ACCOUNTING FIRM                                                     F-2
CONSOLIDATED FINANCIAL STATEMENTS:
     Statements of income                                              F-3
     Balance sheets                                                  F-4-F-5
     Statements of changes in shareholders' equity                     F-6
     Statements of cash flows                                        F-7-F-9
     Notes to financial statements                                  F-10-F-53


            The amounts are stated in U.S. dollars ($) in thousands.

<PAGE>



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders of
DELTA GALIL INDUSTRIES LTD.

We have audited the consolidated balance sheets of Delta Galil Industries Ltd.
(the "Company") and its subsidiaries as of December 31, 2004 and 2003 and the
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2004. These
financial statements are the responsibility of the Company's Board of Directors
and management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We did not audit the financial statements of certain subsidiaries, whose assets
included in consolidation constitute approximately 12% and 18% of total
consolidated assets as of December 31, 2004 and 2003, respectively, and whose
revenues included in consolidation constitute approximately 0%, 2% and 10% of
total consolidated revenues for the years ended December 31, 2004, 2003 and
2002, respectively. The financial statements of those subsidiaries were audited
by other independent registered public accounting firms, whose reports have been
furnished to us, and our Opinion, insofar as it relates to amounts included for
those companies, is based on the reports of the other independent registered
public accounting firms.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America) and with auditing
standards generally accepted in Israel, including those prescribed by the
Israeli Auditors (Mode of Performance) Regulations, 1973. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by the Company's Board
of Directors and management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of the other
registered public accounting firms provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of the other independent
registered public accounting firms, the consolidated financial statements
referred to above, present fairly, in all material respects, the consolidated
financial position of the Company and its subsidiaries as of December 31, 2004
and 2003, and the consolidated results of their operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2004, in conformity with accounting principles generally
accepted in the United States of America.


Tel-Aviv, Israel                               Kesselman & Kesselman
   June 27, 2005                        Certified Public Accountant (Isr.)
                                        A member of PricewaterhouseCoopers
                                               International Limited


                                      F-2
<PAGE>
<TABLE>
<CAPTION>
                                         DELTA GALIL INDUSTRIES LTD.
                                           (An Israeli corporation)
                                      CONSOLIDATED STATEMENTS OF INCOME
                            (U.S. dollars in thousands, except earnings per share)


                                                                               YEAR ENDED DECEMBER 31
                                                                        ------------------------------------
                                                                           2004        2003          2002
                                                                        ----------   ----------   ----------
<S>                                                                      <C>          <C>          <C>
NET REVENUES                                                             $654,269     $580,130     $567,298
COST OF REVENUES                                                          533,036      463,863      454,211
                                                                        ----------   ----------   ----------
GROSS PROFIT                                                              121,233      116,267      113,087
SELLING, MARKETING, GENERAL AND ADMINISTRATIVE EXPENSES - net              98,646       82,089       84,162
GAIN (LOSS) ON SALE OF ASSETS AND SUBSIDIARY SHARES                           922         3,645         (92)
RESTRUCTURING EXPENSES                                                      1,100         1,007        1,065
                                                                        ----------   ----------   ----------
OPERATING INCOME                                                           22,409        36,816       27,768
FINANCIAL EXPENSES - net                                                    6,231         5,637        5,456
OTHER INCOME - net                                                            958           252          960
                                                                        ----------   ----------   ----------
INCOME BEFORE TAXES ON INCOME                                              17,136        31,431       23,272
TAXES ON INCOME                                                             2,846         7,340        5,779
                                                                        ----------   ----------   ----------
                                                                           14,290        24,091       17,493
SHARE IN PROFITS (LOSSES) OF ASSOCIATED COMPANIES - net                      (237)        (300)          158
MINORITY INTERESTS, NET                                                    (1,368)        (439)      (1,025)
                                                                        ----------   ----------   ----------
NET INCOME                                                                $12,685      $23,352      $16,626
                                                                        ==========   ==========   ==========
EARNINGS PER SHARE:
    Basic                                                                    $0.69       $1.28        $0.88
                                                                        ==========   ==========   ==========
    Diluted                                                                  $0.67       $1.24        $0.88
                                                                        ==========   ==========   ==========
WEIGHTED AVERAGE NUMBER OF SHARES
    (IN THOUSANDS):
    Basic                                                                  18,478        18,313       18,914
                                                                        ==========   ==========   ==========
    Diluted                                                                18,834        18,763       18,927
                                                                        ==========   ==========   ==========


                   THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                                     F-3
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                    DELTA GALIL INDUSTRIES LTD.
                                     (An Israeli corporation)
                                    CONSOLIDATED BALANCE SHEETS
                                    (U.S. dollars in thousands)


                                                                              DECEMBER 31
                                                                      ---------------------------
                                                                          2004          2003
                                                                      ------------   ------------
<S>                                                                     <C>            <C>
                         ASSETS
CURRENT ASSETS:
    Cash and cash equivalents                                            $22,150        $17,699
    Accounts receivable:
       Trade                                                             105,129         85,723
       Other                                                              10,627         10,662
    Inventories                                                          183,767        142,984
    Deferred income taxes                                                  3,675          5,464
    Other investment , see note 3                                                         1,682
                                                                      ------------   ------------
           Total current assets                                          325,348        264,214
                                                                      ------------   ------------
INVESTMENTS AND LONG-TERM RECEIVABLES:
    Associated company                                                       455            661
    Funds in respect of employee rights upon retirement                    6,852          6,161
    Long-term receivables, net of current maturities                         226            419
                                                                      ------------   ------------
                                                                           7,533          7,241
                                                                      ------------   ------------
PROPERTY, PLANT AND EQUIPMENT,
    net of accumulated depreciation and amortization                     128,341        124,877
                                                                      ------------   ------------
GOODWILL                                                                  57,920         54,358
                                                                      ------------   ------------
INTANGIBLE ASSET                                                          14,778
                                                                      ------------   ------------
DEFERRED CHARGES, net of accumulated amortization                            577            194
                                                                      ------------   ------------
           Total assets                                                 $534,497       $450,884
                                                                      ============   ============



  ----------------------------    ----------------------------    ----------------------------
           D. LAUTMAN                       A. TIBERG                       G. MORAG
      CHAIRMAN OF THE BOARD                    CEO                          DIRECTOR


                                               F-4
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                    DELTA GALIL INDUSTRIES LTD.
                                     (An Israeli corporation)
                                    CONSOLIDATED BALANCE SHEETS
                                    (U.S. dollars in thousands)


                                                                              DECEMBER 31
                                                                      ---------------------------
                                                                          2004          2003
                                                                      ------------   ------------
<S>                                                                     <C>            <C>
               LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
    Short-term bank credit                                               $55,603        $94,560
    Current maturities of long-term bank loans and other liability        27,942         10,436
    Accounts payable and accruals:
       Trade                                                              80,338         54,464
       Other                                                              34,083         48,142
                                                                      ------------   ------------
           Total current liabilities                                     197,966        207,602
                                                                      ------------   ------------
LONG-TERM LIABILITIES:
    Bank loans and other liability, net of current maturities             99,437         14,709
    Liability for employee rights upon retirement                          7,408          6,732
    Deferred income taxes                                                  4,894          6,300
                                                                      ------------   ------------
           Total long-term liabilities                                   111,739         27,741
                                                                      ------------   ------------
COMMITMENTS AND CONTINGENT LIABILITIES, see note 9
           Total liabilities                                             309,705        235,343
                                                                      ------------   ------------
MINORITY INTERESTS                                                         3,711          3,207
                                                                      ------------   ------------
SHAREHOLDERS' EQUITY:
    Ordinary shares of NIS 1 par value
       December 31, 2004 and 2003:
       Authorized - 26,000,000 shares;
       Issued - 19,947,849 shares;
       Issued and paid - 19,901,967 shares and 19,860,211 shares,
           respectively                                                   21,840         21,830
    Additional paid-in capital                                           100,749         99,735
    Retained earnings                                                    108,980        104,607
    Accumulated other comprehensive loss                                    (788)        (2,503)
    Treasury shares, at cost (1,206,802 shares and 1,422,486 shares,
       in December 31, 2004 and 2003, respectively)                       (9,700)       (11,335)
                                                                      ------------   ------------
           Total shareholders' equity                                    221,081        212,334
                                                                      ------------   ------------
           Total liabilities and shareholders' equity                   $534,497       $450,884
                                                                      ============   ============


             THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.

                                               F-5
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                     DELTA GALIL INDUSTRIES LTD.
                                                      (An Israeli corporation)
                                     CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                                     (U.S. dollars in thousands)


                                                    SHARE CAPITAL                              ACCUMULATED
                                             -----------------------   ADDITIONAL                 OTHER        TREASURY
                                               NUMBER OF                PAID-IN    RETAINED    COMPREHENSIVE    SHARES,
                                                 SHARES    PAR VALUE    CAPITAL    EARNINGS    INCOME (LOSS)    AT COST     TOTAL
                                             ------------ -----------  ---------- ---------  ----------------  ---------  ----------
                                             IN THOUSANDS
                                             ------------
<S>                                               <C>         <C>         <C>       <C>                <C>       <C>       <C>
BALANCE AT JANUARY 1, 2002                        19,678      21,792      98,014    81,098             225       (2,940)   $198,189
CHANGES DURING 2002:
    Net income                                                                      16,626                                   16,626
    Losses in respect of derivative
      instruments designated as a
      cash-flow hedge (net of related
      taxes of  $363,000)                                                             (808)                        (808)
    Differences from translation of
      foreign currency financial statements                                                              *                        *
    Additional minimum pension liability
       adjustment (net of related                                                                     (823)                    (823)
       taxes of $540,000)
    Total comprehensive income                                                                                               14,995
    Exercise of employee stock options                 2           *          16                                                 16
    Cash dividend ($0.37 per share)                                                 (6,976)                                  (6,976)
    Cost of acquisition of treasury shares                                                                       (8,395)     (8,395)
                                             ------------ -----------  ---------- ---------  ----------------  ---------  ----------
BALANCE AT DECEMBER 31, 2002                      19,680     $21,792     $98,030   $90,748         $(1,406)    $(11,335)   $197,826
CHANGES DURING 2003:
    Net income                                                                      23,352                                   23,352
    Losses in respect of derivative
      instruments designated as a
      cash-flow hedge (net of related
      taxes of  $474,000)                                                                           (1,134)                  (1,134)
    Differences from translation of
      foreign currency financial  statements                                                             *                        *
    Additional minimum pension liability
      adjustment (net of related                                                                        37                       37
      taxes of $25,000)
    Total comprehensive income                                                                                               22,255
    Exercise of employee stock options               181          38       1,387                                              1,425
    Tax benefit in respect of employee
      stock options exercised                                                318                                                318
    Cash dividend ($0.52 per share)                                                 (9,493)                                  (9,493)
                                             ------------ -----------  ---------- ---------  ----------------  ---------  ----------
BALANCE AT DECEMBER 31, 2003                      19,861     $21,830     $99,735  $104,607         $(2,503)    $(11,335)   $212,334
CHANGES DURING 2004:
    Net income                                                                      12,685                                   12,685
    Gains in respect of derivative
      instruments designated as a
      cash-flow hedge (net of related
      taxes of  $798,000)                                                                            1,715                    1,715
    Differences from translation of
      foreign currency financial statements                                                             45                       45
    Additional minimum pension liability
      adjustment (net of related taxes
      of $30,000)                                                                                      (45)                     (45)
                                                                                                                             ------
    Total comprehensive income                                                                                               14,400
    Exercise of employee stock options                41          10         321                                                331
    Tax benefit in respect of employee
      stock options exercised                                                 79                                                 79
    Reissuance of treasury shares on
      acquisition of Burlen (see note 2a)                                    614                                  1,635       2,249
    Cash dividend ($0.45 per share)                                                 (8,312)                                  (8,312)
                                             ------------ -----------  ---------- ---------  ----------------  ---------  ----------
BALANCE AT DECEMBER 31, 2004                      19,902     $21,840    $100,749  $108,980           $(788)     $(9,700)   $221,081
                                             ============ ===========  ========== =========  ================  =========  ==========

                                                         * Less than $1,000.

                              THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.


                                                                F-6
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                                                                                                             (Continued) - 1
                                                 DELTA GALIL INDUSTRIES LTD.
                                                  (An Israeli corporation)
                                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 (U.S. dollars in thousands)


                                                                                          YEAR ENDED DECEMBER 31
                                                                                 ------------------------------------------
                                                                                     2004           2003           2002
                                                                                 ------------   ------------   ------------
<S>                                                                                  <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                                       $12,685        $23,352        $16,626
    Adjustments to reconcile net income to net cash provided by
       operating activities:
       Income and expenses not involving cash flows:
           Minority interests in profits of subsidiaries - net                         1,368            439          1,025
           Share in losses (profits) of associated companies, net                        237            300           (158)
           Amounts carried to deferred charges                                          (597)                         (146)
           Depreciation and amortization                                              15,185         14,530         14,082
           Write-down of other investments                                                             634
           Deferred income taxes - net                                                  (279)        (3,555)           440
           Restructuring expenses                                                      1,310            194            414
           Changes in accrued liability for employee rights upon
               retirement                                                              1,023            409             96
           Loss (gain) on amounts funded in respect of employee
              rights upon retirement                                                    (416)           214            624
           Capital loss (gain) on sale of property, plant and equipment
               and subsidiary shares                                                    (922)        (3,645)           313
           Capital gain from realization of other investment                            (958)          (885)          (960)
           Erosion of long-term receivables                                               (6)           (30)
           Exchange differences (erosion) of principal of long-term
              bank loans - net                                                          (180)         1,043             28
                                                                                 ------------   ------------   ------------
                                                                                      15,765          9,648         15,758
                                                                                 ------------   ------------   ------------
       Changes in operating assets and liabilities:
           Decrease (increase) in accounts receivable                                  1,798         15,095        (10,493)
           Increase (decrease) in accounts payable and accruals                       17,004         (5,061)         4,425
           Increase in inventories                                                   (20,078)          (173)           (35)
                                                                                 ------------   ------------   ------------
                                                                                      (1,276)         9,861         (6,103)
                                                                                 ------------   ------------   ------------
    Net cash provided by operating activities - forward                              $27,174         $42,861       $26,281
                                                                                 ------------   ------------   ------------
</TABLE>


                                                            F-7
<PAGE>
<TABLE>
<CAPTION>

                                                                                                             (Continued) - 2
                                                 DELTA GALIL INDUSTRIES LTD.
                                                  (An Israeli corporation)
                                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 (U.S. dollars in thousands)


                                                                                          YEAR ENDED DECEMBER 31
                                                                                 ------------------------------------------
                                                                                     2004           2003           2002
                                                                                 ------------   ------------   ------------
<S>                                                                                  <C>            <C>            <C>
Brought forward                                                                      $27,174        $42,861        $26,281
                                                                                 ------------   ------------   ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Acquisition of subsidiaries (1)                                                  (56,039)       (10,101)        (5,600)
    Payments related to restructuring costs                                           (4,800)
    Additional payment allocated to goodwill                                          (6,700)        (2,003)
    Purchase of property, plant and equipment                                        (13,484)       (14,925)       (17,728)
    Investment grants relating to property, plant and equipment                        1,074          1,099          1,591
    Other investments                                                                    (58)                          (17)
    Proceeds from sale of property, plant and equipment                                4,318          6,091            494
    Proceeds from realization of other investment                                      2,640          2,567          2,480
    Proceeds from sale of subsidiary shares                                                             250
    Associated company consolidated in previous years (2)                                                               (2)
    Loans granted to employees                                                          (260)          (350)          (408)
    Collection of employees loans                                                        313            345            400
    Long term loans granted                                                              (26)          (221)          (270)
    Amounts funded in respect of employee rights upon
       retirement - net                                                                 (667)        (1,157)          (686)
                                                                                 ------------   ------------   ------------
    Net cash used in investing activities                                            (73,689)       (18,405)       (19,746)
                                                                                 ------------   ------------   ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Cost of acquisition of treasury shares                                                                          (8,356)
    Long-term bank loans and other long-term liabilities                             119,000                        11,000
    Decrease in long-term loans and other long-term liabilities                      (10,430)       (10,335)       (10,391)
    Dividend to the Company's shareholders                                            (8,312)        (9,493)        (6,976)
    Dividend to minority shareholders in a subsidiary                                   (863)          (778)          (500)
    Short-term bank credit - net                                                     (48,890)        (2,067)        10,401
    Proceeds from exercise of options granted to employees
      and the company's CEO                                                              331          1,425             16
                                                                                 ------------   ------------   ------------
    Net cash provided by (used in) financing activities                               50,836        (21,248)        (4,806)
                                                                                 ------------   ------------   ------------
    TRANSLATION DIFFERENCES ON CASH AND
         CASH EQUIVALENTS OF FOREIGN
         CURRENCY CONSOLIDATED SUBSIDIARY                                                130              *
                                                                                 ------------   ------------   ------------
    NET INCREASE IN CASH AND CASH EQUIVALENTS                                          4,451          3,208          1,729
    CASH AND CASH EQUIVALENTS AT BEGINNING
         OF YEAR                                                                      17,699         14,491         12,762
                                                                                 ------------   ------------   ------------
    CASH AND CASH EQUIVALENTS AT END OF YEAR                                         $22,150        $17,699        $14,491
                                                                                 ============   ============   ============
</TABLE>
                                                     * Less than $1,000.

(1), (2) See next page for details.


                                                            F-8
<PAGE>
<TABLE>
<CAPTION>

                                                                                                             (Concluded) - 3
                                                 DELTA GALIL INDUSTRIES LTD.
                                                  (An Israeli corporation)
                                            CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 (U.S. dollars in thousands)


                                                                                          YEAR ENDED DECEMBER 31
                                                                                 ------------------------------------------
                                                                                     2004           2003           2002
                                                                                 ------------   ------------   ------------
<S>                                                                                  <C>            <C>            <C>
    SUPPLEMENTARY DISCLOSURE OF CASH FLOW
      INFORMATION - CASH PAID DURING THE
      YEAR FOR:
      Interest                                                                        $4,133         $3,660         $3,870
                                                                                 ============   ============   ============
      Income taxes                                                                    $3,169         $9,478         $6,748
                                                                                 ============   ============   ============

(1) ACQUISITION OF SUBSIDIARIES, SEE ALSO NOTE 2:
    Assets and liabilities of the subsidiaries upon acquisition:
      Working capital (excluding cash and cash equivalents)                          $29,944         $2,091           $500
      Long-lived assets                                                                9,636          6,642          4,347
      Intangible asset                                                                14,778
      Goodwill arising on acquisition                                                  4,930          1,368            753
                                                                                 ------------   ------------   ------------
                                                                                      59,288         10,101          5,600
                                                                                 ------------   ------------   ------------
    Reissuance of treasury shares                                                      2,249
    Amount payable                                                                     1,000
                                                                                 ------------   ------------   ------------
    Cash paid - net                                                                  $56,039        $10,101         $5,600
                                                                                 ============   ============   ============

(2) ASSOCIATED COMPANY PREVIOUSLY CONSOLIDATED:
    Assets and liabilities of the subsidiary previously consolidated
      Working capital (excluding cash and cash equivalents)                                                           $657
      Fixed assets                                                                                                  (2,511)
      Long-term liabilities                                                                                            435
      Minority interest in subsidiaries                                                                                711
      Investments in an associated company                                                                             710
                                                                                                               ------------
                                                                                                                        $2
                                                                                                               ============


SUPPLEMENTARY INFORMATION ON INVESTING ACTIVITIES NOT INVOLVING CASH FLOWS:


In 2004, 2003 and 2002, the net changes in outstanding balances of trade payables in respect of the purchase of property,
plant and equipment were an increase (decrease) of $ 0.1 million, $(1.1) million and $ 0.2 million, respectively.

                          THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.


                                                            F-9
</TABLE>

<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:

        A.      GENERAL:

                1)      Operations

                        Delta Galil Industries Ltd. (the "Company") is an
                        Israeli corporation which, together with its
                        subsidiaries (the "Group"), is engaged primarily in
                        manufacturing and marketing of intimate apparel, in five
                        reportable operating segments - Delta USA, U.S. upper
                        market, Europe, Socks and Delta marketing Israel. As to
                        the Group's segments and principal markets see note 15.

                        A significant portion of the Group's revenues derives
                        from three principal customers. See note 12a and 15c.

                2)      Accounting principles

                        The consolidated financial statements are prepared in
                        accordance with generally accepted accounting principles
                        ("GAAP") in the United States of America.

                3)      Use of estimates in the preparation of financial
                        statements

                        The preparation of financial statements in conformity
                        with GAAP requires management to make estimates and
                        assumptions that affect the reported amounts of assets
                        and liabilities, and the disclosure of contingent assets
                        and liabilities at the dates of the financial
                        statements, and the reported amounts of revenues and
                        expenses during the reported years. Actual results could
                        differ from those estimates.

                4)      Functional currency


                        The currency of the primary economic environment in
                        which the operations of the Company and most of its
                        subsidiaries are conducted is the U.S. dollar (the
                        "dollar" or "$").

                        Since the U.S. dollar is the primary currency in the
                        economic environment in which the Company operates,
                        monetary accounts maintained in currencies other than
                        the dollar are remeasured using the representative
                        foreign exchange rate at the balance sheet date.
                        Operational accounts and non-monetary balance sheet
                        accounts are measured and recorded at the rate in effect
                        at the date of the transaction. The effects of foreign
                        currency remeasurement are recorded as financial income
                        or expenses as appropriate.


                                      F-10
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

                        The functional currency of a subsidiary which was
                        acquired in 2003 (see also note 2c) and an associated
                        company is its local currency (EURO and NIS). The
                        financial statements of this subsidiary are included in
                        consolidation based on translation into dollars in
                        accordance with the principles set forth in Statement of
                        Financial Accounting Standard ("FAS") No. 52 issued by
                        the FASB: assets and liabilities are translated at year
                        end exchange rate, while operating results items are
                        translated at average exchange rates during the year.
                        Differences resulting from translation are presented in
                        shareholders' equity, under accumulated other
                        comprehensive income (loss).

        B.      PRINCIPLES OF CONSOLIDATION

                The consolidated financial statements include the accounts of
                the Company and all of its subsidiaries. In these financial
                statements, "subsidiaries" are companies controlled to the
                extent of over 50%, the financial statement of which are
                consolidated with those of the Company. Significant intercompany
                balances and transactions were eliminated in consolidation.
                Profits from intercompany sales, not yet realized outside the
                Group, have also been eliminated.

        C.      CASH EQUIVALENTS

                The Group considers all highly liquid investments, which
                composed of short-term bank deposits (up to three months from
                date of deposit) that are not restricted as to withdrawal or
                use, to be cash equivalents.

        D.      INVENTORIES

                Inventories are valued at the lower of cost or market. Cost is
                determined as follows:

                Raw materials and supplies, packaging which is part of the
                production line and maintenance materials - on the "moving
                average" basis. Finished products and products in process -
                direct cost of materials (on the "moving average" basis), labor
                and an appropriate portion of indirect manufacturing costs.

        E.      INVESTMENTS IN AN ASSOCIATED COMPANY

                An "associated company" is a company over which significant
                influence is exercised, but which is not a consolidated
                subsidiary. An associated company is accounted for by the equity
                method.


                                      F-11
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

        F.      PROPERTY, PLANT AND EQUIPMENT

                Property, plant and equipment are stated at cost, net of related
                investment grants in the amount of $ 49.8 million and $ 49.2
                million at December 31, 2004 and 2003, respectively. Fixed asset
                leased by the Group under capital lease are classified as the
                Group's asset and included at the present value of the minimum
                lease payments as determined in the lease agreement.

                Depreciation is computed by the straight-line method on the
                basis of the estimated useful life of the assets, at the
                following annual rates:

                       Buildings and plumbing                        2%-7%
                                                                  (mainly 4%)
                       Machinery and equipment                      7%-25%
                                                                  (mainly 7%)
                       Vehicles                                     15%-20%
                                                                 (mainly 15%)
                       Office furniture and equipment               6%-25%
                                                                  (mainly 7%)

                Leasehold improvements are amortized by the straight-line method
                over the lease period, which is shorter than the estimated
                useful life of the improvements.

        G.      GOODWILL

                Under FAS 142 "Goodwill and Other Intangible Assets", goodwill
                is no longer amortized but tested for impairment at least
                annually. The Company has selected September 30 of each year as
                the date on which it will perform its annual goodwill impairment
                test. No impairment resulted from the annual review performed in
                the year ended December 31, 2004, 2003 and 2002.

        H.      DEFERRED CHARGES

                Deferred charges represent mainly financing charges, which are
                amortized over the credit period.

                Amortization of deferred charges included among "financial
                expenses, net" were $ 353 thousands, $ 250 thousands and $ 164
                thousands, for the years ended December 31, 2004, 2003 and 2002,
                respectively.


                                      F-12
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

        I.      IMPAIRMENT IN VALUE OF LONG-LIVED ASSETS

                Under FAS 144 "Accounting for the Impairment or Disposal of
                Long- Lived Assets" ("FAS 144"), the Company reviews long-lived
                assets, to be held and used, for impairment whenever events or
                changes in circumstances indicate that the carrying amount of
                the assets may not be recoverable. Under FAS 144, if the sum of
                the expected future cash flows (undiscounted and without
                interest charges) of the long-lived assets is less than the
                carrying amount of such assets, an impairment loss would be
                recognized, and the assets are written down to their estimated
                fair values.

                As for long - lived assets impairment, see note 12e.

        J.      DEFERRED INCOME TAXES

                Deferred taxes are determined utilizing the asset and liability
                method, based on the estimated future tax effect differences
                between the financial accounting and tax bases of assets and
                liabilities under the applicable tax laws. Deferred income tax
                provisions and benefits are based on the changes in the deferred
                tax assets or tax liabilities from period to period.

                As stated in note 11a, a plant of an Israeli subsidiary has been
                granted "approved enterprise" status and, accordingly, upon
                distribution of dividends by this subsidiary to the Company,
                such dividends may be subject to tax. In light of the Group's
                policy not to cause distribution of dividends, which would
                result in additional tax liabilities, any dividends received
                from the abovementioned subsidiary will be distributed to the
                Company's shareholders. Accordingly, no account has been taken
                of the additional tax in respect of the above dividends. See
                note 11a(1)(a).

                The Group does not provide for an additional tax liability with
                respect to the excess of the amount for financial reporting over
                the tax basis of investments in non-Israeli subsidiaries, as the
                Company does not expect such temporary differences to be
                reversed in the foreseeable future.

        K.      TREASURY SHARES

                Treasury shares held by the Company are presented as a reduction
                of shareholders' equity, at their cost. The FIFO method was used
                for the costing of the reissuance of treasury shares, and any
                resulting gains (net of related tax) are credited to additional
                paid in capital.


                                      F-13
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

        L.      REVENUE RECOGNITION

                Revenues from sales of products and supplies are recognized when
                an arrangement (usually in the form of purchase order) exists,
                delivery has occurred and title passed to the customer, the
                company's price to the customer is fixed or determinable and
                collectibility is reasonably assured.

                Volume discounts due to customers are estimated based on the
                terms of the agreements with the customers.

                A reserve for sales returns is recorded based on historical
                experience or specific identification of an event necessitating
                a reserve.

        M.      CONCENTRATION OF CREDIT RISKS - ALLOWANCE FOR DOUBTFUL ACCOUNTS

                The Group's cash and cash equivalents as of December 31, 2004
                and 2003 were deposited Mainly with major banks in United States
                of America, United Kingdom, Hungary and Egypt and in 2003 United
                States of America, Israel, Hungary and Egypt. The Company is of
                the opinion that the credit risk in respect of these balances is
                remote.

                A large part of the Group's sales is to 3 principal customers
                (see also note 15c). The balance receivables from these
                principal customers as of December 31, 2004 and 2003 were $
                47,982 thousands and $ 51,297 thousands, respectively (see also
                note 12a). The Group does not hold any collateral from these
                customers; however, based on past experience with those
                customers, the Group does not anticipate any difficulties in
                collecting the above balances. The balance of the item "accounts
                receivable - trade" is composed of a large number of customers.
                An appropriate allowance for doubtful accounts is included in
                the accounts in respect of specific debts doubtful of
                collection. The bad debt income (expenses) and allowance charged
                to expenses, for the years ended December 31, 2004, 2003 and
                2002 aggregated $ 950 thousands, $ 309 thousands and $ (3,558)
                thousands, respectively.

        N.      SHIPPING AND HANDLING COSTS

                The Group's shipping and handling costs are included under
                selling and marketing expenses in the consolidated statements of
                income. Shipping and handling costs for the years ended December
                31, 2004, 2003 and 2002 were approximately $ 20 million, $ 17
                million and $ 18 million, respectively.

        O.      ADVERTISING COSTS

                These costs are expensed as incurred. Advertising costs for the
                years ended December 31, 2004, 2003 and 2002 were $ 2.1 million,
                $ 1.9 million and $ 2.5 million, respectively.


                                      F-14
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

        P.      STOCK BASED COMPENSATION

                Stock options granted to employees are accounted for under the
                recognition and measurement principles of APB No. 25,
                "Accounting for Stock Issued to Employees", and related
                interpretations. Under APB 25, compensation cost for employee
                stock option plans is measured using the intrinsic value based
                method of accounting.

                Accordingly, the difference, if any, between the quoted market
                price of the ordinary shares on the date of grant of the options
                and the exercise price of such options is amortized by the
                accelerated amortization method, against income, over the
                expected service period (up to four years).

                FAS 123, "Accounting for Stock-Based Compensation", established
                a fair value based method of accounting for employee stock
                options or similar equity instruments, and encourages adoption
                of such method for stock compensation plans. However, it also
                allows companies to continue to account for those plans using
                the accounting treatment prescribed by APB 25. The Company has
                elected to continue accounting for employee stock option plans
                under APB 25, and has accordingly complied with the disclosure
                requirements set forth in FAS 123, as amended by FAS 148, for
                companies electing to apply APB 25, (see also note 1t).

                The following table illustrates the effect on net income and
                earnings per share assuming the Company has applied the fair
                value recognition provisions of FAS 123 to its stock-based
                employee compensation:

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31
                                                                        ------------------------------------------
                                                                            2004           2003           2002
                                                                        ------------   ------------   ------------
                                                                                      $ IN THOUSANDS
                                                                                  (EXCEPT PER SHARE DATA)
                                                                        ------------------------------------------
<S>                                                                        <C>           <C>             <C>
                  Net income, as reported                                  $ 12,685      $ 23,352        $ 16,626
                  Add - stock-based employee compensation
                  expense include in reported net income
                  net of related tax effect
                  Less - stock-based employee compensation
                   expense determined under fair value method,
                   net of related tax effect                                   (690)       (1,384)         (1,359)
                                                                        ------------   ------------   ------------
                  Pro forma net income                                      $11,995      $ 21,968        $ 15,267
                                                                        ============   ============   ============
                  Earnings per share:
                      Basic - as reported                                    $ 0.69        $ 1.28          $ 0.88
                      Basic - pro forma                                      $ 0.65        $ 1.20          $ 0.81
                      Diluted - as reported                                  $ 0.67        $ 1.24          $ 0.88
                      Diluted - pro forma                                    $ 0.64        $ 1.17          $ 0.81
</TABLE>


                                      F-15
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

                The fair value of options granted during 2004, 2003 and 2002 was
                $452 thousands, $72 thousands and $1,700 thousands,
                respectively. The fair value of each option granted is estimated
                on the date of grant using the Black & Scholes option-pricing
                model, with the following weighted average assumptions:

<TABLE>
<CAPTION>
                                                   2004           2003           2002
                                               ------------   ------------   ------------
<S>                                            <C>            <C>            <C>
                  Dividend yield                       3.5%             5%             5%
                                               ============   ============   ============
                  Expected volatility                28.00%         27.33%         30.94%
                                               ============   ============   ============
                  Risk-free interest rate                4%             1%             2%
                                               ============   ============   ============
                  Expected life - in years             4.25           4.25           5.58
                                               ============   ============   ============
</TABLE>

        Q.      EARNINGS PER SHARE

                Basic earnings per share are computed by dividing net income by
                the weighted average number of shares outstanding during the
                year, net of treasury shares.

                Diluted earnings per share are computed by dividing net income
                by the weighted average number of shares outstanding during the
                year, net of treasury shares, taking into account the potential
                dilution that could occur upon the exercise of options granted
                under employee stock option plans, using the treasury stock
                method.

        R.      DERIVATIVES

                The Company enters into forward exchange contracts to hedge the
                cash flows resulting from sales of products, salaries and wages,
                in currencies other than the functional currency. The Company
                does not hold derivative financial instruments for trading
                purposes.

                Under FAS 133 "Hedging Activities", all derivatives are
                recognized on the balance sheet at their fair value. On the date
                that the Company enters into a derivative contract, it
                designates the derivative for accounting purposes, as: (1)
                hedging instrument, or (2) non-hedging instrument.

                For derivative financial instruments that are designated and
                qualify as a cash flow hedge, the effective portions of changes
                in fair value of the derivative are recorded in other
                comprehensive income (loss), under "Gains or losses in respect
                of derivative instruments designated as a cash-flow hedge , net
                of related tax" and are recognized in the income statement when
                the hedged item affects earnings. Ineffective portions of
                changes in the fair value of cash flow hedges are recognized
                immediately in income among financial expenses. Changes in the
                fair value of derivatives that do not qualify for hedge
                accounting are recognized in income among financial expenses.
                Cash flows from derivatives that qualify as a cash flow hedge
                are recognized in the statements of cash flows in the same
                category as that of the hedged item.


                                      F-16
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

        S.      COMPREHENSIVE INCOME

                In addition to net income, other comprehensive income (loss)
                includes gains or losses in respect of derivative instruments
                designated as cash-flow hedge, net of related taxes, differences
                from translation of foreign currency financial statements of a
                subsidiary and an associated company and additional minimum
                pension liability adjustments, net of related taxes.

        T.      RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:

                1)      In December 2004, the Financial Accounting Standards
                        Board ("FASB") issued the revised Statement of Financial
                        Accounting Standards ("FAS") No. 123, SHARE-BASED
                        PAYMENT (FAS 123R), which addresses the accounting for
                        share-based payment transactions in which the Company
                        obtains employee services in exchange for (a) equity
                        instruments of the Company or (b) liabilities that are
                        based on the fair value of the Company's equity
                        instruments or that may be settled by the issuance of
                        such equity instruments. This Statement eliminates the
                        ability to account for employee share-based payment
                        transactions using APB Opinion No. 25, ACCOUNTING FOR
                        STOCK ISSUED TO EMPLOYEES, and requires instead that
                        such transactions be accounted for using the grant-date
                        fair value based method. This Statement will be
                        effective as of the beginning of the first interim or
                        annual reporting period that begins after June 15, 2005
                        (July 1, 2005 for the Company). Early adoption of FAS
                        123R is encouraged. On April 15, 2005, the Securities
                        and Exchange Commission approved a new rule, under which
                        FAS 123R is effective for public companies at the
                        beginning of their next fiscal year that begins after
                        June 15, 2005 (first quarter of 2006 for the company).
                        This Statement applies to all awards granted or modified
                        after the Statement's effective date. In addition,
                        compensation cost for the unvested portion of previously
                        granted awards that remain outstanding on the
                        Statement's effective date shall be recognized on or
                        after the effective date, as the related services are
                        rendered, based on the awards' grant-date fair value as
                        previously calculated for the pro-forma disclosure under
                        FAS 123. The Company expects that upon the adoption of
                        FAS 123R, it will apply the modified prospective
                        application transition method, as permitted by the
                        Statement. Under such transition method, upon the
                        adoption of FAS 123R, the Company's financial statements
                        for periods prior to the effective date of the Statement
                        will not be restated The impact of this statement on the
                        Company's results of operations in 2005 and beyond will
                        depend upon various factors, among them the Company's
                        future compensation strategy.


                                      F-17
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

                The Company does not expect this Statement to have a material
                effect on the Company's results of operations in future periods.
                In March 2005, the SEC issued Staff Accounting Bulletin No. 107,
                "Share-Based Payment" ("SAB No. 107"). SAB No. 107 provides
                guidance on the initial implementation of FAS No. 123(R). In
                particular, the statement includes guidance related to
                share-based payment awards with non-employees, valuation methods
                and selecting underlying assumptions such as expected volatility
                and expected term. It also gives guidance on the classification
                of compensation expense associated with share-based payment
                awards and accounting for the income tax effects of share-based
                payment awards upon the adoption of FAS No. 123(R). The Company
                is currently assessing the guidance provided in SAB No. 107 in
                connection with the implementation of FAS No. 123(R).

                1)      In November 2004, the FASB issued FAS No. 151,
                        "Inventory Costs - an amendment of ARB 43, Chapter 4"
                        (FAS 151). This Statement amends the guidance in ARB No.
                        43, Chapter 4, "Inventory Pricing," to clarify the
                        accounting for abnormal amounts of idle facility
                        expense, freight, handling costs, and wasted material.
                        This Statement requires that those items be recognized
                        as current-period charges. In addition, this Statement
                        requires that allocation of fixed production overheads
                        to the costs of conversion be based on the normal
                        capacity of the production facilities. This Statement
                        will be effective for inventory costs incurred during
                        fiscal years beginning after June 15, 2005 (January 1,
                        2006 for the Company). Earlier application of FAS 151 is
                        permitted. The provisions of this Statement shall be
                        applied prospectively. The Company does not expect this
                        Statement to have a material effect on the Company's
                        financial statements or its results of operations.

                2)      In December 2004, the FASB issued FAS No. 153,
                        "Exchanges of Non-monetary Assets - An Amendment of APB
                        Opinion No. 29" (FAS 153). FAS 153 amends APB Opinion
                        No. 29, "Accounting for Non-monetary Transactions"
                        (Opinion 29). The amendments made by FAS 153 are based
                        on the principle that exchanges of non-monetary assets
                        should be measured based on the fair value of the assets
                        exchanged. Further, the amendments eliminate the
                        exception for non-monetary exchanges of similar
                        productive assets and replace it with a general
                        exception for exchanges of non-monetary assets that do
                        not have commercial substance. The provisions in FAS 153
                        are effective for non-monetary asset exchanges occurring
                        in fiscal periods beginning after June 15, 2005 (July 1,
                        2005 for the Company). Early application of the FAS 153
                        is permitted. The provisions of this Statement shall be
                        applied prospectively. The Company does not expect the
                        adoption of FAS 153 to have a material effect on the
                        Company's financial statements or its results of
                        operations.


                                      F-18
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

                3)      In May 2005, the FASB issued FAS No. 154, "Accounting
                        Changes and Error Corrections". FAS No. 154 is a
                        replacement of Accounting Principles Board Opinion
                        ("APB") No. 20 and FASB Statement No. 3. FAS No. 154
                        provides guidance on the accounting for and reporting of
                        accounting changes and error corrections. It establishes
                        retrospective application as the required method for
                        reporting a change in accounting principle. FAS No.
                        154also requires that a change in depreciation,
                        amortization, or depletion method for long-lived,
                        nonfinancial assets be accounted for as a change in
                        accounting estimate effected by a change in accounting
                        principle. The Statement carries forward the guidance
                        contained in APB No. 20 for reporting the correction of
                        an error in previously issued financial statements and a
                        change in accounting estimate. FAS No. 154 is effective
                        for accounting changes and corrections of errors made in
                        fiscal years beginning after December 15, 2005 (January
                        1, 2006 for the Company). The Company does not expect
                        this standard to have a material effect on the Company's
                        financial statements or results of operations.

        U.      RECLASSIFICATIONS

                Certain figures in respect of prior years have been reclassified
                to conform with the current year presentation.


NOTE 2 - ACQUISITIONS AND OTHER TRANSACTIONS ACQUISITIONS:

        The acquisitions described bellow have all been accounted for by the
        purchase method. The consideration for each acquisition was attributed
        to net assets on the basis of the fair value of assets acquired and
        liabilities assumed.

        A.      ACQUISITION OF BURLEN INC. (BURLEN) - IN 2004

                On December 8, 2004, the Company acquired, through a wholly
                owned subsidiary all of the shares of Burlen, a privately held
                U.S. company, which is engaged in the development, production
                and marketing of ladies' intimate apparel.

                The Burlen acquisition is another step in the Company's strategy
                to increase its intimate apparel category of the mass market by
                exploiting the synergies between Burlen's operations and the
                Company's existing activities. This acquisition is expected to
                strengthen the Company's position in the mass market.

                The acquisition price amounted to $ 59.6 million from which $
                56.4 million was paid in cash (including $ 8.2 million paid to a
                bank for discharge of a loan) and $ 2.2 million in ordinary
                shares comprised of 215,684 ordinary shares reissued from
                treasury shares, based on a price per share of $ 10.43.
                Acquisition costs accrued to $ 1.0 million would be paid in
                2005.


                                      F-19
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 2 - ACQUISITIONS AND OTHER TRANSACTIONS ACQUISITIONS (continued):

                In addition, under the agreement the Company may pay additional
                amount to the selling shareholders, subject to achieving certain
                revenues and operating profit targets over a period of 3 years,
                2005-2007. The additional consideration, will be recorded as
                additional goodwill.

                Other intangible asset acquired, which amounted to $ 14.8
                million, represents customer relations and is amortized over a
                period of 20 years. The excess of cost of acquisition over the
                fair value of net assets, on acquisition date - $ 3.9 million -
                was allocated to goodwill and included as part of Delta USA
                segment . Goodwill and customer relations are deductible for tax
                purposes. The following table summarizes the estimated fair
                values of the assets acquired and liabilities assumed at the
                date of acquisition:

                At December 8, 2004 (in thousands)
                Cash and cash equivalents                           $2,605
                Account receivable - trade                          20,577
                Account receivable - Other                             117
                Inventories                                         19,677
                Intangible asset                                    14,778
                Property, plant, and equipment                       7,805
                Goodwill                                             3,873
                                                                --------------
                          Total assets acquired                    $69,432
                                                                ==============
                Short-term bank credit                               3,038
                Accounts payable - trade                             4,341
                Accounts payable - Other                             2,452
                                                                --------------
                       Net assets acquired                         $59,601
                                                                ==============

                As to proforma result, see note d below.


                                      F-20
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 2 - ACQUISITIONS AND OTHER TRANSACTIONS (continued):

        B.      ACQUISITION OF MANUFACTURING PLANT IN THAILAND (THAILAND) - IN
                2004

                In December 2004 the Company acquired a manufacturing facility
                in Thailand for a total consideration of $2.4 million. From the
                said amount $0.9 million was paid for the shares and $0.8
                million to pay off debt to the former shareholders. In addition,
                the Company assumed bank debt of $0.7 million. The acquired
                manufacturing facility in Thailand constitute a "business" under
                EITF 98-3 - "Determining Whether a Nonmonetary Transaction
                Involves Receipt of Productive Assets or of a Business".

                The main strategy for the Thailand plant acquisition is to
                reduce the sewing cost. The excess of cost of acquisition over
                the fair value of net assets on acquisition date approximately -
                $1.0 million - was allocated to goodwill.

                At December 31, 2004 (in thousands)
                Cash and cash equivalent                               $61
                Account receivable - trade                           1,025
                Account receivable - Other                              34
                Inventories                                          1,381
                Property, plant, and equipment                       1,831
                Goodwill                                             1,057
                                                                --------------
                          Total assets acquired                     $5,389
                                                                ==============
                Short-term bank credit                                 601
                Accounts payable - trade                               528
                Accounts payable - Other                             1,776
                Long term debt                                         131
                                                                --------------
                       Net assets acquired                          $2,353
                                                                ==============


                                      F-21
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 2 - ACQUISITIONS AND OTHER TRANSACTIONS (continued):

        C.      ACQUISITION OF AUBURN HOSIERY MILLS ("AUBURN") - IN 2003

                In November 2003, the Company acquired, through wholly owned
                subsidiaries from Kellwood inc. ("the seller") all of the shares
                of its two private held U.S. and Irish companies, which are
                engaged in the operations of design, development, manufacture,
                sourcing, marketing, distribution and sale of socks. The
                functional currency of the Irish operation is its local currency
                - the Euro.

                The Group paid $10.8 million in cash to the seller.

                The following table summarizes the estimated fair values of the
                assets acquired and liabilities assumed at the date of
                acquisition. The excess of cost of acquisition over the fair
                value of net assets on acquisition date approximately $ 1.4
                million - was initially allocated to goodwill.

                At November 13, 2003 (in thousands)
                Cash and cash equivalents                             $699
                Account receivable - trade                           5,754
                Account receivable - other                             700
                Inventories                                          9,448
                Property, plant, and equipment                       6,642
                Goodwill                                             1,368*
                                                                --------------
                          Total assets acquired                    $24,611
                                                                ==============
                Short-term bank credit                                $213
                Accounts payable                                     7,435
                Accrued expenses - restructuring costs               6,163*
                                                                --------------
                       Net assets acquired                         $10,800
                                                                ==============

                *In 2003 the Company recorded liabilities in respect of
                restructuring costs in an amount of $6.2 million, which includes
                approximately $2.2 million for severance pay and related costs
                and $ 4.0 million for costs associated with the shut down of
                certain acquired facilities. An amount of $4.8 million was paid
                during 2004, $2 million related to grants, $2.3 million related
                to employees, $0.1 million related to property, plant and
                equipment and $0.4 million related to manufacturing and others.


                                      F-22
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 2 - ACQUISITIONS AND OTHER TRANSACTIONS (continued):

                During 2004 the Company finalized the restructuring plan and
                liabilities in respect of restructuring costs, which results in
                a decrease of $1.9 million on the excess of cost of acquisitions
                over the fair value of net assets on acquisition date. The said
                decrease was allocated $ 1.4 million to the goodwill (which off
                set the entire goodwill initially recognized) and $ 0.5 million
                to property, plant and equipment.

        D.      Hereafter are certain unaudited pro forma combined income data
                assuming that the acquisition of Burlen had occurred on January
                1, 2004 and 2003, respectively, and the acquisition of Auburn
                had occurred on January 1, 2003 and 2002, respectively. The
                unaudited pro forma financial information is not necessarily
                indicative of the combined results that would have been attained
                had the acquisitions of Burlen and Auburn occurred as of January
                1, 2004 and 2003, and 2003 and 2002, respectively, nor is it
                necessarily indicative of future results.

<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31
                                               ------------------------------------------
                                                   2004           2003           2002
                                               ------------   ------------   ------------
                                                              IN THOUSANDS
                                               ------------------------------------------
                                                       (EXCEPT EARNINGS PER SHARE)
                                               ------------------------------------------
                                                               (UNAUDITED)
<S>                                            <C>            <C>            <C>
                  Net Revenues                     $763,375       $721,172       $626,732
                                               ============   ============   ============
                  Net Income                        $19,853        $24,664        $16,079
                                               ============   ============   ============
                  Earning per share - Basic           $1.06          $1.33          $0.85
                                               ============   ============   ============
                  Earning per share - Diluted         $1.04          $1.30          $0.85
                                               ============   ============   ============
</TABLE>

        E.      ACQUISITION OF THE OPERATIONS OF KOMAR TEXTILE TRADING CO. LTD.
                ("KOMAR") - IN 2002

                In November 2002 the Company purchased some of the operations of
                Komar, a privately held Hungarian company. Komar is engaged in
                production of baby-wear. The purchase price - $ 5,600 thousands
                was paid in cash. The excess of cost of acquisition over the
                fair value of net assets on acquisition date - $ 753 thousands -
                was allocated to goodwill, which is included as part of the
                Europe segment. Goodwill is not deductible for tax purposes.
                During the fourth quarter of 2004 the group has decided to close
                the logistic center, and included $ 1.5 million restructuring
                expenses, of which $ 0.4 million is included in cost of
                revenues. See also note 12e.

        F.      ACQUISITION OF INNER SECRETS INC. ("INNER") - IN 2001

                In January 2001, the Company acquired, through a wholly owned
                subsidiary - Wundies Industries Inc. ("the acquiring company"),
                all of the shares of Inner, a privately held U.S. company, which
                is engaged in the development, production and marketing of
                ladies' intimate apparel.


                                      F-23
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 2 - ACQUISITIONS AND OTHER TRANSACTIONS (continued):

                The acquisition price was paid as follows: 85% in cash and 15%
                in Company shares. In addition, the acquisition price was set to
                be four times Inner's earnings before interest, income taxes,
                depreciation and amortization ("EBITDA"), subject to certain
                adjustments, for the year ended December 31, 2000, but after
                deducting liabilities to banks and other loans as of December
                31, 2000.

                In addition, in case the EBITDA of both the acquired company and
                the acquiring company for the year 2002 will be higher than the
                EBITDA of both companies for the year 2000 by at least $ 4
                million, the sellers will be entitled to an additional cash
                payment, of an amount not exceeding 50% of the EBITDA of the
                acquired company for the year 2000 (hereafter - "the performance
                payment"), in accordance with certain adjustments. In case the
                sellers' entitlement to full performance payment will not be in
                accordance with the 2002 results, the sellers will be entitled
                to receive the rest of the performance payment, in accordance
                with the agreement, considering the 2003 results. In any case,
                the sellers will not be entitled to an over-all payment that
                exceeds the performance payment. Such additional payment will be
                paid in cash and will be recorded when earned as additional
                purchase price.

                During 2001 the Company paid $ 48.7 million in cash (including $
                14.4 million paid to a bank for discharge of a loan) and $ 5.9
                million in 454,020 Company shares, based on a price per share of
                $ 13.05. During 2003 and 2004 the Company paid an additional $
                2.0 million and $ 6.7 million in cash, respectively, as an
                adjustment to the purchase price. The payments were allocated to
                goodwill.

                In 2003 the purchase price was finalized and the total goodwill
                amount, resulted from the acquisition, was $ 24.3 million, which
                is included as part of Delta USA segment. Goodwill is not
                deductible for tax purposes.

                OTHER TRANSACTION:

                SALE OF SUBSIDIARY'S SHARES

                In August 2002, Delta Galil signed an agreement for the sale of
                10% of its wholly-owned subsidiary, in consideration of $250
                thousands.

                During March 2003 the Company received the payment, transferred
                the shares and as a result recognized a gain in an amount of $
                109 thousands.

                According to the agreement the buyer has an option to purchase
                additional shares of the subsidiary on terms to be agreed at a
                later stage. The option shall remain in effect for a period of
                36 months from the date of agreement.


                                      F-24
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 3 - OTHER INVESTMENT AND  INVESTMENT IN AN ASSOCIATED COMPANY

        A.      SALE OF INVESTMENT IN STANDARD TEXTILE EUROPE LTD. ("STE") -
                OTHER INVESTMENT

                On August 4, 2000, a subsidiary signed an agreement for the sale
                of its investment in STE, which was an associated company (till
                January 2003), for $ 9 million, which bears interest of LIBOR
                plus 1.5% per year.

                The transaction was carried out in four equal batches, in the
                years 2004, 2003, 2002 and 2000. The capital gains recorded in
                the years 2004, 2003 and 2002 were $958 thousands, $885
                thousands and $ 960 thousands, respectively, and were classified
                to "Other Income - net".

        B.      EDOMIT LTD. ("EDOMIT") - AN ASSOCIATED COMPANY

                The Company holds 50% of the shares in Edomit. The Company's
                investment in Edomit is accounted for by the equity method.

                The balance of the investment in Edomit as of December 31, 2004
                and 2003 is $ 455 thousands and $ 661 thousands, respectively.
                As of December 31, 2004 and 2003 these balances include a loan
                in the amount of $ 446 and $ 417, respectively. The loan is
                linked to the Israeli CPI and bears no interest.


NOTE 4 - LONG-TERM RECEIVABLES

                Long-term receivables represent long-term loans to employees -
                mainly linked to the Israeli consumer price index ("CPI") and
                bearing interest at the rate of 4%.

                These balances are mature in the following years after balance
                sheet dates:

                                                            DECEMBER 31
                                                    ---------------------------
                                                        2004           2003
                                                    ------------   ------------
                                                           IN THOUSANDS
                                                    ---------------------------

                 First year - current maturities           $193           $512
                                                    ------------   ------------
                 Second year                                204            362
                 Third year                                  14             36
                 Fourth year                                  5             21
                 Fifth year                                   3
                                                    ------------   ------------
                                                           $226           $419
                                                    ------------   ------------
                                                           $419           $931
                                                    ============   ============


                                      F-25
<PAGE>

                          DELTA GALIL INDUSTRIES LTD..
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 5 - PROPERTY, PLANT AND EQUIPMENT:

        A.      Composition of property, plant and equipment, grouped by major
                classifications, is as follows:

<TABLE>
<CAPTION>
                                                                                    DECEMBER 31
                                                                            ---------------------------
                                                                                2004           2003
                                                                            ------------   ------------
                                                                                   IN THOUSANDS
                                                                            ---------------------------
<S>                                                                             <C>            <C>
                  Land, buildings and plumbing, see b. below*                   $41,706        $38,688
                  Machinery and equipment                                       134,873        128,050
                  Vehicles, office furniture and equipment
                      and leasehold improvements                                 46,729         43,484
                                                                            ------------   ------------
                                                                                223,308        210,222
                  Less - accumulated depreciation and amortization              (94,967)       (85,345)
                                                                            ------------   ------------
                                                                               $128,341       $124,877
                                                                            ============   ============

                  *   Including building leased under capital lease -
                      (see note 1f):
                  Cost                                                           $1,414         $1,414
                  Less - accumulated depreciation                                   409            315
                                                                            ------------   ------------
                                                                                 $1,005         $1,099
                                                                            ============   ============
</TABLE>

        In 2003 the Group recorded a $3.5 millions capital gain from sale of
        real estate in London.

        B.      LAND AND BUILDINGS

                Part of the buildings of the Company stand on land leased from
                the Israel Lands Administration for periods expiring in the
                years 2016-2037. The leasehold rights have not yet been
                registered in the Land Registry.

        C.      Investment projects of the Company and its subsidiary have been
                approved by the Israeli Investment Center, under the Law for the
                Encouragement of Capital Investments, 1959. The balance of
                uncompleted investments as of December 31, 2004 aggregates $ 6.4
                million.

        D.      Depreciation and amortization in respect of property, plant and
                equipment totaled $ 14.8 , $14.3 and $ 13.9 million in the year
                ended December 31, 2004, 2003 and 2002 (excluding impairment of
                assets relating to restructuring, see note 12e).

        E.      As to pledges on assets, see notes 8d and 11a.


                                      F-26
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 6 - GOODWILL:

        Changes in goodwill during the year:

<TABLE>
<CAPTION>
                                                                         YEAR ENDED DECEMBER 31, 2004
                                                      -------------------------------------------------------------
                                                                                IN THOUSANDS
                                                      -------------------------------------------------------------
                                                                       US UPPER
                                                        DELTA USA        MARKET      EUROPE      SOCKS      TOTAL
                                                      -------------   ------------  --------   ---------  ---------
<S>                                                   <C>             <C>           <C>        <C>        <C>
               Goodwill at beginning of year              $ 46,732         $2,119    $  753     $ 4,754   $ 54,358
               Changes during the year:
                 Goodwill arising from
                      acquisition of
                      subsidiaries, see notes 2a
                      and 2b                                 3,873                    1,057                  4,930
                 Adjustment to purchase price,
                       see note 2c                                                               (1,368)    (1,368)
                                                      -------------   ------------  --------   ---------  ---------
               Goodwill at end of year                    $ 50,605         $2,119    $1,810     $ 3,386   $ 57,920
                                                      =============   ============  ========   =========  =========


                                                                         YEAR ENDED DECEMBER 31, 2004
                                                      -------------------------------------------------------------
                                                                                IN THOUSANDS
                                                      -------------------------------------------------------------
                                                                       US UPPER
                                                        DELTA USA        MARKET      EUROPE      SOCKS      TOTAL
                                                      -------------   ------------  --------   ---------  ---------
               Goodwill at beginning of year              $ 40,032         $2,119    $  753     $ 3,386   $ 46,290
               Changes during the year:
                 Goodwill arising from
                      Acquisition of operations,
                         see note 2c                                                              1,368      1,368
                      Adjustment to purchase
                         price, see note 2f                  6,700                                           6,700
                                                      -------------   ------------  --------   ---------  ---------
                 Goodwill at end of year                  $ 46,732         $2,119    $  753     $ 4,754   $ 54,358
                                                      =============   ============  ========   =========  =========
</TABLE>


                                      F-27
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 7 - EMPLOYEE RIGHTS UPON RETIREMENT:

        A.      Employee related obligations are composed as follows:
        B.

                                                           DECEMBER 31
                                                   ---------------------------
                                                       2004           2003
                                                   ------------   ------------
                                                          IN THOUSANDS
                                                   ---------------------------

                      Accrued severance pay             $6,076         $5,442
                      Obligation in respect of
                          defined benefit plans          1,332          1,290
                                                   ------------   ------------
                                                        $7,408         $6,732
                                                   ============   ============

                As of December 31, 2004 and 2003, the Group had deposits of $
                5.7 million and $ 5.1 million, respectively, with funds managed
                by major Israeli insurance companies, which are earmarked by
                management to cover the severance pay liability in respect of
                Israeli employees. Under FAS No. 132, "Employers Disclosures
                About Pensions and Other Post Retirement Benefits", such
                deposits are not considered to be "plan assets".

                Costs of pension and severance pay charged to income in the
                years ended December 31, 2004, 2003 and 2002 were $ 6.9 million,
                $ 7.0 million and $ 6.5 million respectively (in 2004, 2003 and
                2002, excluding $ 190 thousands, $ 850 thousands and $ 651
                thousands, respectively, relating to the termination of
                employment, which were charged to restructuring expenses, see
                note 12e).

                The profit (loss) from deposits in respect of severance pay were
                $ 416 thousands, $(214) thousands and $(624) thousands in the
                years ended December 31, 2004, 2003 and 2002, respectively.

                The main terms of the various arrangements with employees are
                described in b. below. Further details relating to defined
                benefit plans, as required by FAS 132, are presented in b and c
                below.

        B.      TERMS OF ARRANGEMENTS:

                1)      The Company and Israeli subsidiaries

                        Israeli law generally requires payment of severance pay
                        and/or pensions upon dismissal of an employee or upon
                        termination of employment in certain other
                        circumstances. The following principal plans relate to
                        employee rights upon retirement, as applicable to
                        Israeli companies in the Group:

                        a)      Pension plans for the majority of the Group's
                                employees - under collective labor agreements,
                                these external pension plans cover the severance
                                pay liability. The pension and severance pay
                                liabilities covered by these plans are not
                                reflected in the financial statements as the
                                pension and severance pay risks have been
                                irrevocably transferred to the pension funds.

                        b)      Insurance policies for employees in managerial
                                positions - these policies provide coverage for
                                severance pay and pension liabilities of
                                managerial personnel. Under labor agreements
                                these insurance policies are, subject to certain
                                limitations, the property of the employees.


                                      F-28
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 7 - EMPLOYEE RIGHTS UPON RETIREMENT (continued):

                        c)      Severance pay liabilities not covered by the
                                pension funds are fully provided for in these
                                consolidated financial statements, as if it was
                                payable at each balance sheet date on an
                                undiscounted basis, based upon the number of
                                years of service and the most recent monthly
                                salary of the Group's employees in Israel.

                2)      Non-Israeli subsidiary

                        A U.S. subsidiary provides various defined benefit
                        pension plans to its employees, see c below.

                        At December 31, 2004, the assets of the defined benefit
                        pension plan are primarily invested in group annuity
                        contracts with an insurance company. The plan was frozen
                        effective January 1996.

                        Contributions to the defined contribution 401(k) plan
                        are based on a percentage of annual salaries. The
                        Company generally matches 50% of each participant's
                        pretax contribution up to 4% of the participant's annual
                        compensation.

        C.      CERTAIN DETAILS RELATING TO DEFINED BENEFIT PLANS:

<TABLE>
<CAPTION>
                                                                            2004           2003
                                                                        ------------   ------------
                                                                               IN THOUSANDS
                                                                        ---------------------------
<S>                                                                     <C>            <C>
                  CHANGE IN BENEFIT OBLIGATION:
                     Benefit obligation at beginning of year                 $3,145         $3,150
                     Interest cost                                              179            183
                     Actuarial loss                                              20              7
                     Benefit paid                                              (204)          (195)
                                                                        ------------   ------------
                  Benefit obligation at end of year                          $3,140         $3,145
                                                                        ------------   ------------
                  CHANGE IN PLAN ASSETS:
                     Fair value of plan assets at beginning of year          $2,888         $2,931
                     Actual return on plan assets                                90            152
                     Employer contribution                                      225
                     Benefit paid, including plan expenses                     (204)          (195)
                                                                        ------------   ------------
                  Fair value of plan assets at end of year                   $2,999         $2,888
                                                                        ------------   ------------
                  RECONCILIATION OF FUNDED STATUS:
                     Funded status (carryforward obligations)                 $(141)         $(257)
                     Unrecognized net actuarial loss                          1,332          1,290
                     Adjustment to recognize minimum liability               (1,332)        (1,290)
                                                                        ------------   ------------
                  Prepaid / pension cost (accrued)                            $(141)         $(257)
                                                                        ------------   ------------


                                                                            2004           2003           2002
                                                                        ------------   ------------   ------------
                  WEIGHTED AVERAGE ASSUMPTIONS AT END OF YEAR:
                     Discount rate                                           5.75%          6.00%          6.25%
                     Expected return on plan assets                          6.25%          6.25%          6.50%
                     Rate of compensation increase                           N/A            N/A            N/A
</TABLE>


                                      F-29
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 7 - EMPLOYEE RIGHTS UPON RETIREMENT (continued):

                The consolidated components of net periodic benefits costs are
                as follows:

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31
                                                                        ------------------------------------------
                                                                            2004           2003           2002
                                                                        ------------   ------------   ------------
                                                                                       IN THOUSANDS
                                                                        ------------------------------------------
<S>                                                                            <C>            <C>           <C>
   Interest cost                                                               $179           $183          $ 190
   Actual return on plan assets                                                (122)           (85)          (134)
   Net amortization                                                              10             13             57
                                                                        ------------   ------------   ------------
                                                                               $ 67           $111          $ 113
                                                                        ============   ============   ============
</TABLE>

        D.      CASH FLOWS INFORMATION REGARDING THE COMPANY'S LIABILITY FOR
                EMPLOYEE RIGHTS UPON RETIREMENT:

                1.      The Company expects to contribute in 2005, $670
                        thousands to insurance companies and $270 thousands to
                        contribution plans.

                2.      The Company expects to pay the following future benefits
                        to its Israeli employees upon their normal retirement
                        age:

                                                           SEVERANCE PAY
                                                             BENEFITS
                                                        ------------------
                                                           IN THOUSANDS
                                                        ------------------

                              2005                                  $52
                              2006                                 $283
                              2007                                  $61
                              2008                                 $801
                              2009                                 $159
                              Years 2010-2014                    $1,196

                These amounts, as they relate to the Israeli subsidiaries were
                determined based on the employees current salary rates and the
                number of service years that will be accumulated upon their
                retirement date. These amounts do not include amounts that might
                be paid to employees that will cease working with the Company
                before their normal retirement age.


                                      F-30
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 8 - LONG-TERM LIABILITIES - BANK LOANS AND OTHER LIABILITY:

        A.      COMPOSITION:

<TABLE>
<CAPTION>
                                                                                WEIGHTED
                                                                                 AVERAGE
                                                                              INTEREST RATE
                                                                           -------------------          DECEMBER 31
                                                                               DECEMBER 31,     --------------------------
                                                                                   2004             2004          2003
                                                                           -------------------  ------------  ------------
                                                                                    %                  IN THOUSANDS

<S>                                                                               <C>               <C>            <C>
                  Bank loans - in dollars or linked thereto                       3.8%              $126,131       $18,857
                  Bank loans - in Canadian dollars                                                                   5,191
                  Bank loans - in other currencies                                5.5%                   216
                  Other liability -
                      Obligation under capital lease, see note 1f
                         and c below - in dollars                                 8.6%                 1,032         1,097
                                                                                                ------------  ------------
                                                                                                     127,379        25,145
                  Less - current maturities                                                           27,942        10,436
                                                                                                ------------  ------------
                                                                                                     $99,437       $14,709
                                                                                                ============  ============
</TABLE>

        B.      TOTAL LIABILITIES (NET OF CURRENT MATURITIES) MATURE IN THE
                FOLLOWING YEARS AFTER BALANCE SHEET DATES:

                                                     DECEMBER 31
                                              --------------------------
                                                  2004          2003
                                              ------------  ------------
                                                     IN THOUSANDS
                                              --------------------------

                Second year                        $29,703       $10,440
                Third year                          23,270         1,018
                Fourth year                         23,230         1,024
                Fifth year                          22,584         1,031
                Sixth year and thereafter              650         1,196
                                              ------------  ------------
                                                   $99,437       $14,709
                                              ============  ============


                                      F-31
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 8 - LONG-TERM LIABILITIES - BANK LOANS AND OTHER LIABILITY (continue):

        C.      A subsidiary of the Company has entered into capital lease
                agreements for a building it uses; the lease will expire in the
                year 2014.

                Following are the future minimum lease payments, by years, under
                capital lease and the present value of the net minimum lease
                payments as of December 31, 2004:

                                                                   IN
                                                                THOUSANDS
                                                               -----------

                    First year - current maturities                    158
                    Second year                                        158
                    Third year                                         158
                    Fourth year                                        158
                    Fifth year                                         158
                    Sixth year and thereafter                          790
                                                               -----------
                                                                     1,580
                    Less - amount representing interest                548
                                                               -----------
                                                                     1,032
                                                               ===========

        D.      The balance of liabilities is fully secured by floating charges
                in an unlimited amount on all the assets and rights of the
                Company and the assets of its subsidiaries, and/or by fixed
                charges on the major portion of the Group's fixed assets.

        E       A subsidiary is a party to a credit agreement, which was
                amended, as of December 9, 2004, with Bank Leumi U.S.A and Bank
                Hapoalim B.M. Borrowings under the credit agreement are secured
                by substantially all of the assets of the subsidiary. The credit
                agreement provides for $ 130 million in loans, of which $ 70
                million are long term loans which bear interest of Libor +1.4%
                and the remainder is short term credit which bear interest of
                Libor +1.15%. The principal of the term loans is payable in 20
                equal quarterly installments of approximately $3.5 million each
                until December 1, 2009. As of December 31, 2004 the unutilized
                credit line was $ 15.2 million.


                                      F-32
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 9 - COMMITMENTS AND CONTINGENT LIABILITIES:

        A.      COMMITMENTS

                The Company and its subsidiaries lease 30 facilities under
                operating leases. The leases (including extension options) for
                18 facilities expire on various dates between 2006 and 2025 and
                the remaining leases expired in 2005. The Company intends to
                renew some of these leases. The minimum future annual lease
                payment over each of the years 2005 to 2009 will amount to $7.6,
                $6.6, $6.5, $6.0 and $5.4 million, respectively. In the period
                from 2010 to the end of the lease periods, the cumulative lease
                payments will amount to $ 11.2 million. The lease expenses for
                each of the years 2004, 2003 and 2002 were $ 8.6 million, $ 7.3
                million and $ 6.6 million, respectively.

        B.      CONTINGENT LIABILITIES - GUARANTEES

                The Company and its subsidiaries signed a guarantee, each for
                other, which is unlimited in amount to all of the group's
                liabilities.

        C.      As to contingent consideration, see note 2a.

        D.      The Company entered into agreements that provide the Company
                rights to market products brand names owned by other parties.
                Royalties under these agreements are calculated as a percentage
                of the sales. The royalties rate range from 4% to 16% of sales.


NOTE 10 - SHAREHOLDERS' EQUITY:

        A.      SHARE CAPITAL:

                1)      The Company's shares are traded on the Tel-Aviv Stock
                        Exchange ("TASE") and in the form of American Depositary
                        Shares ("ADS's"), each of which represents one ordinary
                        share, on the Nasdaq National Market in the United
                        States. On December 31, 2004, the closing price per ADS
                        on Nasdaq was $10.34; the shares were quoted on the TASE
                        on that date at NIS 43.81 ($10.09).

                2)      On December 2004, the Company reissued 215,684 treasury
                        shares as part of the proceeds paid to the selling
                        shareholders of Burlen, see note 2a.

                3)      In December 2002, the Company purchased 565,000 of the
                        Company's shares for an amount of $ 6,215 thousands
                        (representing $ 11.0 per share).

                4)      On September 28, 2001, the Company's Board of Directors
                        approved the repurchase of Company shares for an amount
                        of up to $3.0 million. During 2002 and 2001 the Company
                        purchased 282,483 and 96,017 shares, respectively, in
                        the open market at an average price of $7.58 and $9.0
                        per share in a total amount of $2,141 thousands and $860
                        thousands, respectively.

                5)      As of December 31, 2004 and 2003, the balance of shares
                        issued by the Company for the purpose of future exercise
                        of employee stock options, which is held by a trustee
                        company, is 45,884 and 87,638 shares, respectively.

                6)      The shares held by the Company have no voting rights and
                        are not entitled to receive dividends.


                                      F-33
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 10 - SHAREHOLDERS' EQUITY (continued):

        B.      STOCK OPTIONS PLANS FOR EMPLOYEES AND THE COMPANY'S CEO:

                1)      On May 10, 1998, the Company's Board of Directors
                        approved an employee stock option plan for the grant,
                        without consideration, of up to 304,696 options,
                        exercisable in purchase of 319,931 ordinary shares of
                        NIS 1 par value of the Company, to thirteen senior
                        employees of the Company and/or its subsidiaries. All of
                        the above options were granted in June 1998. The
                        exercise price of each option is $ 8.297, based on the
                        quoted price of the Company's shares on the last day of
                        trade prior to the Board of Directors' resolution ($
                        9.22), less 10%. The options vest in four equal batches.

                        As of December 31, 2004, all the options are fully
                        vested. The options are exercisable over three years
                        period, commencing on the date that is two years after
                        the date such option vested. Any option not exercised
                        within the said five years will expire. The options
                        expire over the years 2003-2006.

                2)      On September 10, 1998, the Company's Board of Directors
                        approved a plan for the grant, at no consideration, of
                        up to 100,000 options to its CEO, which are exercisable
                        in purchase of 100,000 shares of NIS 1 par value of the
                        Company. All of said options were granted in September
                        1998. The exercise price of each option is $ 7.90, based
                        on the quoted price of the Company's share on the last
                        day of trade prior to the Board of Directors' resolution
                        ($ 8.77), less 10%. The options vest in four equal
                        batches. As of December 31, 2004, all the options are
                        fully vested. The exercise terms under the CEO's plan
                        are identical to those of the employees plan.

                3)      On June 4, 2000, the Company's Board of Directors
                        approved an employee stock option plan for the grant,
                        without consideration, of up to 809,000 options
                        (including 100,000 options to its CEO), exercisable to
                        809,000 ordinary shares of NIS 1 par value of the
                        Company, to 70 senior employees of the Group ("the
                        optionees"). All the options were granted on August 6,
                        2000. The exercise price of each option is $ 21.07,
                        based on the quoted price of the Company's shares on the
                        last day of trade prior to the Board of Directors'
                        resolution.

                        The options vest in four equal batches: the first,
                        second, third and fourth batch vest in August 2001,
                        2002, 2003 and 2004, respectively. The options are
                        exercisable over a three years period, commencing one
                        year after the vesting date of each batch.

                4)      On October 23, 2002, the Company's Board of Directors
                        approved an employee stock option plan for the grant,
                        without consideration, of up to 1,100,000 options
                        (including 100,000 options to its CEO), exercisable in
                        purchase of 1,100,000 ordinary shares of NIS 1 par value
                        of the Company. The exercise price of each option is the
                        higher of the quoted price of the Company's shares on
                        the grant day or $ 9.

                        On November 22, 2002, the Company granted 1,004,500
                        options to 97 senior employees of the Group (including
                        100,000 options to the CEO) at an exercise price of $ 9.
                        The options vest in four equal batches. The first,
                        second, third and fourth batches will vest in November
                        2003, 2004, 2005 and 2006, respectively. The options are
                        exercisable over a three-year period, commencing one
                        year after the vesting date of the first batch and on
                        the vesting date of the second, third and fourth batch.


                                      F-34
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 10 - SHAREHOLDERS' EQUITY (continued):

                        In May 2003 the Company granted 30,000 options to three
                        employees of the Group at an exercise price of $10.76.
                        In March and in August 2004 the Company granted 80,000
                        and 30,000 options respectively, to six and one
                        employees of the Group, respectively, at an exercise
                        price of $ 15.35 and $ 12.74, respectively. The options
                        are exercisable over a three-year period, commencing one
                        year after the vesting date of the first batch and on
                        the vesting date of the second, third and fourth batch.

                        At December 31, 2004 72,000 options remain available for
                        grant under the plan.

                5)      The grant of options to Israeli employees under the
                        Company's plans is subject to the terms stipulated by
                        Section 102 and 102A of the Israeli Income Tax
                        Ordinance. Inter-alia, that Section provides that the
                        Company will be allowed to claim as an expense for tax
                        purposes the amounts credited to the employees as a
                        benefit, when the related tax is payable by the
                        employee.

                6)      The rights pertaining to the ordinary shares issued upon
                        exercise of the options will be identical to those of
                        the other ordinary shares of the Company.

                7)      Following is a summary of the status of the Company's
                        stock option plans:

<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31
                                             ------------------------------------------------------------------------------------
                                                       2004                         2003                         2002
                                             -------------------------    -------------------------     -------------------------
                                                             WEIGHTED                     WEIGHTED                    WEIGHTED
                                                             AVERAGE                      AVERAGE                     AVERAGE
                                                             EXERCISE                     EXERCISE                    EXERCISE
                                               NUMBER*       PRICE**        NUMBER*       PRICE**         NUMBER*      PRICE**
                                             ----------    -----------    ----------    -----------     ----------    -----------
<S>                                           <C>           <C>           <C>             <C>           <C>            <C>
Options outstanding at beginning of year      1,830,702     $13.50        2,038,562       $ 13.07       1,076,940      $ 17.10
Changes during the year:
    Granted - at market price                   110,000     $14.65           30,000       $ 10.76       1,004,500       $ 9.00
    Exercised                                  (41,756)     $7.91          (180,109)      $ 7.91           (2,003)      $ 7.91
    Forfeited                                  (66,875)     $9.34           (57,751)      $ 11.35         (40,875)     $ 18.11
                                             ----------                   ----------                    ----------
Options outstanding at end of year            1,832,071     $13.84        1,830,702       $ 13.50       2,038,562      $ 13.07
                                             ==========                   ==========                    ==========
Options exercisable at end of year            1,106,821     $14.69          528,952       $ 17.15         405,880      $ 16.94
                                             ==========                   ==========                    ==========
</TABLE>

*       Represents the number of shares arising upon exercise of options, based
        on the conversion ratio.
**      Per option.


                                      F-35
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 10 - SHAREHOLDERS' EQUITY (continued):

                8)      The following table summarizes information regarding
                        options outstanding at December 31, 2004:

<TABLE>
<CAPTION>
                              NUMBER OF SHARES ISSUABLE UPON EXERCISE OF OPTIONS
              ------------------------------------------------------------------------------------
                               OUTSTANDING                             VESTED        EXERCISABLE
              ---------------------------------------------------  --------------   --------------
                                BALANCE AT      WEIGHTED AVERAGE     BALANCE AT       BALANCE AT
                EXERCISE       DECEMBER 31,        REMAINING        DECEMBER 31,     DECEMBER 31,
                 PRICES            2004         CONTRACTUAL LIFE        2004             2004
              ------------    --------------   ------------------  --------------   --------------
                                                     YEARS
                                                     -----
<S>                           <C>              <C>                 <C>              <C>
                   $8.30             65,696           1.2                 65,696           65,696
                   $7.90             50,000           1.4                 50,000           50,000
                  $21.07            688,375           2.0                688,375          532,125
                   $9.00            888,000           4.4                459,000          459,000
                  $10.76             30,000           4.8                  7,500
                  $15.35             80,000           5.8
                  $12.74             30,000           6.1
                              ==============                       ==============   ==============
                                  1,832,071                            1,270,571        1,106,821
                              ==============                       ==============   ==============
</TABLE>

        C.      RETAINED EARNINGS

                In determining the amount of retained earnings available for
                distribution as a dividend, the Companies Law stipulates that
                the cost of the Company's shares acquired by the Company (that
                are presented as a separate item in the statement of changes in
                shareholders' equity) has to be deducted from the amount of
                retained earnings.


NOTE 11 - TAXES ON INCOME:

        A.      THE COMPANY AND CERTAIN ISRAELI SUBSIDIARIES (HEREAFTER - THE
                COMPANIES):

                1)      Tax benefits under the Israeli Law for the Encouragement
                        of Capital Investments, 1959 ("the law")

                        The Company and certain Israeli subsidiary have received
                        investment grants from the State of Israel. In the event
                        of failure to comply with the terms attached to the
                        receipt of those grants, the companies may be required
                        to refund the amount of the grants, in whole or in part,
                        with linkage differences to the Israeli CPI and interest
                        from the date of receipt.


                                      F-36
<PAGE>

                          DELTA GALIL INDUSTRIES LTD..
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 11 - TAXES ON INCOME (continued):

                        The abovementioned companies have registered floating
                        charges on all their assets in favor of the State of
                        Israel as security for compliance with the terms
                        relating to the grants.

                        Under the law, by virtue of the "approved enterprise"
                        status granted to certain of their enterprises, the
                        Company and its Israeli subsidiary are entitled to
                        various tax benefits, as follows:

                        a)      Reduced tax rates

                                During the period of benefits - 7 to 10 years
                                commencing in the first year in which the
                                companies earn taxable income from the approved
                                enterprises (provided the maximum period to
                                which it is restricted by law has not elapsed) -
                                a reduced tax rate of 25% applies, instead of
                                the regular tax rate, see (4) below. Some of the
                                approved enterprises are eligible for a tax
                                exemption for the first two years commencing in
                                the year in which the companies first earn
                                taxable income.

                                The proportion of the Company's taxable income
                                entitled to benefits of reduced tax rates is
                                calculated on the basis of the ratio between the
                                turnover of the approved enterprise and the
                                whole turnover of the Company. The turnover
                                applicable to the approved enterprise is
                                calculated, as a general rule, by taking the
                                increase resulting from the comparison of the
                                Company's turnover with its "base" turnover,
                                which is prescribed as being the turnover during
                                the last year before the operation of the
                                approved enterprise, or such other basis as is
                                stipulated in the instrument of approval.

                                The period of benefits in respect of certain
                                enterprises expired in 1994, while the period of
                                benefits in respect of other enterprises expires
                                in 2006. The Company first derived income from
                                approved enterprises in 1998.

                                In the event of distribution of cash dividends
                                out of income, which was tax exempt as above,
                                the companies would have to pay the 25% tax in
                                respect of the amount distributed.

                        b)      Accelerated depreciation

                                The companies are entitled to claim accelerated
                                depreciation in respect of buildings, machinery
                                and equipment used by approved enterprises
                                during the first five tax years of the operation
                                of these assets.

                        c)      Conditions for entitlement to the benefits

                                The entitlement to the above benefits is
                                conditional upon the companies fulfilling the
                                conditions stipulated by the law, regulations
                                published thereunder and the


                                      F-37
<PAGE>

                                instruments of approval for the specific
                                investments in approved enterprises. In the
                                event of failure to comply with these
                                conditions, the benefits may be cancelled and
                                the companies may be required to refund the
                                amount of the benefits, in whole or in part,
                                with the addition of linkage differences to the
                                Israeli CPI and interest.


                                      F-38
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 11 - TAXES ON INCOME (continued):

                2)      Measurement of results for tax purposes under the Income
                        Tax (Inflationary Adjustments) Law, 1985 (the
                        "inflationary adjustments law")

                        Under the inflationary adjustments law, results for tax
                        purposes are measured in real terms, having regard to
                        the changes in the Israeli CPI. Under income tax
                        regulations, the Company and certain subsidiaries are
                        entitled to adjust their results for tax purposes on the
                        basis of the changes in the exchange rate of the dollar,
                        instead of the changes in the Israeli CPI. Commencing
                        2001 the Company and two of its subsidiaries chose to do
                        so.

                        As explained in note 1a(4), the financial statements
                        were measured in dollars. For the years in which the
                        result for tax purposes are measured in real terms,
                        having regard to the changes in the Israeli CPI, the
                        difference between the changes in the Israeli CPI and
                        the exchange rate of the dollar - both on an annual and
                        a cumulative basis - caused differences between taxable
                        income and income reflected in these financial
                        statements. Paragraph 9(f) of FAS 109 creates an
                        exception which prohibits the recognition of deferred
                        tax liabilities or assets that arise from differences
                        between the financial reporting and tax bases of assets
                        and liabilities that are remeasured from the local
                        currency into dollars using historical exchange rates,
                        and that result from (i) changes in exchange rates, or
                        (ii) indexing for tax purposes.

                3)      Tax rates

                        a)      The income of the company and its Israeli
                                subsidiaries (other than income from "approved
                                enterprises", see 1a. above) is taxed at the
                                regular rate. Through to December 31, 2004, the
                                corporate tax was 36%. In July 2004, an
                                amendment to the Income Tax Ordinance was
                                enacted. One of the provisions of this amendment
                                is that the corporate tax rate is to be
                                gradually reduced from 36% to 30%, in the
                                following manner: the rate for 2004 is 35%, and
                                will be in 2005 - 34%, in 2006 - 32%, and in
                                2007 and thereafter - 30%. The effect of the
                                change in the tax rates in the coming years, on
                                the deferred tax balances of the amendment to
                                the law, is included under the item "taxes on
                                income" in the statements of income.

                        b)      Pursuant to another amendment to the Income Tax
                                Ordinance, which became effective in 2003,
                                capital gains are taxed at a reduced rate of 25%
                                from January 1, 2003, instead of the regular
                                corporate tax rate at which such gains were
                                taxed until the aforementioned date. The
                                aforesaid amendment stipulates that with regard
                                to the sale of assets acquired prior to January
                                1, 2003, the reduced tax rate will be applicable
                                only for the gain allocated to capital gains
                                earned after the implementation of the
                                amendment, which will be calculated, as
                                prescribed by said amendment.


                                      F-39
<PAGE>

                          DELTA GALIL INDUSTRIES LTD..
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 11 - TAXES ON INCOME (continued):

                4)      Tax benefits under the Law for the Encouragement of
                        Industry (Taxation), 1969

                        The Company and certain Israeli subsidiary are
                        "industrial companies" as defined by this law. As such,
                        these companies are entitled to certain tax benefits,
                        consisting mainly of accelerated depreciation, as
                        stipulated by regulations published under the
                        inflationary adjustments law, and the right to claim
                        public issuance expenses as a deduction for tax
                        purposes.

                        Pursuant to this law, the Company files consolidated tax
                        returns with the said subsidiary.

        B.      NON-ISRAELI SUBSIDIARIES

                Subsidiaries that are incorporated outside of Israel, except
                which incorporated in the free zone, are assessed for tax under
                the tax laws in their countries of residence. The principal tax
                rates applicable to main subsidiaries outside Israel are as
                follows:

                Company incorporated in the USA - tax rate of 38%-40% Company
                incorporated in U.K- tax rate of 30%

        C.      CARRYFORWARD TAX LOSSES

                Carryforward tax losses (derived from the Israeli companies) as
                of December 31, 2004 and 2003, aggregate $ 36 million and $ 33
                million, respectively.

                Carryforward tax losses in Israel may be utilized indefinitely.


        D.      DEFERRED INCOME TAXES:

                1)      The deferred income taxes are composed as follows:

<TABLE>
<CAPTION>
                                                                           DECEMBER 31
                                                                   ---------------------------
                                                                       2004           2003
                                                                   ------------   ------------
                                                                         IN THOUSANDS
                                                                   ---------------------------
<S>                                                                    <C>             <C>
                    Property, plant and equipment                      $13,832        $13,975
                    Inventories                                           (841)          (907)
                    Provisions for employee related obligations         (1,457)        (1,551)
                    Other                                                  653           (639)
                    In respect of carryforward tax losses
                       (see c. above)                                  (10,968)       (10,042)
                                                                   ------------   ------------
                       Total                                            $1,219           $836
                                                                   ============   ============
</TABLE>

                                      F-40
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 11 - TAXES ON INCOME (continued):

                2)      Deferred income taxes are presented in the balance
                        sheets among:

<TABLE>
<CAPTION>
                                                                           DECEMBER 31
                                                                   ---------------------------
                                                                       2004           2003
                                                                   ------------   ------------
                                                                         IN THOUSANDS
                                                                   ---------------------------
<S>                                                                    <C>             <C>
                          Current asset                                 $(3,675)       $(5,464)
                          Long term liability                             4,894          6,300
                                                                   ------------   ------------
                                                                         $1,219           $836
                                                                   ============   ============
</TABLE>

        E.      INCOME BEFORE INCOME TAXES IS COMPOSED AS FOLLOWS:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31
                                                    ------------------------------------------
                                                        2004           2003           2002
                                                    ------------   ------------   ------------
                                                                   IN THOUSANDS
                                                    ------------------------------------------
<S>                                                       <C>           <C>            <C>
                The Company and its Israeli
                   Subsidiaries                           $3,190        $(4,832)       $(8,658)
                Non-Israeli subsidiaries                  13,946         36,263         31,930
                                                    ------------   ------------   ------------
                                                         $17,136        $31,431        $23,272
</TABLE>

        F.      TAXES ON INCOME INCLUDED IN THE STATEMENTS OF INCOME:

<TABLE>
<CAPTION>
                                                              YEAR ENDED DECEMBER 31
                                                    ------------------------------------------
                                                        2004           2003           2002
                                                    ------------   ------------   ------------
                                                                   IN THOUSANDS
                                                    ------------------------------------------
<S>                                                       <C>              <C>            <C>
                         Current:
                            Israeli                       $1,636           $746           $353
                            Non-Israeli                    1,941         10,292          4,963
                                                    ------------   ------------   ------------
                                                           3,577         11,038          5,316
                                                    ------------   ------------   ------------
                         Deferred:
                            Israeli                       $(498)       $(4,075)       $(1,796)
                            Non-Israeli                      219            520          2,236
                                                    ------------   ------------   ------------
                                                           (279)        (3,555)            440
                                                    ------------   ------------   ------------
                         For previous years :
                            Israeli                       $(516)          $(30)         $(112)
                            Non-Israeli                       64          (113)            135
                                                    ------------   ------------   ------------
                                                           (452)          (143)             23
                                                    ------------   ------------   ------------
                                                          $2,846         $7,340         $5,779
                                                    ============   ============   ============
</TABLE>


                                      F-41
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 11 - TAXES ON INCOME (continued):

        G.      Following is a reconciliation of the theoretical tax expense,
                assuming all income is taxed at the regular tax rates applicable
                to income of companies in Israel (36% in the years 2002 and
                2003, and 35% in 2004) and the actual tax expense:

<TABLE>
<CAPTION>
                                                                                  YEAR ENDED DECEMBER 31
                                                                        ------------------------------------------
                                                                            2004           2003           2002
                                                                        ------------   ------------   ------------
                                                                                       IN THOUSANDS
                                                                        ------------------------------------------
<S>                                                                          <C>            <C>            <C>
                Income before taxes on income, as reported in
                  the consolidated statements of income                      $17,136        $31,431        $23,272
                Theoretical tax expense                                       $5,997        $11,315         $8,378
                                                                        ============   ============   ============
                Additional tax expenses arising from reduced tax
                  rate on losses from an approved enterprise                      73            380            958
                Decrease in tax arising from different tax rate
                  applicable to non-Israeli subsidiaries                     (2,575)        (2,834)        (3,886)
                                                                        ------------   ------------   ------------
                                                                               3,495          8,861          5,450
                Increase (decrease) in taxes resulting from\
                  permanent differences:
                  Disallowable deductions                                        110             36             22
                  Previous years                                               (452)          (143)             23
                Difference between the basis of measurement
                  of income reported for tax purposes and
                  the basis of measurement of income for
                  financial reporting purposes - net                           (807)            151          (242)
                  Sundry - net                                                   500        (1,565)            526
                                                                        ------------   ------------   ------------
                Taxes on income - in the consolidated statements
                  of income                                                   $2,846         $7,340         $5,779
                                                                        ============   ============   ============
</TABLE>

        H.      TAX ASSESSMENTS

                Tax assessments for the Company and most of its subsidiaries are
                final through the tax year 1999.


                                      F-42
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 12 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:

        BALANCE SHEETS:

<TABLE>
<CAPTION>
                                                                                 DECEMBER 31
                                                                  ------------------------------------------
                                                                      2004           2003           2002
                                                                  ------------   ------------   ------------
                                                                                 IN THOUSANDS
                                                                  ------------------------------------------
<S>                                                                   <C>            <C>             <C>
       A.  ACCOUNTS RECEIVABLE:
           1) Trade:
              Outside Israel                                          $90,682        $73,883
              In Israel                                                14,447         11,840
                                                                  ------------   ------------
                                                                     $105,129        $85,723
                                                                  ============   ============
              Allowance for doubtful accounts:
                  Opening balance                                      $1,038         $1,131         $3,671
                  Hamashbir                                                                             859
                  Other                                                                                  95
              Decrease due to bad debts
                  Hamashbir                                              (872)
                  K-Mart                                                                             (3,494)
                  Other                                                   (39)          (123)
              Increase due to an acquisition of a new
                  subsidiary                                                              30
                                                                  ------------   ------------   ------------
              Closing balance                                            $127         $1,038         $1,131
                                                                  ============   ============   ============
              Principal customers (see note 1m and 15c):
                  Customer 1                                           $2,656        $18,890
                                                                  ============   ============
                  Customer 2                                          $29,871        $15,907
                                                                  ============   ============
                  Customer 3                                          $15,455        $16,500
                                                                  ============   ============

           2) Other:
              Investment grant receivable                                $646           $576
              Government departments - mainly
                  value added tax refundable                            1,501          4,500
              Prepaid expenses                                          1,822          2,046
              Deposits                                                    858            663
              Income receivable                                         1,184             96
              Employees                                                   380            512
              Receivables from subcontractors                           2,987          1,157
              Sundry                                                    1,249          1,112
                                                                  ------------   ------------
                                                                      $10,627        $10,662
                                                                  ============   ============
</TABLE>

                                      F-43

<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 12 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

<TABLE>
<CAPTION>
                                                                      DECEMBER 31
                                                              --------------------------
                                                                2004             2003
                                                              ----------      ----------
                                                                     IN THOUSANDS
                                                              --------------------------
<S>                                                            <C>             <C>
        B.      INVENTORIES:
                  Finished products                            $137,813         $94,338
                  Products in process                            21,829          21,380
                  Raw materials and supplies                     12,797          19,918
                  Packaging and maintenance materials            11,328           7,348
                                                              ----------      ----------
                                                               $183,767        $142,984
                                                              ==========      ==========
</TABLE>

        C.      SHORT-TERM BANK CREDIT

                The weighted average interest rate of short-term bank credit as
                of December 31, 2004 and 2003 is 3.5% and 1.9% , respectively. A
                subsidiary is a party to a credit agreement, which was amended,
                as of December 9 2004, with Bank Leumi U.S.A and Bank Hapoalim
                B.M. Borrowings under the credit agreement are secured by
                substantially all of the assets of the subsidiary. The credit
                agreement provides for up to $ 60 million in short term credit
                (see note 8e).

                Unutilized short-term credit lines of the Group (under the USA
                credit agreement and other credit agreements) as of December 31,
                2004 and 2003 aggregated to $ 163 million and $ 100 million,
                respectively.

<TABLE>
<CAPTION>
                                                                      DECEMBER 31
                                                              --------------------------
                                                                2004             2003
                                                              ----------      ----------
                                                                     IN THOUSANDS
                                                              --------------------------
<S>                                                              <C>           <C>
        D.      ACCOUNTS PAYABLE AND ACCRUALS - OTHER:
                  Employees and employee institutions            $7,745         $7,589
                  Provision for vacation and recreation pay       4,297          4,463
                  Income tax payable                              2,731          1,612
                  Accrued expenses                               18,300         17,956
                  Accrued expenses - restructuring costs                         6,163
                  In respect of purchase price adjustment,
                    see note 2f                                                  6,700
                  In respect of derivatives, see note 13c                        2,657
                  Other                                           1,010          1,002
                                                              --------------------------
                                                                $34,083        $48,142
                                                              ==========================
</TABLE>

                                      F-44

<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

NOTE 12 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

                STATEMENTS OF INCOME:

        E.      RESTRUCTURING EXPENSES

                1)      Consolidated statements of operations for the years
                        ended December 31, 2004, 2003 and 2002 include
                        restructuring costs in the Europe segment totaling
                        approximately $1.1 million $1.0 million and $1.1 million
                        respectively. During the years ended December 31, 2004,
                        2003 and 2002, the Company implemented restructuring
                        plans which included the dismissal of a total of
                        approximately 1,300 employees and the closing of certain
                        of the Company's sewing plants and logistic centers.

                2)      The primary components of the restructuring costs are:

<TABLE>
<CAPTION>

                                                                       YEAR ENDED DECEMBER 31
                                                                     2004       2003       2002
                                                                   --------   --------   --------
                                                                             IN THOUSANDS
                                                                   ------------------------------
<S>                                                                  <C>        <C>        <C>
                  Costs relating to workforce reduction                $190       $850       $651
                  Costs relating to write-off of fixed assets            50        157        414
                  Costs relating to write-off of other
                  accounts receivable                                   860
                                                                   --------   --------   --------
                                                                     $1,100     $1,007     $1,065
                                                                   ========   ========   ========
</TABLE>

                THE 2004 PROGRAM

                During the fourth quarter of 2004 the Company initiated a
                restructuring program desined to reduce its cost structure (the
                "2004 Program"). The 2004 Program included the closure of a
                logistic center in Hungary and resulted in total restructuring
                costs of $1.5 million, from which $0.4 million included among
                cost of sales (related to inventory).

                The implementation of the 2004 Program in Hungary, consisted of
                the dismissal of approximately 230 persons who had previously
                been employed by the Company's Hungary subsidiary. The 2004
                Program was concluded by May 2005.

                THE 2003 PROGRAM

                During 2003, the Company initiated a restructuring program
                designed to reduce its cost structure (the "2003 program"). The
                2003 Program included the closure of sewing plants in Scotland
                and in Israel. The 2003 Program resulted in total restructuring
                charges to the Company of $1.0 million, which were recorded in
                the first quarter of 2003.

                The implementation of the 2003 Program in Scotland, which
                represented $0.9 million of the total charges of $1.0 million,
                consisted of the dismissal of approximately 100 persons who had
                previously been employed by the Company's European subsidiary.

                                      F-45

<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 12 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

                The implementation of the 2003 Program in Israel which
                represented $0.1 million of the total charges of $1.0 million,
                consisted of the dismissal of approximately 70 employees in
                Israel, who had previously been employed by the Company's. 2003
                Program was concluded by the end of the first quarter of 2003.

                THE 2002 PROGRAM

                During 2002, the company initiated restructuring program
                designed to reduce its cost structure (the "2002 program"). The
                2002 program included the closure of cutting and sewing
                facilities in Scotland and in the Dominican Republic. The 2002
                program resulted in total restructuring charges to the Company
                of $1.1 million which were recorded in the fourth quarter of
                2002.

                The implementation of the 2002 program in Scotland, which
                represented $0.7 million of the total $1.1 million, consisted of
                the dismissal of approximately 100 employees in Scotland.

                The implementation of the 2002 program in Dominican Republic,
                which represented $0.4 million of the total $1.1 million,
                consisted of the dismissal of approximately 800 employees in the
                Dominican Republic.

                As to restructuring plan with respect to an acquiree company, in
                2003, see note 2c.

        F.      FINANCIAL EXPENSES - NET:

<TABLE>
<CAPTION>
                                                                       YEAR ENDED DECEMBER 31
                                                                   ------------------------------
                                                                     2004       2003       2002
                                                                   --------   --------   --------
                                                                             IN THOUSANDS
                                                                   ------------------------------
<S>                                                                  <C>        <C>        <C>
                     Interest expenses                              $4,923      $3,824     $4,286
                     Interest income                                  (42)        (58)       (92)
                     Exchange differences and other - net              763       1,259        939
                     Losses from derivatives instruments               587         612        323
                                                                   --------   --------   --------
                                                                    $6,231      $5,637     $5,456
                                                                   ========   ========   ========
</TABLE>

                                      F-46

<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 12 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

        G.      EARNINGS PER SHARE

                Following is data relating to the weighted average number of
                shares used in the computation of diluted earnings per share:

<TABLE>
<CAPTION>
                                                                    2004        2003        2002
                                                                  --------    --------    --------
                                                                             IN THOUSANDS
                                                                  --------------------------------
<S>                                                                 <C>         <C>         <C>
                 Weighted average number of
                     shares used in the computation of
                     basic earnings per share                       18,478      18,313      18,914
                 Add:
                     Net additional shares from the anticipated
                         exercise of stock options                     356         450          13
                                                                  --------    --------    --------
                 Weighted average number of
                     shares used in the computation of
                     diluted earnings per share                     18,834      18,763      18,927
                                                                  ========    ========    ========
</TABLE>

NOTE 13 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT:

        A.      GENERAL

                The Group operates internationally, which gives rise to exposure
                to market risks mainly from changes in exchange rates of foreign
                currencies in relation to the dollar. Derivative financial
                instruments ("derivatives") are utilized by the Group to reduce
                these risks, as explained in this note. As the counter parties
                to these derivatives are Israeli banks, the Company considers
                the inherent credit risks remote. The Company does not hold or
                issue derivative financial instruments for trading purposes.

        B.      FOREIGN EXCHANGE RISK MANAGEMENT

                The Company enters into most foreign currency derivatives -
                forward exchange contracts - in order to protect itself from the
                risk that the eventual non-dollar net cash flows resulting from
                sales of products and from salaries, wages and related expenses,
                will be affected by changes in exchange rates. The term of most
                of these contracts is less than one year.

                These transactions are mainly for the exchange of pounds
                sterling, Euro and NIS into dollars.


                                      F-47
<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 13 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (continued):

                For forward exchange contracts designated as cash flow hedges,
                gains and losses are recorded in other comprehensive income
                (loss) until the foreign currency denominated sales, salaries,
                wages and related expenses transactions are recognized in
                earnings.

                The following table summarizes changes in other comprehensive
                income (loss) related to derivatives that are classified as cash
                flow hedges held by the Company during the period from January
                1, 2002 through December 31, 2004:

<TABLE>
<CAPTION>
                                                                          2004        2003        2002
                                                                        ---------   ---------   ---------
                                                                                 $ IN THOUSANDS
                                                                        ---------------------------------
<S>                                                                     <C>            <C>         <C>
                   Balance at beginning of year                         $(1,715)       $(583)      $225
                   Changes in effective portion of derivatives
                           designated as cash flow hedges                   691       (2,905)    (2,114)
                   Reclassification into earnings from other
                        comprehensive income                              1,822        1,299        943
                   Net of tax effect                                       (798)         474        363
                                                                        ---------   ---------   ---------
                   Balance at end of year                                   -;-      $(1,715)     $(583)
                                                                        =========   =========   =========
</TABLE>

                Hedge loss related to the portion of cash flow hedging
                instruments excluded from assessment of effectiveness had impact
                on earnings for 2004 of $ 0.6 million, 2003 of $ 0.7 million
                loss and had no material impact on earnings for the years ended
                December 31, 2002. No cash flow hedges were discontinued during
                the years ended December 31, 2004, 2003 and 2002.

                As of December 31, 2004, the Company has no derivatives
                instruments outstanding.

        C.      FAIR VALUE OF FINANCIAL INSTRUMENTS

                The financial instruments of the Group consist mainly of
                non-derivative assets and liabilities (items included in working
                capital, long-term receivables - in insignificant amounts - and
                long-term liabilities); the Group also has derivatives.

                In view of their nature, the fair value of the financial
                instruments included in working capital of the Group is usually
                identical or close to their carrying value. The fair value of
                long-term receivables and long-term loans also approximates
                their carrying value, since they bear interest at rates close to
                the prevailing market rates, or are in immaterial amounts. The
                fair values derivatives as of December 31, 2003 was $ 2,657
                thousands (As of December 31, 2004, the Company has no
                derivative instruments).

                                      F-48

<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 14 - "RELATED PARTIES" - TRANSACTIONS AND BALANCES:

        A.      TRANSACTIONS WITH RELATED PARTIES:

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31
                                                            -------------------------------------
                                                                2004         2003         2002
                                                            -----------  -----------  -----------
                                                                        IN THOUSANDS
                                                            -------------------------------------
<S>                                                            <C>          <C>          <C>
                  Net revenues                                 $1,303       $2,433       $4,922
                                                            ===========  ===========  ===========
                  Purchases and other expenses                    $21         $249         $410
                                                            ===========  ===========  ===========
</TABLE>

                The above transactions were made with one of the Company's
                shareholders in the ordinary course of business, at prices
                agreed upon in negotiations between the parties, taking into
                account the volume of orders, at customary supplier credit
                terms.

                As to options granted to the Company's CEO, see note 10b.

        B.      RELATED PARTIES BALANCES:

<TABLE>
<CAPTION>
                                                                              DECEMBER 31
                                                                        -----------------------
                                                                            2004         2003
                                                                        ----------   ----------
                                                                              IN THOUSANDS
                                                                        -----------------------
<S>                                                                           <C>          <C>
                  Current receivables - presented in the balance
                  sheets among "accounts receivable - trade"                  $126         $251
                                                                        ==========   ==========
                  Current liabilities - presented under "accounts
                  payable and accruals"                                        $20          $28
                                                                        ==========   ==========
</TABLE>




                                      F-49

<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 15 - SEGMENT INFORMATION :

        A.      INFORMATION ON OPERATING SEGMENTS:

                OPERATING SEGMENTS:

                1)      General:

                        The Company conducts its worldwide operations in five
                        operating segments as follows:

                        Delta USA, U.S upper market and Europe- these segments
                        are engaged in manufacturing and marketing of intimate
                        apparel to various customers in the U.S and European
                        markets. Socks- the segment is engaged in manufacturing
                        and marketing of socks to various customers in the U.S
                        and European markets. Delta marketing Israel - this
                        segment is engaged in marketing of intimate apparel to
                        various customers in Israel through retail and wholesale
                        operations.

                        The Company changed its internal organization by
                        transferring Socks marketing operation in Israel to the
                        managerial responsibility of Delta Marketing Israel. In
                        addition, US upper market and the textile divisions were
                        merged. Numbers included below have been reclassified
                        accordingly.

                2)      Information on revenues, profit (losses) and assets of
                        the reportable operating segments:

                        a)      Measurement of revenues, profit (losses) and
                                assets of the operating segments:

                                The measurement of revenues, profit (losses) and
                                assets of the reportable operating segments is
                                based on the same accounting principles applied
                                in these financial statements, except for:

                                1)      The effect of hedging transactions that
                                        were excluded from segment data.

                                2)      The Company fully consolidates the
                                        operating results of certain subsidiary
                                        in its consolidated financial
                                        statements, while for operating segment
                                        data the Company includes only its share
                                        (approximately 50.1%) in the operating
                                        profits of this subsidiary as part of
                                        the US Upper market segment.

                                Segment profits (losses) reflect the income
                                (loss) from operations of the segment and do not
                                include financial expenses, other income, income
                                tax expenses, share in profits (losses) of
                                associated companies and minority interest,
                                since those items are not allocated to the
                                segments. Sale price of intersegment revenue is
                                based on negotiation between the segments and
                                when applicable upon market price.


                                      F-50

<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 15 - SEGMENT INFORMATION (continued):

b)      Financial data relating to reportable operating segments:

<TABLE>
<CAPTION>
                                                                                            DELTA
                                                   US UPPER                               MARKETING
                                    DELTA USA       MARKET       EUROPE         SOCKS       ISRAEL       ADJUSTMENTS      TOTAL
                                    ---------       ------       ------         -----       ------       -----------      -----
                                                                        (U.S. $ IN THOUSANDS)
                                    ---------------------------------------------------------------------------------------------
<S>                                  <C>            <C>          <C>            <C>         <C>           <C>            <C>
Year ended December 31, 2004:
  Net revenues:
    To unaffiliated customers        $186,280       $90,540      $193,638      $138,749     $46,460      $(1,398)(1)     $654,269
    Intersegment                                    $21,312          $165        $5,435                    $(26,912)          -`-
                                    ---------     ---------     ---------     ---------   ---------     -----------    ----------
  Total net revenues                 $186,280      $111,852      $193,803      $144,184     $46,460        $(28,310)     $654,269
                                    =========     =========     =========     =========   =========     ===========    ==========
  Operating income (loss)              $5,911         $(568)     $4,906(4)       $9,137      $4,753      $(1,730)(2)      $22,409
                                    =========     =========     =========     =========   =========     ===========    ==========
  Assets (at end of year)            $225,744       $98,055      $100,264       $56,271     $23,866       $30,297(3)     $534,497
                                    =========     =========     =========     =========   =========     ===========    ==========
  Depreciation and amortization        $1,438        $6,097        $4,326        $2,463        $450             $411      $15,185
                                    =========     =========     =========     =========   =========     ===========    ==========


(1)    Includes results of hedge transactions.
(2)    Includes mainly the effect of hedge transactions in an amount of $1,700 thousands.
(3)    Includes general corporate assets not assignable to segments.
(4)    Includes restructuring expenses in the amount of $1,500 thousands relating to the closure of a logistic center in Hungary.
</TABLE>


                                      F-51

<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 15 - SEGMENT INFORMATION (continued):

<TABLE>
<CAPTION>
                                                                                            DELTA
                                                   US UPPER                               MARKETING
                                    DELTA USA       MARKET       EUROPE         SOCKS       ISRAEL       ADJUSTMENTS      TOTAL
                                    ---------       ------       ------         -----       ------       -----------      -----
                                                                        (U.S. $ IN THOUSANDS)
                                    ---------------------------------------------------------------------------------------------
<S>                                  <C>            <C>          <C>            <C>         <C>           <C>            <C>
Year ended December 31, 2003:
  Net revenues:
    To unaffiliated customers        $213,241       $66,665      $176,827       $86,393     $37,561         $(557) (1)   $580,130
    Intersegment                                     21,603           563         3,022                   (25,188)           - ;-
                                    ---------     ---------     ---------     ---------   ---------     -----------    ----------
  Total net revenues                 $213,241       $88,268      $177,390       $89,415     $37,561      $(25,745)       $580,130
                                    =========     =========     =========     =========   =========     ===========    ==========
  Operating income (loss)             $24,780       $(8,871)       $4,453 (4)    $8,997      $2,415        $5,042 (2)     $36,816
                                    =========     =========     =========     =========   =========     ===========    ==========
  Assets (at end of year)            $137,762        84,185      $109,377       $69,877     $19,774       $29,909 (3)    $450,884
                                    =========     =========     =========     =========   =========     ===========    ==========
  Depreciation and amortization        $1,561        $5,560        $4,368        $2,148        $398          $495         $14,530
                                    =========     =========     =========     =========   =========     ===========    ==========


(1) Includes results of hedge transactions.
(2) Including mainly capital gain in an amount of $ 4,050 thousands, the effect of losses of hedge transactions in an amount of
    $ 1,300 thousands and gain of  $600 thousands which represents the minority share in the operating profits of certain
    subsidiary - included in the US Upper market - which is partly consolidated for segment purposes and fully consolidated in the
    consolidated financial statements.
(3) Includes general corporate assets not assignable to segments.
(4) Includes restructuring expenses in the amount of $ 1,007 thousands relating to the closure of sewing facilities in Scotland and
    in Israel.
</TABLE>

                                      F-52

<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 15 - SEGMENT INFORMATION (continued):

<TABLE>
<CAPTION>
                                                                                            DELTA
                                                   US UPPER                               MARKETING
                                    DELTA USA       MARKET       EUROPE         SOCKS       ISRAEL       ADJUSTMENTS      TOTAL
                                    ---------       ------       ------         -----       ------       -----------      -----
                                                                        (U.S. $ IN THOUSANDS)
                                    ---------------------------------------------------------------------------------------------
<S>                                  <C>            <C>          <C>            <C>         <C>           <C>            <C>
Year ended December 31, 2002:
  Net revenues:
    To unaffiliated customers        $202,024       $81,968      $170,265       $79,193     $34,808         $(960) (1)   $567,298
    Intersegment                                     29,157           706         4,710                   (34,573)           - ;-
                                    ---------     ---------     ---------     ---------   ---------     -----------    ----------
  Total net revenues                 $202,024      $111,125      $170,971       $83,903     $34,808      $(35,533)       $567,298
                                    =========     =========     =========     =========   =========     ===========    ==========
  Operating income (loss) (3)         $14,575      $(4,731)       $10,205        $8,319     $(1,267)         $667 (4)     $27,768
                                    =========     =========     =========     =========   =========     ===========    ==========
  Assets (at end of year)            $143,730       $94,849      $105,522       $46,413     $17,129       $33,415 (2)    $441,058
                                    =========     =========     =========     =========   =========     ===========    ==========
  Depreciation and amortization        $1,294        $5,518        $3,932        $2,420        $387          $531         $14,082
                                    =========     =========     =========     =========   =========     ===========    ==========


(1)  Includes results of hedge transactions.
(2)  Includes general corporate assets not assignable to segments.
(3)  Includes restructuring costs in the amount of $ 673 thousands in Europe and $ 392 thousands in Delta USA.
(4)  Including mainly the losses of hedge transactions in an amount of $ 960 thousands and gains of $ 1,025 thousands which
     represents the minority share in the operating profits of certain subsidiary - included in the US Upper market - which is
     partly consolidated for segment purposes and fully consolidated in the consolidated financial statements.
</TABLE>


                                      F-53

<PAGE>

                           DELTA GALIL INDUSTRIES LTD.
                            (An Israeli corporation)
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)


NOTE 15 - SEGMENT INFORMATION (continued):

        B.      GEOGRAPHICAL INFORMATION:

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31
                                                            ------------------------------------
                                                               2004         2003         2002
                                                            ----------   ----------   ----------
                                                                        IN THOUSANDS
                                                            ------------------------------------
<S>                                                           <C>          <C>          <C>
                1)  Revenues
                      attributed to geographic area
                      (based on the location of the
                      customers):
                      North America                           $334,833     $300,708     $303,103
                      United Kingdom                           202,831      187,885      181,302
                      Europe (other than U.K.)                  64,605       48,766       44,409
                      Israel                                    52,000       42,771       38,484
                                                            ----------   ----------   ----------
                                                              $654,269     $580,130     $567,298
                                                            ==========   ==========   ==========
</TABLE>

                2)  The net balance of the Company's property, plant and
                    equipment, by geographic location, are as follows:

<TABLE>
<CAPTION>
                                                                        DECEMBER 31
                                                            ------------------------------------
                                                               2004         2003         2002
                                                            ----------   ----------   ----------
                                                                        IN THOUSANDS
                                                            ------------------------------------
<S>                                                           <C>          <C>          <C>
                  Israel                                       $57,685      $60,108      $64,998
                  Egypt                                         24,464       22,218       20,940
                  United States                                 15,637        8,369        7,284
                  Eastern Europe                                11,370       11,719        6,803
                  Jordan                                         9,470        9,666       10,510
                  United Kingdom                                 3,831        4,429        7,740
                  Ireland                                        1,184        5,450
                  Thailand                                       2,108
                  Other                                          2,592        2,918        3,326
                                                            ----------   ----------   ----------
                                                              $128,341     $124,877     $121,601
                                                            ==========   ==========   ==========
</TABLE>

                C.      REVENUES FROM PRINCIPAL CUSTOMERS:

<TABLE>
<CAPTION>
                                                                    YEAR ENDED DECEMBER 31
                                                            ------------------------------------
                                                               2004         2003         2002
                                                            ----------   ----------   ----------
                                                                        IN THOUSANDS
                                                            ------------------------------------
<S>                                                           <C>          <C>          <C>
                  Customer 1                                  $188,947     $179,120     $174,195
                  Customer 2                                   $86,177      $82,472      $76,910
                  Customer 3                                   $70,157      $86,829      $65,317
</TABLE>


                                      F-54

<PAGE>

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DELTA TEXTILES (LONDON) LIMITED

We have audited the balance sheets of Delta Textiles (London) Limited ("the
Company") as at 31 December 2004 and 31 December 2003 and the related statements
of income, changes in shareholders' equity and cash flows for each of the three
years in the period ended 31 December 2004. These financial statements are the
responsibility of the Company's Board of Directors and management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing standards
in the United Kingdom and in accordance with the Standards of the Public Company
Accounting Oversight Board (United States). Those Standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
the significant estimates made by the Company's Board of Directors and
management, as well as evaluating the overall annual accounts presentation. We
believe that our audit provides a reasonable basis for our opinion.

In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of the Company as at 31 December 2004
and 31 December 2003 and the results of its operations, changes in its
shareholders' equity and cash flows for each of the three years in the period
ended 31 December 2004, in conformity with generally accepted accounting
principles in the United Kingdom. In addition they present fairly, in all
material respects, the financial position of the Company as at 31 December 2003
and 31 December 2003 and the results of its operations for each of the three
years in the period ended 31 December 2004 and the generally accepted accounting
principles in the United States of America.



BAKER TILLY

Registered Auditor
Chartered Accountants
2 Bloomsbury Street
London WC1B 3ST
United Kingdom

15 June 2005

<PAGE>

ERNST & YOUNG ALLIED FOR ACCOUNTING & AUDITING Phone: +20 2 336 2000

              37 El Ahrar Street, Mobica Tower Fax:   +20 2 760 0813

              P.O. Box 97 Dokki, Giza-Egypt

CAIRO.OFFICE@EG.EY.COM

www.ey.com/eyme


To the shareholders of
DELTA TEXTILE EGYPT (S.A.E.)


We have audited the balance sheets of DELTA TEXTILE EGYPT (S.A.E.) as of 31
December 2004 and 2003 and the related statements of income, changes in
shareholder's equity and cash flows for each of the three years in the period
ended 31 December 2004. These financial statements are the responsibility of the
Company's Board of Directors and management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of the Company as of 31 December 2004
and 2003, and the results of its operations, changes in its shareholders' equity
and its cash flows for each of the three years in the period ended 31 December
2004, in conformity with generally accepted accounting principles ("GAAP") in
the United States.



EMAD H. RAGHEB
FFSAA - FEST
(RAA - 3678)

CAIRO 15 June 2005

<PAGE>

ERNST & YOUNG ALLIED FOR ACCOUNTING & AUDITING Phone: +20 2 336 2000

37 El Ahrar Street, Mobica Tower               Fax:   +20 2 760 0813

P.O. Box 97 Dokki, Giza-Egypt

CAIRO.OFFICE@EG.EY.COM

www.ey.com/eyme


To the shareholders of
DELTA SOURCING EGYPT (L.L.C)


We have audited the balance sheets of DELTA SOURCING EGYPT (L.L.C) as of 31
December 2004 and 2003 and the related statements of income, changes in
shareholder's equity and cash flows for each of the three years in the period
ended 31 December 2004. These financial statements are the responsibility of the
Company's Board of Directors and management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of the Company as of 31 December 2004
and 2003, and the results of its operations, changes in its shareholders' equity
and its cash flows for each of the three years in the period ended 31 December
2004, in conformity with generally accepted accounting principles ("GAAP") in
the United States.



EMAD H. RAGHEB
FFSAA - FEST
(RAA - 3678)

CAIRO 15 June 2005