BONTEX INC, 10-K, 1999-09-28

BONTEX INC
10-K, 1999-09-28
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 10-K

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

For the fiscal year Commission File
ended June 30, 1999 Number 0-5200

BONTEX, INC.
Exact name of Registrant as specified in its charter

VIRGINIA 54-0571303
State of Incorporation IRS Employer No.

ONE BONTEX DRIVE, BUENA VISTA, VIRGINIA 24416-1500
Address of principal executive offices Zip code

Registrant's telephone number (540) 261-2181

Securities registered pursuant to Section 12(b) of the Act:None

Securities registered pursuant to Section 12(g) of the Act:
Title of Class
$.10 par value common stock

Indicate by check mark whether the Registrant (1) has filed all annual,
quarterly and other reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months with the
Commission, and (2) has been subject to the filing requirements for at least the
past 90 days: ( x ) Yes ( ) No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K ( )

Aggregated market value of the voting stock held by non-affiliates of the
Registrant: $1,700,685 at August 31, 1999

On August 30, 1999, the Registrant had 1,572,824 shares of $.10 par value common
stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

(1) Portions of the Registrant's Annual Report to Stockholders are incorporated
by reference into Parts I and II hereof.

(2) Portions of the Registrant's Proxy Statement dated September 28, 1999
issued in connection with the annual meeting of shareholders to be held
October 28, 1999 are incorporated by reference into Part III hereof.

<PAGE>

TABLE OF CONTENTS

PART I

ITEM PAGE

1. Business..........................................................3
2. Properties........................................................9
3. Legal Proceedings.................................................9
4. Submission of Matters to a Vote of Security Holders..............10

PART II

5. Market for the Registrant's Common Equity and Related Stockholder
Matters..........................................................11
6. Selected Financial Data..........................................12
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................12
7A. Quantitative and Qualitative Disclosures About Market Risk.......12
8. Financial Statements and Supplementary Data......................12
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................13

PART III

10. Directors and Executive Officers of the Registrant...............13
11. Executive Compensation...........................................13
12. Security Ownership of Certain Beneficial Owners and Management...13
13. Certain Relationships and Related Transactions...................13

PART IV

14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..13

<PAGE>

PART I

ITEM 1. BUSINESS

On January 2, 1997, the Company completed a plan which changed, among
several items, its name to Bontex, Inc. from Georgia Bonded Fibers, Inc. For
further information see General Business below.

Except for the historical data set forth herein, the following
discussion contains forward-looking information. The Company's actual results
may differ materially from these projected results because of inherent
limitations with such model characteristics and assumptions. Factors that could
cause or contribute to such differences include, but are not limited to, level
of sales to key customers, actions of competitors, fluctuations in the prices of
primary raw materials and foreign currency exchange rates.

GENERAL BUSINESS

Bontex, Inc. (all references hereinafter to the "Registrant," "Company"
or "Bontex" refer collectively to Bontex, Inc. and its wholly-owned and
majority-owned subsidiaries unless otherwise indicated by context) was
incorporated in June 1946 under the laws of the State of New Jersey. The Company
originally began as a leather processing operation, and today, Bontex is a
leading worldwide manufacturer and distributor of uncoated and coated
elastomeric wet web impregnated fiberboard products. The Company's products are
generally described by the trademark BONTEX, and are marketed to various
industries, including footwear, headwear, luggage, leathergoods, allied
industries, belt backing, gasketing, furniture, electronic integrated component
packaging, and automotive industries. Bontex is a market leader in many of the
areas in which the Company competes.

The Company believes it has been negatively affected by the well
publicized situation in Asia related to the currency and economic crisis. During
the past two years, the currencies of a number of key Asian countries, including
Korea, Thailand, and Indonesia, have devalued. The devaluations against the US
dollar have made locally sourced materials less expensive, in some cases, than
Bontex products. This has put additional pressure on margins and has negatively
affected sales as noted in Management's Discussion and Analysis incorporated by
reference in Part II, Item 7 of this report. Sales have also been negatively
impacted by excessive inventories of footwear that have led to a reduction of
footwear production. Even though economic conditions in Asia have reduced the
Company's near-term growth expectations, management believes that the market
ultimately will rebound. A two-year correction period is expected by many
experts in relation to the global shoe inventory. Nonwoven materials, however,
continue to erode sales of cellulose based products. Bontex is placing greater
emphasis on the marketing of nonwoven products, and working to develop new
markets for impregnated cellulose products in an effort to increase sales.

On January 2, 1997, the Company received the final State regulatory
approvals of its proposal, which was adopted by the Company's stockholders at
the Annual Meeting of Stockholders held on November 7, 1996, to change the state
of incorporation of the Company to Virginia and effect Amended and Restated
Articles of Incorporation (the "Reorganization"). As a result of the
restructuring, the Company was reincorporated as a Virginia corporation, with
its principal place of business at One Bontex Drive, Buena Vista, Virginia
24416-1500, and the name of the Company was changed to "Bontex, Inc." The
Company's common stock is traded on the Nasdaq SmallCap Market under the symbol
"BOTX." The restructuring did not result in any material change in the business,
management, assets, liabilities, or net worth of the Company. For further
information, refer to Report on Form 8-K, Reorganization of Georgia Bonded
Fibers, Inc., dated January 2, 1997, and Proxy Statement for meeting of
Shareholders held on November 7, 1996.

<PAGE>

ORGANIZATION

The Company maintains corporate headquarters, manufacturing, converting,
sales office, and a warehouse facility in Buena Vista, Virginia; a wholly-owned
manufacturing subsidiary, Bontex S.A. in Stembert, Belgium; a wholly-owned
distribution and converting subsidiary, Bontex Italia S.r.l. in Villafranca,
Verona, Italy; a wholly-owned distribution subsidiary, Bontex de Mexico, S.A. de
C.V. in Leon, Mexico, and a majority owned distribution subsidiary, Bontex Hong
Kong Limited in Hong Kong; and a sales office and warehouse in Newark, New
Jersey, which the Company plans to sell during fiscal year 2000, but currently
is still in use. See the discussion under "Item 2. Properties," below. The
Company utilizes a wholly-owned foreign sales corporation organized and existing
under the laws of the Virgin Islands to facilitate export sales. Additionally,
Bontex maintains a network of liaison offices, Bontex Korea, Bontex Taiwan,
Bontex China, Bontex Indonesia, Bontex Philippines, and Bontex Australia to
service Asian markets.

The Company currently employs 86 full-time and 2 part-time employees in
Buena Vista, Virginia; 2 full-time and 1 part-time employees in Newark, New
Jersey; 75 full-time and 2 part-time employees in Belgium; 9 full-time employees
in Italy; 2 full-time and 1 part-time employees in Mexico and 1 full-time
employee in Hong Kong. Revenue per employee was approximately $221,000 and
$200,000 in fiscal years 1999 and 1998, respectively.

There is no labor union at the United States operations and management
knows of no union activity at the present time. There are labor unions at the
Company's European operations. Although the Company believes that relations with
its employees are positive, there can be no assurance that the Company will not
experience work stoppages in the future.

PRODUCTS

BONTEX elastomeric wet web fiberboard materials are primarily used as an
insole material in footwear, as well as visorboard in headwear, dielectric
sealing base in automotive door panels, backing substrate, stiffener and
laminating base in luggage, leathergoods, and allied products. All BONTEX
fiberboard products are designed to be "environmentally-friendly," because
Bontex uses recycled and primary cellulose fibers originally derived from trees,
a renewable resource. Bontex has the American Podiatric Medical Association
(APMA) Seal of Acceptance for BONTEX elastomeric wet web products, BONFOAM,
SUREFOAM, and MAXXON, cushion insole materials. BONFOAM, SUREFOAM, and MAXXON
trademarks are the sole property of the Registrant. The podiatric seal of
acceptance is granted after stringent clinical and laboratory tests have been
carried out on approved products which demonstrate conformity to APMA
guidelines, and assist in foot health and comfort. The APMA Seal of Acceptance
for approved BONTEX products should enhance product acceptance in the
marketplace. Bontex has the SATRA Quality mark and laboratory accreditation at
its Belgium facility.

Bontex USA manufactures uncoated and coated BONTEX fiberboard products;
breathable (moisture vapor transmission) cushion foams, that are marketed under
trademarks BON-FOAM, MAXXON and SURE-FOAM, and are sold in a variety of grades
for use as shock absorbing insole material; BONTEX 200 RECYCLED and BONTEX 300
RECYCLED, which are produced from 100 percent recovered paper with a minimum 80
percent "post-consumer waste" for use in footwear, visorboard in headwear, a
backing substrate, stiffener pieces and laminating base; BON-PEL, a hybrid
nonwoven substrate, which is exceptionally strong and flexible; BONTEX 48 MA, an
uncoated visorboard for use in military headwear, which has been approved by
NATICK military laboratory. Bontex USA also combines certain products, such as
foams, fabrics, and vinyls, with BONTEX fiberboard. Additionally, Bontex USA is
the exclusive distributor globally to the footwear industry of an expanded
polyurethane material manufactured by Aero E.A.R. Specialty Composites, under
the trademarks MAXXON LS and CONFOR. MAXXON LS and CONFOR have moisture vapor
transmission characteristics and are used for sock-linings and cushion insoles
in various types of footwear. CONFOR is a trademark of E.A.R. Specialty
Composites. Bontex also markets a range of nonwoven products under the name
Bon-stitch. During 1999, Bontex

<PAGE>

introduced a broad range of footwear materials, including Bontex 90 Insole
Seatboard, economical insole products, Astral foam with the newest stay-dry
technologies, Bon-Stitch linings and Bon-Stitch next generation nonwoven
insoles.

Bontex S.A., Stembert, Belgium, manufactures uncoated BONTEX products.
Bontex Italia, S.r.l. is a distribution company and operates converting
equipment primarily servicing the Italian market.

The Company's converting facilities continue to show increased volume
and open new market areas in coated and composite items converted on BONTEX
substrates. The Company's marketing emphasis is to capitalize on the positive
performance of these products. Management believes that Bontex is well
positioned for growth due to the high quality and market acceptance of its
products, as well as its significant market penetration in developed and
developing markets.

The Company's research efforts are directed primarily toward developing
new products and processing techniques, and improving product performance, often
in close association with customers. The Company customizes many composite
products with BONTEX fiberboard products. These products have increased sales of
combination packages, primarily designed to take advantage of the current
increased emphasis on comfort in footwear products. A series of dual-density
(two-layer) foam packages have been designed, and management believes that sales
of these products have been positive since their introduction.

Bontex has completed implementation of the International Organization
for Standardization quality assurance system ISO 9001 at both the United States
and Belgium manufacturing facilities. Bontex SA was certified ISO 9001 during
1996, and Bontex USA during 1997. The impact of ISO 9001 on sales is anticipated
to be minimal; however, management regards ISO 9001 qualification as important
to maintaining a competitive edge in quality globally.

COMPETITION

The industry in which the Company operates is highly competitive.
Participants in the industry compete through quality and price, including the
ability to control costs, risk management, innovation, and customer service.
Presently, it is management's opinion that the Company offers superior product
quality and customer service in major markets globally. In the United States,
there is one other manufacturer of BONTEX type material. There are, however,
other materials which may be substituted for the same applications. The Company
estimates that during fiscal year 1999, its products were in approximately 45 to
50 percent of non-rubber footwear manufactured in the United States. This
estimate is based on Footwear Industries of America (FIA) data as to total
sales.

There are manufacturers who purchase BONTEX type materials for coating,
laminating, and converting into innersoles for footwear, visors for headwear,
and dielectric sealing base in automotive door panels. There is more competition
in these segments, and no comparative market statistics are available.

In Europe, there are six major manufacturers of material similar to
BONTEX. These competitors are located in Germany, Italy, Finland, Slovenia,
Taiwan and the former USSR. The Company estimates that it sells approximately 45
percent of the BONTEX type materials sold in the European Union. These estimates
are based on SATRA Common Market statistics as to total sales, and other
generally available industry information.

There are a number of manufacturers of elastomeric fiberboard materials
in Asia; however, there are an estimated fourteen competitors operating in the
Peoples Republic of China, which impacts selling prices. There is a 5 percent
duty on BONTEX products going into Taiwan. The Company has petitioned the US
trade representatives to eliminate these duties. Bontex has received
notification that the Republic of China (R.O.C.) has agreed to reduce and
phase-out these duties, but no definitive time-frame has been announced.

<PAGE>

As there are many customers globally who purchase BONTEX and convert it
into innersoles and other application components, the actual total worldwide
market penetration is difficult to estimate.

RISK MANAGEMENT PROGRAM

In areas where Bontex has exposure to market risk for commodities,
interest rates and foreign currencies, the Company attempts to manage these
risks with its Risk Management Program (RMP). The general policy for the RMP for
foreign currency exposure is to match currency denominations of the Company's
assets and liabilities. The RMP has proven to be effective in reducing the
Company's exposure to fluctuations in currency exchange rates. However, some
exposure remains and as such Bontex continues to have some gains and losses
related to currency fluctuation. The Mexican peso and Canadian dollar are
examples of currencies for which effective hedging is not available in a cost
efficient manner and Bontex is currently forced to accept the risk of doing
business in these and other such markets. The $40,000 of exchange losses during
1999 were mainly due to declines in value of the Mexican peso, Canadian dollar
and the overall strength of the US dollar during that period. For market risk
with commodity positions, such as pulp and latex, the Company uses a combination
of futures and purchase contracts to fix our prices in a manner intended to
limit our exposure. For interest rate market risk, the Company has on a limited
basis used interest rate swaps. As with all such risks, absolute or total
coverage of all exposures is not within our policy, but a closely monitored
approach is regarded as being effective based on current circumstances.

TRADEMARKS

Bontex utilizes trademarks on nearly all of its products, and believes
having such distinctive trademarks which are readily identifiable is an
important factor in creating and maintaining a market for its goods and
services. This further serves to identify the Company and distinguish its goods
from goods of others. The Company considers its BONTEX trademark and other
trademarks to be among its most valuable assets, and has registered these
trademarks in over 70 countries. Bontex continues to vigorously protect its
trademarks against infringement. The Company's operations are not dependent to
any significant extent upon any single or related group of patents, licenses or
concessions.

PRODUCTION AND SALES

Refer to Note 3 of Notes to the Consolidated Financial Statements in the
Company's Annual Report to Stockholders wherein information is provided
regarding foreign and domestic operations and export sales for the last three
fiscal years. Such information is incorporated in Part II, Item 8 of this report
by reference, pursuant to General Instruction G(2).

Historically, Bontex has had a significant global presence, and one of
its major strategic objectives is to continue to expand this presence. The
Company's sales are diversified among a large customer base, as well as numerous
geographic regions. Asia, where an estimated 70 percent of global shoe
production occurs, is the largest market for Bontex products. The Company has
one of the largest customer bases in the industries it serves. The Company
offers a wide range of elastomeric products for use in a variety of
applications. However, the majority of the Company's sales are to the footwear
industry. The Company intends to continue its strategy of developing and
broadening non-footwear sales.

Credit terms offered by the Company to meet competition have been longer
than terms normally available to the Company from its vendors. Some seasonality
exists in that the second half of each fiscal year is usually more productive
and consequently more profitable than the first half. This seasonality is
largely because of customers' buying cycles with scheduled vacations, shutdowns
and holidays, which normally occur during the first half of each fiscal year.
Substantially all sales to Asia are denominated in US dollars, negotiated
letters of credit and sight drafts, and are covered by foreign credit insurance.
During the past three years, no single customer accounted for 10 percent or more
of the Company's consolidated net sales.

<PAGE>

Foreign operations, principally in Belgium and Italy, constitute a
significant portion of the Company's business. Production of BONTEX elastromeric
fiberboard products is allocated between the United States and Belgium
manufacturing facilities based on such factors as availability of capacity,
production efficiencies, logistical considerations, and foreign currency
exchange rates. The Company is currently operating at less than full capacity.
During the past three fiscal years, approximately 40 percent of total production
was manufactured in the United States. The backlog of firm orders in the United
States at the end fiscal 1999 was about three weeks production or approximately
$1 million in sales. The current backlog at Bontex USA is approximately two
weeks. In Europe, the backlog at the end of fiscal year 1999 was about three
weeks production or approximately $750,000 in sales. The current estimated
backlog at Bontex S.A. is approximately two weeks. The Company expects all the
orders in the backlog will be manufactured and shipped during the next fiscal
year.

The Company sells most of its products directly to customers through its
own sales force and commissioned sales representatives throughout the United
States. The Company also sells products through distributors and other
intermediaries who may convert and resell these products to others. Bontex USA
mainly services North and South America, as well as certain Asian markets. Over
the past three years, Bontex USA's export sales to markets outside of the United
States have increased from 46% to 62%. This primarily reflects the decline of
the domestic market and continued emphasis on overseas markets. Bontex USA
maintains leased bonded warehouses in St. Louis, Missouri; Leon, Mexico;
Cambridge, Ontario, Canada; and Montreal, Quebec, Canada. The Company
established Bontex de Mexico, S.A. de C.V., as a marketing distribution company
in Leon, Mexico to directly facilitate sales in Mexico.

Bontex S.A. markets its products through its own sales force,
distributors and sales representatives in most countries in Europe, Central and
Eastern Europe, Africa, the Middle East, as well as certain Asian markets. The
Company's wholly-owned subsidiary, Bontex Italia S.r.l., services the Italian
market directly and through localized converters and commissioned
representatives. Over the past few years a greater portion of footwear,
especially athletic shoes, is strobel stitched using nonwoven materials in place
of Bontex cellulose type products. In fiscal 1999, the Company began
successfully marketing Bon-stitch, a broad range of nonwoven materials. The
Company plans to expand its strategic alliances to further leverage its Bontex
trademark and marketing capabilities.

The Company maintains six Bontex liaison offices in select Asian
markets, a network of sales representatives in various countries where BONTEX is
marketed, as well as leased bonded warehouses in Korea for the year ended June
30, 1999, Taiwan, and the Peoples Republic of China. For certain of its foreign
markets, the Company uses individual distributors. One distributor represented
approximately 15.2 percent of the Company's net consolidated sales, and the
Company believes that it is well positioned to replace any of these distributors
without materially impacting the Company's marketing or financial operations.
The Bontex liaison office in Australia continues to perform the coordination of
Asian operations covering, among other countries, Japan, Korea, Taiwan, Hong
Kong, Philippines, Indonesia, New Zealand, Australia, Singapore and Malaysia.
The Company has established a sales subsidiary, Bontex Hong Kong Limited, in
Hong Kong, to replace a distributor for Hong Kong and the PRC New Territories.

STATUS OF PROPOSED PROJECT IN MALAYSIA

On July 27, 1994, the Company's Board of Directors authorized management
to investigate the establishment of a manufacturing facility in Malaysia. Bontex
Sdn Bhd was incorporated during fiscal 1996, and was considered not only as a
way of enabling the Company to strengthen its presence in Asia, but also to
expand its global manufacturing network. Due to economic conditions in Asia and
in the footwear industry for elastomeric cellulose materials, Bontex Sdn Bhd was
dissolved as per resolution of the Company's Board of Directors dated August 27,
1998.

<PAGE>

MATERIALS AND SUPPLIES

The Company purchases a broad range of raw materials sourced throughout
the world in connection with its manufacturing activities. More than one
supplier is available for all major raw materials. Bontex S.A. appears to have
available and receives adequate quantities of water and steam for processing.
The manufacturing facility in the United States has an adequate supply of
processing water from wells and river sources.

The Company attempts to minimize the effects of cyclical changes in raw
material costs through purchase contracts, forward purchasing, pulp futures and
the application of technologies to improve process efficiencies. Principal cost
factors include the cost of raw materials, specifically pulp and latex, two
primary raw materials for the Company's products. Currently market pulp prices
are stable at around $535 per ton for NBSK pulp, but may be showing signs of
increasing. Management intends to continue to prudently apply technology to
manufacture high quality products while attempting to reduce costs in all areas
of operations in an effort to maintain competitive selling prices. There can be
no assurance, however, that increased raw material prices will not continue to
have an adverse effect on the Company's operations or competitive position in
the future.

Bontex USA maintains a limited private fleet of tractors and trailers
for long haul delivery of its products to customers throughout the United States
and Canada and to east coast ports for export shipments, in addition to
back-hauling of certain raw materials to reduce operating costs. The Company
also participates in numerous equipment interchange agreements for containers
with steamship lines to facilitate exports.

REGULATORY AND ENVIRONMENTAL MATTERS

As with other related manufacturers, the Company is subject to
regulations by various federal, state, foreign and local agencies concerning
compliance with environmental control statutes. These regulations impose
limitations on the use of chemicals in manufacturing processes and discharge of
effluent and emissions into the environment, and establish standards for solid
and hazardous waste disposal, treatment, and storage, as well as require the
Company to obtain and operate in compliance with the conditions of environmental
permits. The Company believes that it is in substantial compliance with such
existing domestic and foreign environmental statutes and regulations. Failure to
comply with applicable environmental control standards could result in
interruption of operations or could require additional expenditures at these
facilities.

In recent years, various agencies have increased their screening and
testing of the effects of chemicals or mixtures, including those that occur
naturally. The Company's product formulations, in some instances, may include
compounds that are or will be subject to these tests. The Company continually
devotes significant resources to improve product formulation for, among other
things, comfort, health, cost, quality and other performance features.

The Company has made and intends to continue to make capital
investments, operating expenditures, and production adjustments in connection
with compliance with environmental laws and regulations. Since the Company is
essentially comprised of two fiberboard plants, Bontex USA and Bontex S.A.,
water quality discharge remains a primary environmental concern. Both plants are
operating new waste water treatment facilities, which the Company believes to be
operating within compliance of applicable environmental requirements.

Bontex USA is also impacted by regulations concerning air emissions
relating to the operation of certain coating and converting equipment. The
Company entered into a Consent Order with the Virginia Department of
Environmental Quality pursuant to which the Company committed to take
appropriate corrective action with respect to air quality emissions and to
achieve compliance by December 31, 1997. The air emission control equipment was
installed and appears to be operating within compliance of applicable
environmental requirements.

<PAGE>

The actual costs of future environmental compliance may differ from
projected costs due to, among other things, continued emergence of new
environmental laws and regulations and improving efficiencies in environmental
control or process technology developments.

ITEM 2. PROPERTIES

For information about liens and security interests held by banks on the
Company's properties, see Note 4 of Notes to Consolidated Financial Statements
contained in the Company's 1999 Annual Report to Stockholders, incorporated in
Part II, Item 8 of this Report by reference, pursuant to General Instruction
G(2).

The properties of the Company consist primarily of plant and equipment
to manufacture and distribute the Company's products. The Company's corporate
headquarters, manufacturing and converting facility in Buena Vista, Virginia
continues to be modernized, upgraded, and expanded. In Stembert, Belgium, the
subsidiary's plant is one of the most modern and highest capacity in the world
for producing BONTEX type products, and the Company continues to invest in new
equipment to maintain its high capacity and high level of efficiency. Bontex
Italia S.r.l. operates from a modern distribution facility with new converting
equipment. During fiscal 1999, the Company spent approximately $390,000,
$637,000 and $40,000 to refurbish, upgrade and install equipment at Bontex USA,
Bontex S.A., and other subsidiaries, respectively.

In Newark, New Jersey, the Company owns an office building and
warehouse. A sales office is maintained at the Newark building, and the
warehouse has been used for the distribution of the Company's products in the
northeastern region of the United States. In June 1997, the Company's Board of
Directors, in response to decreasing demand in the domestic markets, approved a
plan to restructure the Company's operations in the Northeast. The restructuring
plan focuses on the Company's Newark, New Jersey operation and will involve
closing the Company's current Newark warehouse facility. The Company expects the
restructuring to generate operating efficiency improvements which should
contribute to the long-term profitability of the Company. The Company plans to
dispose of the warehouse facility within the next year. The related
restructuring charges at June 30, 1999 are immaterial to the financial
statements, because the net realizable value of the Newark warehouse facility
exceeds the net carrying amount of approximately $64,000. Future cash outlays
and expenditures for the restructuring are not expected to be material.

The total cost of capital expenditures, including the capital
expenditures planned for environmental regulations at both Bontex USA and Bontex
S.A. as discussed in the previous section regarding regulations, is estimated
not to exceed $300,000 for fiscal year 2000. The Company believes that cash
generated from operations and credit facilities will be sufficient to meet these
capital requirements.

The Company continues to manage the utilization of its assets in an
effort to meet global growth objectives, marketplace forces, productivity and
technology changes. The Company considers all its properties well maintained,
and adequate for present and future requirements.

ITEM 3. LEGAL PROCEEDINGS

In March 1998, a civil complaint was filed in the Superior Court of New
Jersey, Law Division, Essex County, by Patricia Surmonte Tischio, a director of
Bontex (the "Company") against the Company, James C. Kostelni, the President and
Chief Executive Officer of the Company, and Mr. Kostelni's spouse. Both Mrs.
Tischio and Mrs. Kostelni are daughters of the Company's founder and serve as
co-executors and co-trustees of, and are designed beneficiaries under, an estate
and certain trusts, which in the aggregate beneficially own approximately 43
percent of the Company's outstanding common stock. The case was transferred to
the United States District Court for the Western District of Virginia.

<PAGE>

On February 23, 1999, the United States District Court of the Western
District of Virginia granted the Motion for Judgement on the Pleadings filed by
the defendants with regard to the tortious interference with contractual
relations and conspiracy claims, dismissing those claims with prejudice. No
appeal was taken from the Court's ruling by Mrs. Tischio. The court declined to
enter declaratory judgment regarding plaintiff"s alleged lifetime contract with
the Company. The court also found that the case presented a nonjusticiable issue
for the breach of contract, promissory estoppel and wrongful discharge in
violation of public policy claims and dismissed those claims without prejudice.

In the normal course of business, the Company is subject to proceedings,
lawsuits and other claims which are subject to many uncertainties, for which
their outcomes are not predictable with assurance. There are no legal
proceedings, lawsuits or other claims pending against or involving the Company,
which in the opinion of management, will have a material adverse impact upon the
financial condition of the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this report.

Executives of the Registrant:

Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered Item in Part I of this report in lieu of being
included in the Proxy Statement for the Annual Meeting of Stockholders to be
held on October 28, 1999.

The names, ages and positions of the executives of the Company as of
September 23, 1999 are listed below with their business experience with the
Company for the past five years. Executive officers are appointed annually by
the Board of Directors at the annual meeting of stockholders. There is no
agreement or understanding between any executive and any other pursuant to which
the executive was selected. Mr. James C. Kostelni is the brother-in- law to Mrs.
Patricia S. Tischio. Mr. Jeffrey C. Kostelni and Mr. Charles W. J. Kostelni are
the sons of Mr. James C. Kostelni and the nephews of Mrs. Patricia S. Tischio.

Previous and present duties and responsibilities:
<TABLE>
<CAPTION>

Position and Business
Name and Age Experience for Past Five Years
<S> <C> <C> <C> <C> <C> <C>

James C. Kostelni, 64 Chairman of the Board, President, and Chief
Executive Officer (since 1994), President and Chief
Operating Officer (since 1971) of the Company. Mr.
Kostelni has a Bachelor of Science Degree in
Business Administration. Director.

Jeffrey C. Kostelni, 33 Senior Vice President (since 1999); Chief Financial
Officer and Treasurer (since 1994) of the Company;
General Sales Manager of Bontex S.A., a subsidiary
of the Company in Belgium (1995-1999). Mr.
Kostelni has a Bachelor of Science Degree in
Accountancy and is a Certified Public Accountant.
Director.

<PAGE>

Charles W. J. Kostelni, 35 Senior Vice President (since 1999), General Manager
(U.S. operations only) (since 1998), Corporate
Secretary (since 1997), Corporate Controller (since
1996) of the Company and General Sales Manager of
Bontex S.A., a subsidiary of the Company in
Belgium (since 1999). Prior thereto, Assistant
Controller (1994-1996) of the Company and
Assistant Vice President, Union Bank of Switzerland,
New York (1991-1995). Mr. Kostelni has a Bachelor
of Science Degree in Accountancy and is a Certified
Public Accountant.

David A. Dugan, 52 Controller (since 1988) and Assistant Corporate
Secretary (since 1997); prior thereto, Corporate
Secretary (1993-1997) of the Company. Mr. Dugan
has a Masters in Business Administration and is a
Certified Public Accountant.

Patricia S. Tischio, 60 Office Manager (since 1989) and Assistant Corporate
Secretary (1994-1997) of the Company. Mrs.
Tischio has a Bachelor of Arts Degree in English.
Director.

Larry E. Morris, 53 Technical Sales Director (since 1998) of the
Company; prior thereto, Technical (1983-1998),
Sales Director (1993-1998). Director.

Michael J. Breton, 59 Corporate Director of International Operations of the
Company (since 1993), and General Manager of
Bontex S.A., a subsidiary of the Company (since
1987). Mr. Breton has a Bachelor of Science Degree
in Paper Technology. Director.
</TABLE>

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS

The information set forth under the caption "Common Stock and Dividend
Data" on page 4 of the Company's 1999 Annual Report to Stockholders is
incorporated herein by reference, pursuant to General Instruction G(2).

The following lists the securities sold by Bontex within the past three
years which were not registered under the Securities Act of 1933: On January 22,
1997, as part of the Executive Compensation Agreement between Bontex, Inc. and
James C. Kostelni, President and Chief Executive Officer of the Company, Mr.
Kostelni was granted a stock option to purchase up to 80,000 shares of the
Company's common stock at a price of $4.50 per share, which was the fair market
value of the shares on the date of grant. The option was exercisable on the date
of grant and had a maximum term of ten years. The option was granted in a
private placement in reliance on Section 4(2) under the Securities Act of 1933.

<PAGE>

On November 21, 1997, each of Jeffrey Kostelni and Charles Kostelni was
granted an option to purchase up to 20,000 shares of Company common stock at a
price of $5.63 per share, which was the fair market value of the shares on the
date of grant. The options were exercisable from the date of grant and had a
maximum term of ten years. The options were granted in a private placement in
reliance on Section 4(2) of the Securities Act of 1933.

On July 1, 1998, all of the above options were canceled, unexercised,
upon voluntary agreement of the parties, in order to expedite the Company's
application to transfer its common stock listing from The Nasdaq Stock Market to
the Nasdaq SmallCap Market. A proposal was presented and approved at the
Company's 1998 Annual Stockholders Meeting to issue new options to replace the
canceled options. On January 28, 1999, James C. Kostelni was granted an option
to purchase up to 72,000 shares of Company common stock at a price of $4.50 per
share. The option was exercisable on the date of grant and expires on January
22, 2007. Also on January 28, 1999, both Jeffrey C. Kostelni and Charles W. J.
Kostelni were granted options to purchase up to 20,000 shares of Company common
stock at a price of $5.63 per share. The options were exercisable on the date of
grant and expire on November 21, 2007. Each of these options were granted in a
private placement in reliance on Section 4(2) of the Securities Act of 1933.

ITEM 6. SELECTED FINANCIAL DATA

The five year data for the fiscal years 1999, 1998, 1997, 1996, and 1995
are included in the "Summary of Selected Ten Year Data" on page 4 of the
Company's 1999 Annual Report to Stockholders and is incorporated herein by
reference, pursuant to General Instruction G(2).

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

"Management's Discussion and Analysis" on pages 5 through 10 of the
Company's 1999 Annual Report to Stockholders is incorporated herein by
reference, pursuant to General Instruction G(2).

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Quantitative and qualitative disclosures about market risk in
"Management's Discussion and Analysis" on pages 9 and 10 of the Company's 1999
Annual Report to Stockholders is incorporated herein by reference, pursuant to
General Instructions G(2).

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The following consolidated financial statements of the Registrant and
the independent auditors' report included on pages 11 through 26 of the 1999
Annual Report to Stockholders, are herein incorporated by reference, pursuant to
General Instruction G(2):

1. Consolidated Statements of Income (Loss) and Comprehensive Income
(Loss) for the Years Ended June 30, 1999, 1998 and 1997

2. Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended June 30, 1999, 1998, and 1997.

3. Consolidated Balance Sheets as of June 30, 1999 and 1998.

4. Consolidated Statements of Cash Flows for the Years Ended June
30, 1999, 1998, and 1997.

5. Notes to Consolidated Financial Statements

<PAGE>

6. Independent Auditors' Report

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE

There have been no changes in independent auditors and no disagreements
with independent auditors on any matter of accounting principles or practices,
financial statement disclosure, or auditors' scope or procedure.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

For information with respect to the executives of the Registrant, see
"Executives of the Registrant" at the end of Part I of this Report. For
information with respect to the Directors of the Registrant, see "Election of
Directors" at pages 4 through 6 of the Proxy Statement for the Annual Meeting of
Stockholders to be held October 28, 1999, which information is incorporated
herein by reference. The information with respect to compliance with Section
16(a) of the Exchange Act, which is set forth under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" at page 18 of the Proxy Statement for
the Annual Meeting of Stockholders to be held October 28, 1999, is incorporated
herein by reference pursuant to General Instruction G(3).

ITEM 11. EXECUTIVE COMPENSATION

The information set forth under the captions "Executive Compensation,"
"Compensation Committee Report on Executive Compensation" and "Stock
Performance" at pages 9 through 18 of the Proxy Statement for the Annual Meeting
of Stockholders to be held October 28, 1999, is incorporated herein by reference
pursuant to General Instruction G(3).

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information pertaining to stockholders beneficially owning more than
five percent of the Registrant's common stock and the security ownership of
management, which is set forth under the caption "Stockholdings of Certain
Owners and Management" on pages 2 through 4 of the Proxy Statement for the
Annual Meeting of Stockholders to be held on October 28, 1999, is incorporated
herein by reference pursuant to General Instruction G(3).

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information set forth under the caption "Related Party Transaction"
on page 15 of the Proxy Statement for the Annual Meeting of Stockholders to be
held on October 28, 1999, is incorporated herein by reference pursuant to
General Instruction G(3).

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) List of documents filed as part of this report:

1. Financial Statements: All financial statements of the Registrant
as set forth under Item 8 of this Report on Form 10-K.

<PAGE>

2. Financial statement schedules and the location in this Form 10-K
are as follows:

SCHEDULE
NUMBER DESCRIPTION PAGE

(a) Independent Auditors' Report
on Financial Statement Schedule 17

(d) II Valuation and Qualifying Accounts for the
years ended June 30, 1999, 1998 and 1997 18

All other schedules are omitted, as the required information is
inapplicable, or the information is presented in the consolidated
financial statements or related notes.

3. Exhibits to this Form 10-K are as follows:

EXHIBIT
NUMBER DESCRIPTION

3(i) Amended and Restated Articles of Incorporation of the Company, as
amended (incorporated herein by reference to Exhibit No. (iii) of
Form 10-Q for the fiscal quarter ended December 31, 1996)

3(ii) Amended and Restated Bylaws of Bontex, Inc. (incorporated herein
by reference to Exhibit No. 3(i) of Form 10-Q for quarter ended
March 31, 1998)

10(i) *Executive Compensation Agreement dated January 22, 1997,
between Bontex, Inc. and James C. Kostelni (incorporated herein
by reference to Exhibit 10(i) of Form 10-Q for quarter ended
March 31, 1997)

10(ii) *Life Insurance Agreement between Georgia Bonded Fibers Inc.
and James C. Kostelni incorporated herein by reference to Exhibit
10.4 of Form 10-Q for quarter ended December 31, 1993)

10(iii) *Bontex S.A. Pension Plan (incorporated herein by reference to
Exhibit No. 10(iv) of Form 10-K for the fiscal year ended June
30, 1994)

10(iv) *Georgia Bonded Fibers, Inc. Annual Incentive Plan
(incorporated herein by reference to Exhibit No. 10(v) of Form
10-K for the fiscal year ended June 30, 1994)

10(v) *Supplemental Executive Compensation Agreement dated May 26,
1994, between Georgia Bonded Fibers, Inc. and James C. Kostelni
(incorporated herein by reference to Exhibit No. of Form 10-K for
the fiscal year ended June 30, 1994)

10(vi) Special Consent Order between the Company and the State Water
Control Board dated July 22, 1994 (incorporated herein by
reference to Exhibit No. 10(vii) of Form 10-K for the fiscal year
ended June 30, 1994)

10(vii) Amended Consent Order between the Company and the Commonwealth
of Virginia, Department of Environmental Quality dated January
10, 1997. (incorporated herein by reference to Exhibit No. 10(iv)
of Form 10-Q for the quarter ended December 31, 1996)

<PAGE>

10(viii) Related party Marketing Agreement between Bontex, Inc. and
Maxcomm, Inc. dated February 16, 1999

13 1999 Annual Report to Stockholders (such report, except to the
extent incorporated herein by reference, is being furnished for
the information of the Commission only and is not to be deemed
filed as part of this Report on Form 10-K)

21 Subsidiaries of the Company

27 Financial Data Schedule

*Management contract or compensatory plan or agreement required to be
filed as an Exhibit to this Form 10-K pursuant to Item 14 (c).

(b) Reports on Form 8-K: None

(d) Financial statement schedules required by Regulation S-X are
submitted as a separate section of this report.

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, hereunto duly authorized on this 28th day of
September, 1999.

BONTEX, INC.

by /s/James C. Kostelni
Chairman of the Board

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

Date

/s/James C. Kostelni September 28, 1999
- ------------------------------------ ------------------
James C. Kostelni
Chairman of the Board, President and
Chief Executive Officer
Director

/s/Jeffrey C. Kostelni September 28, 1999
- ------------------------------------ ------------------
Jeffrey C. Kostelni
Treasurer and
Chief Financial Officer
Director

/s/Charles W. J. Kostelni September 28, 1999
- ------------------------------------ ------------------
Charles W. J. Kostelni
Corporate Controller and
Corporate Secretary

/s/Michael J. Breton September 28, 1999
- ------------------------------------ ------------------
Michael J. Breton
Corporate Director of International
Operations and General Manager,
Bontex S.A.
Director

/s/Larry E. Morris September 28, 1999
- ------------------------------------ ------------------
Larry E. Morris
Technical Sales Director
Director

/s/Patricia S. Tischio September 28, 1999
- ------------------------------------ ------------------
Patricia S. Tischio
Director

<PAGE>

/s/William J. Binnie September 28, 1999
- ------------------------------------ ------------------
William J. Binnie
Director

/s/William B. D'Surney September 28, 1999
- ------------------------------------ ------------------
William B. D'Surney
Director

/s/Frank Mayorshi September 28, 1999
- ------------------------------------ ------------------
Frank Mayorshi
Director

/s/Joseph F. Raffetto September 28, 1999
- ------------------------------------ ------------------
Joseph F. Raffetto
Director

/s/Robert J. Weeks September 28, 1999
- ------------------------------------ ------------------
Robert J. Weeks
Director

<PAGE>

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders of Bontex, Inc.:

Under date of August 20, 1999, we reported on the consolidated balance sheets of
Bontex, Inc. and subsidiaries as of June 30, 1999 and 1998, and the related
consolidated statements of income (loss) and comprehensive income (loss),
changes in stockholders' equity, and cash flows for each of the years in the
three-year period ended June 30, 1999, as contained in the 1999 annual report to
stockholders. These consolidated financial statements and our report thereon are
incorporated by reference in the accompanying annual report on Form 10-K for the
year 1999. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule as set forth under Item 14(a)2 of the accompanying annual
report on Form 10-K for the year 1999. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based on our audits.

In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.

KPMG LLP
Roanoke, Virginia
August 20, 1999

<PAGE>

SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
BONTEX, INC. AND SUBSIDIARIES

Balance at Charges to Charged to Balance
Beginning Costs and Other at End
Description of Period Expenses Accounts* Deductions** of Period
----------- --------- -------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>

YEAR ENDED JUNE 30, 1999
Reserves and allowances
deducted from asset accounts:
Allowances for doubtful accounts $ 268,000 $ (39,000) $ (7,000) $ 94,000 $ 128,000
YEAR ENDED JUNE 30, 1998
Reserves and allowances
deducted from asset accounts:
Allowances for doubtful accounts $ 119,000 $ 252,000 $ - $ 103,000 $ 268,000
YEAR ENDED JUNE 30, 1997
Reserves and allowances
deducted from asset accounts:
Allowances for doubtful accounts $ 134,000 $ 75,000 $ (7,000) $ 83,000 $ 119,000
</TABLE>

*Foreign currency translation (loss)
**Uncollectable accounts written off, net of recoveries.

<PAGE>

Exhibit Index

3(i) Amended and Restated Articles of Incorporation of the Company, as
amended (incorporated herein by reference to Exhibit No. (iii) of
Form 10-Q for the fiscal quarter ended December 31, 1996)

3(ii) Amended and Restated Bylaws of Bontex, Inc. (incorporated herein
by reference to Exhibit No. 3(i) of Form 10-Q for quarter ended
March 31, 1998)

10(ii) *Life Insurance Agreement between Georgia Bonded Fibers Inc.
and James C. Kostelni incorporated herein by reference to Exhibit
10.4 of Form 10-Q for quarter ended December 31, 1993)

10(iii) *Bontex S.A. Pension Plan (incorporated herein by reference to
Exhibit No. 10(iv) of Form 10-K for the fiscal year ended June
30, 1994)

10(iv) *Georgia Bonded Fibers, Inc. Annual Incentive Plan
(incorporated herein by reference to Exhibit No. 10(v) of Form
10-K for the fiscal year ended June 30, 1994)

10(viii) Related party Marketing Agreement between Bontex, Inc. and
Maxcomm, Inc. dated February 16, 1999

21 Subsidiaries of the Company

27 Financial Data Schedule

*Management contract or compensatory plan or agreement required to be
filed as an Exhibit to this Form 10-K pursuant to Item 14 (c).

Exhibit 10(viii)

AGREEMENT
THIS AGREEMENT , made this 16 day of February 1999, between Maxcomm
Inc. a Virginia corporation with a place of business at 110 A South Columbus
Street, Alexandria, Virginia ("Maxcomm"), and Bontex, Inc., a Virginia
corporation, with a place of business at One Bontex Drive, Buena Vista, Virginia
24416 ("Bontex"), provides as follows:

RECITALS
WHEREAS, Bontex is in the business of manufacturing and selling products
globally in the footwear, headwear, luggage, and allied industries; and
WHEREAS, Maxcomm has, at its sole expense over the last two years,
expended approximately $150,000.00 of documented expenses, identifying,
coordinating and negotiating with various companies to explore and create
marketing and sales opportunities in the global footwear, headwear, luggage and
allied industries; and
WHEREAS, this expense and these efforts were undertaken to provide
opportunities pursuant to which Bontex could supply new products or provide paid
marketing assistance in the global footwear, headwear, luggage, and allied
industries; and
WHEREAS, Maxcomm has identified, qualified and developed a marketing
relationship with Solvay Engineered Polymers, Gencorp, Collano and Express Tool
(the "Identified Targets"), which will inure to the benefit of Bontex; and
WHEREAS, Maxcomm has committed to promote Bontex's manufacturing
capability, global marketing network and industry contacts to the Identified
Targets; and
WHEREAS, Maxcomm will continue in its efforts to develop similar
opportunities which may lead to further opportunities for joint participation
between Bontex and Maxcomm on a case by case basis:
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, Maxcomm and Bontex agree as follows:
1. Maxcomm will continue to work with the Identified Targets for the
benefit of Bontex, and will use its best efforts to develop and refine products
for global distribution by Bontex in the footwear, headwear, luggage and allied
industries.

<PAGE>

2. In consideration of such efforts by Maxcomm, Bontex shall pay to
Maxcomm, on a monthly basis, a commission payment calculated based on 6% of all
"collected net sales" made by Bontex with respect to the distribution of
products of the Identified Targets during the term of this agreement. For
purposes of this agreement, "collected net sales" shall mean the amount actually
and finally received by Bontex on a sale of a product of an Identified Target
after all expenses of sale. Expenses of sale shall include, without limitation,
discounts for cash payments, other special terms, third party costs (e.g. ocean
freight, inland freight, insurance, etc.) and any incremental costs. Monthly
commissions will be paid in arrears, on the 10th day of each month. In the event
that any amount is refunded or otherwise offset, the commission paid to Maxcomm
on that pro rata amount will be deducted from the next commission payment to be
made to Maxcomm. Except as otherwise specifically provided herein, Bontex shall
not be responsible for any expenses incurred or disbursements made by Maxcomm.
3. The relationship of Maxcomm to Bontex under the terms of this
agreement shall be that of an independent contractor/consultant not for hire,
and not as an agent, servant, employee, representative, distributor or any other
relationship. Notwithstanding the foregoing, Maxcomm shall have the express
limited authority to negotiate sales with customers and contracts with
suppliers, with respect to the distribution of products of the Identified
Targets, are subject to Bontex's final approval.
4. Maxcomm and Bontex shall each keep the other fully informed of all
transactions effecting their relationship and, without limiting the foregoing,
Maxcomm shall keep Bontex fully informed of all contacts with, and the status of
Maxcomm's relationship with, all suppliers and customer's representatives. In
communicating with customers on Bontex's behalf, Maxcomm will, at all times,
comply with reasonable policies implemented by Bontex, including the Bontex
ethics policy, a copy of which is attached hereto. Maxcomm agrees to submit from
time to time to Bontex, at Bontex's request, written reports relating to its
activities under the terms of this agreement. Such reports shall be in form
reasonably satisfactory to Bontex.
5. Bontex recognizes that, prior to the date of this agreement, Maxcomm
has incurred significant costs and expenses in developing relationships with the
Identified Targets for the benefit of Bontex. Many of the costs and expenses
incurred were of an extraordinary nature, and resulted in important contacts and
distribution opportunities for Bontex. Bontex has agreed to partially reimburse
Maxcomm for selected costs and expenses, it being understood and agreed that
Maxcomm

<PAGE>

will also benefit from these contacts and should therefore be responsible for
some of these costs and expenses. Therefore, in further consideration of
Maxcomm's past development, sales, distribution and ongoing marketing efforts,
Bontex hereby agrees to reimburse Maxcomm $75,000.00 of such costs and expenses,
which Maxcomm hereby represents and warrants to be which approximately 50% of
the amount actually incurred to date by Maxcomm. Such reimbursement shall be
made as follows:
(a) $20,000 upon the execution of this agreement; and
(b) the remaining $55,000 paid in 18 equal monthly installments of
$3,000 and a final payment of $1,000. The above notwithstanding, Maxcomm agrees
that, in Bontex's sole discretion, such payment amounts may be altered or
delayed as required by Bontex's lenders or as may be determined by Bontex in its
sole discretion; provided, however, that in any event, the entire $75,000 shall
be repaid no later than three (3) years following the execution of this
agreement.
6. The initial term of this agreement shall be five (5) years. This
agreement may be terminated at any time by either party for cause by either
party giving the other 30 days written notice of such termination at the above
address by certified mail. Upon such termination, Bontex shall be obligated to
pay Maxcomm the commission on all sales up to the date of termination and during
the 30 day notification period. This agreement shall be terminated automatically
and shall be null and void thereafter and neither party shall have any
obligation to the other if Mr. J.H. Kostelni dies or is for any reason unable to
perform services under this agreement, on behalf of Maxcomm, for an aggregate of
180 consecutive days during any one year term hereof. Additionally, this
agreement shall be terminated automatically and shall be null and void
thereafter and neither party shall have any obligation to the other if any
bankruptcy or insolvency proceeding is commenced by or against Maxcomm and, in
the case of an involuntary petition, is not dismissed within 120 days, or
Maxcomm makes an assignment for the benefit of creditors.
7. Maxcomm will continue to be a primary contact with the Identified
Targets and other future companies as may be agreed to, from time to time, by
Bontex and Maxcomm.
8. Bontex will provide Maxcomm with reasonable staff support, in
Bontex's sole discretion, in order to generate sales and to service accounts
with respect to the distribution of products of the Identified Targets. In this
regard, Bontex shall designate a Bontex employee as a primary contract for
Maxcomm. Bontex shall retain control over such employees and such employees
shall report to the designated Bontex contact and not directly to Maxcomm.

<PAGE>

9. Neither Bontex nor Maxcomm will enter into any new relationship which
would be considered a conflict with the product distribution or marketing
efforts contemplated herein, without the express written consent of the other.
10. Maxcomm agrees that, during the term of this agreement, neither it
nor any of its employees or associates, nor any firm or corporation with which
it is associated, will sell or in any other way deal in or handle for any other
manufacturer, supplier or distributor, any product which, in Bontex's sole
opinion, may be similar to or in competition with Bontex's products, or which
may be in competition with the distribution of products contemplated by this
agreement.
11. Maxcomm shall provide such assistance as Bontex may reasonably
request in obtaining all licenses and permits and for satisfying all formalities
as may be required to import or export the products contemplated by this
agreement, in accordance with then prevailing law and applicable rules and
regulations.
12. The parties shall comply with all applicable laws, rules and
regulations affecting this agreement and their performance of this agreement.
Maxcomm shall maintain all necessary registrations with governmental agencies,
commercial registries, chambers of commerce, or other offices which may be
required under local law in order to properly conduct Maxcomm's business.
Maxcomm shall also comply with United States laws applicable to the sale of the
products contemplated herein, including without limitation, the Foreign Corrupt
Practices Act (which prohibits certain payments to government officials or
political parties).
13. The failure of any party to enforce any of the terms and conditions
herein contained shall not be deemed a waiver thereof nor shall it prevent the
subsequent enforcement of such term or condition.
14 Each party hereto shall hold harmless, indemnify and defend the other
from all causes of action and/or claims by whatever name known (including
reasonable attorney's fees), arising from such party's actions during the
contract period herein provided for, which are related to the matters covered by
this agreement.
15. This agreement sets forth the entire understanding of the parties in
connection with the subject matter hereof and supersedes all prior agreements,
understandings, writings or representation.
16. This agreement shall be governed and interpreted under the laws of
the Commonwealth

<PAGE>

of Virginia. Any dispute arising out of this agreement shall be finally resolved
by a state or Federal Court in Roanoke, Virginia and the parties expressly
consent to such venue. The terms of this agreement shall be severable and should
any provision or subparagraph be deemed unenforceable by a court of competent
jurisdiction, such court shall have the power to reform such provision to render
it enforceable. The remaining provisions shall, in all cases, remain
enforceable.

IN WITNESS WHEREOF, the parties have executed this agreement in the
spaces provided below, as of the date first set forth above.

Bontex, Inc.

By s/David A. Dugan Larry E. Morris
---------------------- ------------------------
Its Controller Technical/Sales Director
------------- Director of Bontex

Maxcomm, Inc.

By s/J. H. Kostelni
----------------------
Its President
-------------

Sworn to and subscribed before me in my presence the 16th day of February 1999
____________________ Buena Vista ___________________

s/Linda Austin Floyd Notary Public
- --------------------

My Commission Expires July 31, 2000.

CONTENTS

BONTEX LOGO
Consolidated 1999 Annual Report

"With over 50 years of experience, Bontex is a global leader in the industries
we serve. Almost all the branded footwear in the world use Bontex, and during
1999 Bontex introduced more new products than in any prior year."

2 Mission Statement, Corporate and 5 Management's Discussion and
Product Profile Analysis

3 Message to Stockholders 11 Financial Statements and Notes

4 Financial Highlights 26 Independent Auditors' Report

CORPORATE HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>

1946 Bontex was originally established as a leather 1996 The Company restructures and officially operates
processing operation in Newark, New Jersey. globally as Bontex, Inc., formerly Georgia
Bonded Fibers, Inc.
1954 Bontex elastomeric wet web cellulose materials
were first produced in Buena Vista, Virginia. 1997 Bontex export sales from USA exceed $10
million. Bontex establishes Bontex Hong Kong to
1959 Bontex goes public with stock issuance and further expand export sales. Bontex enters into a
listing on NASDAQ stock market. key strategic partnership to market nonwoven
materials. Bontex becomes the first global
1969 Bontex begins Bontex SA investment in Belgium, manufacturer in our industry to be ISO 9001
then and today, the world's largest and highest certified, SATRA accredited laboratory certified
capacity factory manufacturing elastomeric and SATRA Quality Mark approved for several
wet web fiberboard products. products.

1986 Bontex establishes a base of operations in 1999 Bontex introduces a broader range of footwear
Italy, as Bontex Italia begins sales, materials, including Bontex 90 Insole Seatboard,
marketing, and converting operations. economical insole products, Astral foam with the
newest stay-dry technologies, Bon-Stitch linings,
1995 Bontex sales exceed $50 million. Bontex and Bon-Stitch next generation nonwoven insoles.
establishes Bontex de Mexico to expand export Bontex embarks on an aggressive advanced
sales. technology partnership plan

</TABLE>

<PAGE>

MISSION STATEMENT

Our Mission is to be the global leader in the markets
we serve, by providing customers with world class
quality products and service.

CORPORATE PROFILE

Bontex, Inc. was originally founded in June 1946 under the laws of the State of
New Jersey. The Company originally began as a leather processing operation, and
today, Bontex is a leading worldwide manufacturer and distributor of uncoated
and coated elastomeric wet web impregnated fiberboard products, generally
described by the trademark BONTEX(R). BONTEX(R) is primarily used as an insole
material in footwear, as well as visorboard in headwear, dielectric sealing base
in automotive door panels, backing substrate, stiffener and laminating base in
luggage, leathergoods, and allied products. All BONTEX(R) fiberboard products
are designed to be "environmentally-friendly," because Bontex uses recycled and
primary cellulose fibers originally derived from trees, a renewable resource.

The Company maintains global headquarters, manufacturing and converting
facilities at Bontex USA, One Bontex Drive, Buena Vista, Virginia; European
headquarters and manufacturing at Bontex S.A., Stembert, Belgium; a distribution
and converting operation at Bontex Italia S.r.l., Villafranca, Verona, Italy;
and distribution subsidiaries at Bontex de Mexico, S.A. de C.V., in Leon, Mexico
and Bontex Hong Kong R.O.C. Bontex also maintains a network of liaison offices
and distributors globally to market Bontex products.

PRODUCT PROFILE

Bontex manufactures uncoated and coated BONTEX(R) fiberboard products;
breathable cushion foams, that are marketed under the trademarks BON-FOAM(R),
MAXXON(R) and SURE-FOAM(R), and are sold in a variety of grades for use as shock
absorbing insole material; BON-PEL(R), a wet web nonwoven substrate, which is
exceptionally strong and flexible; BONTEX(R) 48 MA, an uncoated visorboard for
use in military headwear, which has been approved by NATICK military laboratory.
Bontex also combines certain products, such as foams, fabrics, and vinyls, with
BONTEX(R) fiberboard. Additionally, Bontex is the exclusive distributor globally
to the footwear industry of an expanded polyurethane material manufactured by
Aearo Company-E.A.R. Specialty Composites, trademarked MAXXON(R) LS and
CONFOR(R). Bontex also markets to the footwear industry a range of nonwoven
products under the Company's trademark Bon-stitch(R), primarily used as an
insole and vamp lining. Registered trademarks under which the Company markets
products include:

BONTEX(R) SUPERTEX(R) BON-PEL(R)nonwoven
MORI-FLEX(R) BON-FOAM(R)cushion BON-STITCH(R)
MAXXON(R)cushion VINTEX(R) SUR-V-LON(R)vinyl coated Bontex
BON-DOE(R) SIR-PEL(R) BONTEX(R)200 RECYCLED
MORIMER(R) SURTEX(R) BONTEX(R)300 RECYCLED
CONTOUR(R) ASTRAL(R)foam

<PAGE>

MESSAGE TO STOCKHOLDERS

BONTEX LOGO
ONE BONTEX DRIVE
BUENA VISTA, VIRGINIA 24416-1500
email: [email protected]
http://www.bontex.com

To Our Stockholders:

I am pleased to report to you that during the last five months of fiscal year
1999, Bontex began a return to profitability; however, for the full year we
reported a loss due to the level of the losses incurred during the first seven
months. We expect the momentum started in 1999 to continue into fiscal year
2000. A complete review of the financial statements is provided in Management's
Discussion & Analysis.

More importantly, Bontex has begun a significant transformation into a
multi-dimensional company. We have expanded our product line within our core
footwear business to include, among other items, Bontex 90 insole tuckboard,
Bon-Stitch (stitch-bonded) nonwoven vamp linings and insoles, and Astral foam, a
polyurethane foam with the newest stay-dry technology. By "bundling" more
products, we expect to be able to better service our customers, while leveraging
the brand name recognition of the Bontex trademark and the Bontex Global
Network, which consists of our manufacturing facilities, converting facilities
and sales and distribution centers. Additionally, we have redefined our
marketing approach in a number of key markets, including China, India and South
America, which we expect will improve our footwear sales.

Our efforts have, in part, focused on developing paper products for new,
specialized non-footwear applications. Although still in the development and
testing stage, we expect one or more to become commercially viable during fiscal
year 2000.

On the cost side, we have made much progress since our refocusing in February
1999 to reduce overhead and operating costs. Our operating margins should
improve as we fully realize the cost savings from these measures and should be
further enhanced by several measures already implemented to reduce costs through
reformulation. The planned closing and eventual sale of our Newark warehouse
operations will also contribute to a reduction in overhead. Our facility at
Bontex S.A. in Belgium remains the highest capacity factory in the world
producing elastomeric wet web fiberboard products, which should provide
long-term competitive advantages.

It was virtually impossible to envision the unprecedented challenges that
confronted Bontex during the past two years. Since fiscal year 1997, the
financial situation in Asia, coupled with the slow-down in athletic footwear
sales, increased usage of alternative materials in place of Bontex, such as
nonwoven materials as an insole material and plastics as a visorboard in
headwear, have had a considerable adverse impact on sales and profitability.
Furthermore, litigation has consumed financial resources and management's
attention during a difficult period.

Much work remains ahead of us, but we believe we are moving in the right
direction and we expect Bontex to be a stronger company in the future. We remain
focused on initiatives to increase sales and profitability. We have introduced
more new footwear products in 1999 than any prior year and we hope to introduce
more new non-footwear products in 2000.

Preliminary negotiations appear to be favorable that we will be able to expand
our credit facilities sufficiently to finance the expected growth of our
business.

Our strategy to build a more multi-dimensional company should provide the
foundation for future growth and profits. We greatly appreciate the continued
support of you, our stockholders, and of our customers, as well as the Bontex
team of all our employees, agents, and distributors throughout the Bontex Global
Network.

s/James C. Kostelni
James C. Kostelni
Chairman and Chief Executive Officer

See accompanying safe harbor disclosure on page 5.
------------------------------------------------------------------------------
Bontex, Inc., One Bontex Drive, Buena Vista, VA 24416-1500
Telephone: (540)261-2181 Fax: (540)261-3784 Email: [email protected]
http://www.bontex.com
Bontex SA (Belgium), Bontex S.r.l. (Italy), Bontex Hong Kong, Bontex de Mexico

<PAGE>

BONTEX, INC. AND SUBSIDIARIES
Summary of Selected Ten Year Data
(In Thousands, Except Per Share Data and Ratios)

Years ended June 30,
--------------------

1999 1998 1997 1996 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C>

Net sales $ 39,325 $ 43,483 $ 50,333 $ 47,618 $ 50,998 $ 47,729 $ 46,710 $ 46,534 $ 44,734 $ 41,223
======== ======== ========= ========= ========= ========= ========= ========= ========= =========
Income (loss) before
cumulative effect of
change in accounting
principles $ (778) $ (446) $ 1,733 $ (602) $ (1,458) $ 935 $ 193 $ 942 $ 212 $ 167

Cumulative effect of
change in accounting
principles - - - - - 400 - - 99 -
--------- -------- --------- --------- --------- --------- --------- --------- --------- ---------

Net income (loss) $ (778) $ (446) $ 1,733 $ (602) $ (1,458) $ 1,335 $ 193 $ 942 $ 311 $ 167
========= ======== ========= ========= ========= ========= ========= ========= ========= =========

Income (loss) per share:
Before cumulative effect
of change in accounting
principles $ (.49) $ (.28) $ 1.10 $ (.38) $ (.93) $ .60 $ .12 $ .60 $ .14 $ .11
Cumulative effect of change
in accounting principles - - - - - .25 - - .06 -
--------- -------- --------- --------- --------- --------- --------- --------- --------- ---------

Net income (loss) $ (.49) $ (.28) $ 1.10 $ (.38) $ (.93) $ .85 $ .12 $ .60 $ .20 $ .11
========= ======== ========= ========= ========= ========= ========= ========= ========= =========

Total assets $ 31,164 $ 32,513 $ 32,906 $ 33,181 $ 39,527 $ 31,032 $ 28,840 $ 28,669 $ 22,753 $ 21,547

Total stockholders' equity $ 9,893 $ 10,891 $ 11,515 $ 10,308 $ 11,186 $ 12,080 $ 10,521 $ 10,825 $ 9,313 $ 9,254

Capital expenditures $ 1,067 $ 2,334 $ 2,389 $ 2,157 $ 1,704 $ 1,868 $ 1,226 $ 1,787 $ 1,591 $ 1,407

Cash flows provided by
(used in) operating
activities $ 122 $ 57 $ 3,037 $ 1,180 $ (2,073) $ 1,078 $ (122) $ 215 $ 2,024 $ 30

Long-term debt,
noncurrent $ 2,601 $ 2,256 $ 2,761 $ 2,330 $ 1,364 $ 1,511 $ 1,056 $ 1,493 $ 964 $ 193

Book value per share $ 6.29 $ 6.92 $ 7.32 $ 6.55 $ 7.11 $ 7.68 $ 6.69 $ 6.88 $ 5.92 $ 5.88
Cash dividends per
common share $ - $ - $ - $ - $ - $ - $ .05 $ - $ - $ .10

Current ratio 1.02 1.05 1.16 1.06 1.07 1.30 1.26 1.34 1.43 1.46

Total debt to equity ratio 2.15 1.99 1.86 2.22 2.53 1.57 1.74 1.65 1.44 1.33

Capital structure $ 13,006 $ 13,791 $ 14,570 $ 12,819 $ 12,703 $ 14,162 $ 12,224 $ 12,991 $ 10,950 $ 10,146
</TABLE>

Common Stock and Dividend Data

The stock of Bontex, Inc. was previously traded over the counter on the Nasdaq
National Market. Effective July 23, 1998, the stock of Bontex, Inc. was listed
on the Nasdaq SmallCap Market under the symbol BOTX. At September 10 , 1999
there were approximately 581 stockholders of record. No cash dividends were
declared or paid during fiscal years 1995 through 1999.
<TABLE>
<CAPTION>

1999 1998 1997 1996 1995
---- ---- ---- ---- ----
High Low High Low High Low High Low High Low
---- --- ---- --- ---- --- ---- --- ---- ---
<S> <C> <C> <C> <C> <C> <C>

First Quarter $3.38 $2.25 $9.63 $4.25 $4.00 $3.13 $4.25 $2.75 $6.00 $5.00
Second Quarter 2.62 1.50 8.50 4.50 5.13 3.50 3.88 2.38 6.50 5.50
Third Quarter 4.00 1.00 5.25 3.25 5.38 4.50 3.25 2.38 5.50 3.50
Fourth Quarter 3.00 1.50 4.25 2.88 5.00 4.25 4.38 2.88 4.13 2.98
</TABLE>

<PAGE>

Bontex, Incorporated and Subsidiaries
Management's Discussion and Analysis

GENERAL

Fiscal year 1999 was a pivotal year for Bontex. We identified and directly
addressed many of the industry dynamics that have impacted our Company and have
done so in a manner that should provide a platform for future growth and
profitability. Management developed and implemented a multi-focused plan
designed to further reduce costs and to increase sales. The cost reduction
program appears to have been successful as evidenced by the improved results in
the latter half of the fiscal year. Management will continue to look for
opportunities to reduce costs. For a variety of reasons, related mainly to
external market forces, the sales initiatives have been slower to have their
desired effect. At this time it appears that our main hurdle toward achieving
consistent profitability is sales volume. Management is aware that these are the
early phases of what it expects will be a long-term program to reposition the
Company to take greater advantage of its core businesses and competencies.
Toward this end, patience and constant effort in staying the course will be
necessary before sustainable growth can be achieved.

The Company's consolidated financial statements and notes to the consolidated
financial statements should be read as an integral part of this review. Except
for the historical data set forth herein, the following discussion contains
certain forward-looking information. Forward-looking information is only an
estimate of what may occur because of its dependence on model characteristics
and assumptions. As a result, actual future gains and losses will differ,
perhaps materially, from those reported in the disclosures. Factors that could
cause or contribute to such differences include, but are not limited to, level
of sales to key customers, actions of competitors, fluctuations in the prices of
primary raw materials and foreign exchange rates.

RESULTS OF OPERATIONS

Overview

In 1999, market share losses exceeded gains, resulting in lower net sales of
$39.3 million or a decrease of $4.2 million or 9.6 percent as compared to the
prior year. Currency exchange fluctuations represented a $600,000 translation
increase on net sales as compared to a $3.0 million translation decrease in the
prior year. The cellulose insole business continues to exhibit the
characteristics of a mature industry, specifically increased competition and
lower margins. Management expects continued pressure on our profit margins as a
result of competition and lower sales volumes. Consequently, Bontex's results of
operations may continue to be negatively affected. However, our development
efforts to improve products and formulations, and to diversify into new
non-footwear markets should mitigate some of the negative trends mentioned.

Bontex is recognized as a global leader for cellulose insole materials, and
through product improvement, aggressive specification marketing and innovation,
Bontex maintains a strong market position in comparison to many of our
competitors. Global marketing initiatives are expected to contribute to sales
stability with growth anticipated to come from new product introductions for
footwear and non-footwear applications. Management believes that the success of
these efforts over the next few years, although not assured, may lead to
improved sales, profits, and cash flows.

Sales

Consolidated net sales were $39.3, $43.5, and $50.3 million, for fiscal years
1999, 1998, and 1997, respectively. Bontex succeeded in maintaining and
expanding its specification footwear customer list, but this was offset by
declines in other areas. Most of the sales decline in 1999 is related to Bontex
insole materials, continued reduced demand and elevated inventories in the
athletic footwear sector. Furthermore, the negative financial situation in Asia
and Russia had an adverse impact on overall sales and selling prices.

<PAGE>

The cellulose insole market, in particular, continues to be impacted by low
quality competition, especially in Far East markets. In China for instance, many
state owned factories are reported not to follow normal rules of supply and
demand resulting in oversupply or excess inventories. In these cases, as with
other industries, oversupply of low quality materials creates abnormal downward
pressure on prices. Fortunately, most of these low-end producers are not in
direct competition with Bontex but their impact on the market is pervasive.
There continues to be a move away from cellulose insole materials toward
nonwovens and other alternatives.

Bontex has recently developed several new innovative products for footwear that
it believes will have good sales potential based on early marketing efforts. The
Company has also concluded new marketing agreements for stitch bonded
non-wovens, open celled polyurethane foams, thermoplastics, and specialized
moulds. Each of these projects should bring advanced technology to the footwear
industry and should add value for Bontex customers. Bontex management believes
that the key to success in these areas relies upon bringing added value to our
customers. We have an aggressive strategy to locate such technologies and bring
them to the marketplace. Sales from these projects are expected to occur during
fiscal year 2000, however it is impossible to accurately predict the level of
sales potential or profitability at this time.

Costs

Cost of sales were 74.1 percent of net sales in 1999, 71.5 percent of net sales
in 1998, and 68 percent in 1997. The increase in costs as a percentage of sales
from 1998 to 1999 was mainly due to lower sales volume and reduced selling
prices, as well as a slight increase in the cost of some raw materials. In
general, as mentioned above, the Company has been successful in making
significant cost reductions in many areas especially with respect to raw
materials, shipping and administration costs. However, footwear production in
North America continued to decline as more companies closed domestic production
in favor of lower labor cost markets such as China and India. While Bontex has a
strong export program, selling and shipping costs tend to be higher for exports,
which can negatively impact sales and profits.

The Company's United States operations use the last in, first out (LIFO) method
of inventory accounting. For comparison purposes with other companies, if the
first-in, first-out, (FIFO) method of accounting had been used, reported gross
profit would have been lower by $93,000 in 1999, lower by $96,000 in 1998 and
lower by $285,000 in 1997. Net income would have been lower by $60,000 or $.04
per share in 1999, lower by $61,000 or $.04 per share in 1998 and lower by
$181,000 or $.12 per share in 1997.

As a percent of sales, selling, general and administrative (SG&A) expenses over
the previous three years were 26 percent in 1999, 27.4 percent in 1998, and 24
percent in 1997. The higher percentage in fiscal year 1998 is directly related
to sales decreasing at a higher rate than SG&A costs as opposed to 1999 where
cost reductions had a stronger effect. Overall, SG&A expenses decreased by $1.7
million or 14.1 percent to $10.2 million in 1999 due to the efforts of the
Company to reduce costs, including salary and benefit reductions. In 1999 legal
costs associated with the disclosed lawsuits against the Company and some of its
officers significantly increased SG&A costs. These expenses are not expected to
recur in this magnitude in the future and management continues to look for ways
to reduce costs. Without the effect of higher legal costs, SG&A costs in 1999
would have reflected a total reduction of approximately $2 million as compared
to the prior year. Some personnel costs have increased as the Company responds
to the competitive labor market that prevails in the United States.

The decrease in interest expense over the past year was due primarily to debt
reduction at the Belgium operation and lower overall interest rates. Additional
borrowings were necessary to fund operations and complete capital projects.

The consolidated effective income tax rate for the Company was 21.2 percent in
1999, 23.5 percent in 1998, and 39.1 percent in 1997. The lower effective tax
rates in 1999 and 1998 were mainly due to operating losses. The higher effective
rates in 1997, were due to higher taxable income particularly at the Company's
European subsidiaries where income tax rates are higher.

Management is confident that it is more likely than not that the Company will
realize the tax deferred assets by generating sufficient taxable income in the
future. As discussed previously, cost reduction and control measures recently
implemented by management, product development efforts, Bontex's strong market
position and relatively stable raw materials prices are expected to provide a
platform for future profitability, as well as effective tax planning. Refer to
Note 5 of Notes to the Consolidated Financial Statements for further details
regarding income taxes.

<PAGE>

Profitability

The net loss of $778,000 or $.49 per share generated in 1999 compares
unfavorably to $446,000 or $.28 per share net loss in 1998, and the income in
1997 of $1.7 million or 1.10 per share. The inconsistent results are of major
concern to management. Typically, the financial performance of Bontex is related
directly to cycles in key raw materials, particularly pulp and latex. Recent
losses occurred during periods of more favorable raw materials costs. The lower
sales volumes of Bontex insole materials have induced management to pursue
process efficiencies that better enable the Company to cope with fluctuations in
volume and raw material costs in the future. Significant progress has been made
during 1999 in reducing raw materials, labor and overhead costs. However, as
previously noted, selling price reductions and reduced volume have offset the
cost reductions. There can be no assurances that increased raw materials prices
or decreased volume of sales will not have an adverse impact on the Company's
operations or competitive position in the future.

INTERNATIONAL SALES AND OPERATIONS

Bontex continues to export a predominant portion of its production to countries
around the globe. The Far East, where an estimated 70 percent of global shoe
production occurs, is the largest market for Bontex products. Sales to the Far
East are generally denominated in US dollars which serves to limit the Company's
exposure to foreign exchange risk in relation to these countries. As the US
domestic market for footwear materials decreases, Bontex is pursuing
non-footwear sales and additional export opportunities. In areas where Bontex
has exposure to foreign currency risk, the Company attempts to manage these
risks with its Risk Management Program (RMP).

The RMP has proven to be effective in reducing the Company's exposure to
fluctuations in currency exchange rates, in most cases, and, in some cases, in
pulp prices. However, some exposure remains and as such Bontex continues to have
some gains and losses related to currency fluctuation. The Mexican peso and
Canadian dollar are examples of currencies for which effective hedging is not
available in a cost efficient manner and Bontex is currently forced to accept
the risk of doing business in these and other such markets. The $40,000 in
exchange losses during 1999 are mainly due to declines in value of the Mexican
peso, Canadian dollar and the overall strength of the US dollar during that
period. Bontex has made limited use of the Pulpex Pulp Futures Exchange to help
reduce our exposure to changes in pulp prices.

On January 1, 1999, the EURO became the official currency of the Economic and
Monetary Union (EMU). Accordingly, the EURO will have a significant affect on
the Company's operations, as approximately 25 percent of the Company's
consolidated sales are to customers located in the Europe Union. Additionally, a
large portion of the Company's manufacturing and marketing operations are based
in Belgium and Italy. The Company has begun to implement a change over plan to
convert, among other things, pricing, financial reporting, banking facilities,
financing, currency hedging, and information systems.

Management cannot currently provide more definitive information concerning the
implications of the EURO on the Company, as there remain a number of unresolved
issues, including taxation, management reporting, accounting matters, and other
such issues.

LIQUITY AND CAPITAL RESOURCES

The Company's liquidity and capital resources have decreased over the past year,
due to the net loss and investments in facility improvements deemed necessary by
management. Management believes that the Company's capital structure is
sufficient to finance short and long-term operations and objectives. The Company
may further alter its business strategy during fiscal year 2000 in response to
future trends.

Cash and cash equivalents decreased by $181,000 to $ 336,000 primarily due to
the decrease in sales. Cash flows from operations totaled $122,000 and $57,000
in 1999 and 1998 respectively and reflects reductions in inventory levels,
partially offset by lower profit margins. The Company's cash conversion
efficiency, cash flows from operations divided by net sales, was less than one
percent for 1999 and 1998. Other current assets decreased $186,000 primarily due
to the reduction of deposits for pulp contracts from 1998 to 1999.

<PAGE>

On June 30, 1999, the Company had loans of $12.6 million outstanding consisting
of $10 million short-term and long-term debt, due currently and $2.6 million
long-term debt. Short-term borrowings increased by $551,000 while accounts
payable and accrued expenses decreased by $688,000 compared to 1998 levels. The
decrease in accounts payable relates primarily to a reduction in inventory. The
weighted average interest rate on short-term borrowings during 1999 and 1998 was
6.0 and 7.5 percent, respectively. The Company has entered into interest rate
swaps in the notional amount aggregating $1 million to fix interest rates and
protect the Company's financial position from increases in interest rates
related to our variable rate borrowings. Not all of our variable rate debt is
covered by the interest rate swap agreements and is therefore exposed to the
risk of rate increases. Financial instruments and market risk are discussed in
more detail below under Market Risk and Sensitivity.

The Company's secured debt facilities contain loan covenants, including certain
minimum financial ratios and borrowing base requirements. As a result of the
decrease in various financial ratios, the Bank agreed to forbear collection
under agreed conditions and revised the requirements set in November 1998. As of
June 30, 1999, the Company was in compliance with the revised requirements. The
amended agreement also requires that the Company seek alternative means of
capital and/or financing. There is no assurance that management can secure
alternative financing, but management is working with its bankers, as agreed,
and management believes it can restructure its borrowings in the near future.
Refer to Note 4 of the Notes to the Consolidated Financial Statements for
further details regarding Long-term Debt and Financing Agreements.

The Company's current ratio has decreased from 1.05 in 1998 to 1.02 this year,
which is mainly due to operating losses and a portion of capital additions being
financed through current debt. Inventories are lower by $638,000 over 1998, due
mainly to increased efforts to improve turnover and global stock requirements.
Trade accounts receivable increased $147,000 to $11.8 million at June 30, 1999,
as compared to last year due primarily to foreign currency translation
adjustments. The allowance for bad debts decreased by $140,000 due to improved
aging and overall collections. Other receivables decreased $193,000 primarily
due to the recovery of sales and municipal taxes from the European operations.

Property, plant and equipment (PP&E) increased by $514,000, reflecting necessary
capital additions for increased production and efficiencies. Net PP&E is lower
this year by $519,000 due to normal depreciation and previously mentioned
limitations on capital expenditures. Bontex USA has invested in facility
improvements that further enhance its reliability as a supplier to the markets
it serves.

Bontex has also invested heavily in state of the art environmental equipment at
both manufacturing facilities to protect the environment and help ensure
compliance with government mandates. Capital investments during 1999 primarily
relate to non-recurring items in production and the environment. These projects
are expected to further establish Bontex as an industry leader in quality,
efficiency, reliability and as a responsible corporate citizen. The Company
continues to pursue efficiency and cost savings relative to plans to close and
sell the Newark, New Jersey facility. The Newark property is for sale with no
firm offers as of this report date. Bontex anticipates completion of the Newark
facility closing during calendar year 2000 and the Company does not expect
material costs related to this change.

Year 2000

Over the past two years, Bontex has invested and capitalized approximately
$200,000 in information and non-information technology (IT) systems to improve
data efficiency and address the Company's Year 2000 systems exposure. The Year
2000 issue relates to computer programs using two digits rather than four to
define the applicable year. Inability to process data properly due to this
phenomenon may result in systems' failures. The project to address the Company's
Year 2000 systems exposure is substantially complete with approximately $25,000
remaining to be invested. The IT systems, originally expected to be completed in
November 1998, are now estimated to be completed in October 1999, while an
external vendor completes customized software programs. The IT systems software
has been tested, and with the exception of the customized software discussed
above, all software appears to operate as intended. Testing of non-IT systems is
underway and 75 percent complete with all testing and necessary modifications
estimated to be completed by October 1999.

Bontex continues to assess the Year 2000 readiness of its major customers and
vendors. The review is substantially complete with no material risks identified.
Major customers and vendors who have not responded, however, could suffer
disruptions for the Year 2000 problem. Furthermore, even if the systems of
Bontex's major customers and

<PAGE>

vendors are Year 2000 compliant, their operations may suffer disruptions as a
result of the Year 2000 problems of the outside parties on which they rely.
Therefore, there can be no assurances that the Year 2000 will not significantly
affect the Company's third parties, which in turn could affect Bontex's
operations and financial results.

The Company is currently in the process of formulating a contingency plan to
maintain operations in the event of its most likely worse-case Year 2000
scenario. Bontex intends to complete the plan in December 1999. Bontex expects
that the contingency plan will provide, if necessary, for manual processing of
accounting and financial information. The contingency plan, however, would be
unable to mitigate extreme Year 2000 effects, such as power or communications
failures, interrupted deliveries from major suppliers, or decreased sales
resulting from regional or worldwide recessions or disruptions in the operations
of major customers. Therefore, there can be no assurance that the date change
from 1999 to 2000 will not materially affect the Company's operations and
financial results.

MARKET RISK AND SENSITIVITY

As previously discussed in the section entitled International Sales and
Operations, the Company is exposed to certain risks related to interest rates,
currency and commodity positions. Market risk is defined as the risk of loss
arising from adverse changes in market rates and prices. The following
disclosures provide certain forward-looking data concerning potential exposures
to market risk. The Company has an established hedging program, its Risk
Management Program (RMP), which is intended to hedge the Company's exposures to
market risk. In general, our policy is not to speculate on interest rates,
currencies and commodities in the markets but rather to fix our rates and prices
at levels considered favorable.

There is no expected material foreign exchange risk for the Company's debt, as
these amounts are denominated in the local operating currencies of the
respective operations. Other assets and liabilities are hedged through our RMP,
and accordingly, are not considered subject to material foreign exchange risk as
well.

Fair Value of Financial Instruments, other than trading (dollars in thousands):
<TABLE>
<CAPTION>

Face Amount / Carrying Amount Estimated Fair Value
<S> <C> <C> <C> <C> <C> <C>

June 30, 1999:
- -------------

Interest Rate Exposure:
Long-term debt $ 3,382 $ 3,382
Short-term debt $ 9,215 $ 9,215
Interest rate swap $ 1,000 $ (8)

June 30, 1998:
- -------------

Interest Rate Exposure:
Long-term debt $ 3,620 $ 3,620
Short-term debt $ 8,664 $ 8,664
Interest rate swap $ 2,343 $ (48)

Commodity Price Risk:
Pulp contracts $ 1,948 $ 1,760
</TABLE>

The table below provides information about the Company's derivative financial
instruments that are sensitive to changes in interest rates. For debt
obligations, the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. For interest rate swaps, the
table presents notional amounts and weighted average interest rates by expected
(contractual) maturity dates. Notional amounts are used to calculate the
contractual payments

<PAGE>

to be exchanged under contract. Weighted average variable rates are based on
implied forward rates in the yield curve at the reporting date.

Derivative Financial Instruments held for other than trading purposes at June
30, 1999 (dollars in thousands):
<TABLE>
<CAPTION>

Expected Maturity Date
There- Estimated
2000 2001 2002 2003 2004 after Total Fair Value
<S> <C> <C> <C> <C> <C> <C>
Liabilities
Long-term debt
Fixed Rate $ 781 $ 781 $ 548 $ 468 $ 462 $ 342 $ 3,382 $ 3,382
Average interest rate 6.40% 6.40% 5.49% 4.99% 5.00% 5.23% 5.75%

Interest Rate Derivative
Interest Rate Swap
Fixed to Variable $ 1,000 - - - - - $ 1,000 $ (8)
Average pay rate 6.35% 6.35%
Average receive rate 5.00% 5.00%

</TABLE>

The Company's interest rate swap fixes the rate of interest for $1,000 of $9,215
total variable rate debt. In the event of lowering BIBOR or LIBOR rates, the
Company is exposed to higher fixed rates. The $8,215 variable rate debt not
covered by the interest rate swap is subject to the risk of interest rate
changes. The market risk sensitivity analysis above does not fully reflect the
potential net market risk exposure, because other market risk exposures may
exist in other transactions.

RECENT ACCOUNTING PRONOUNCEMENTS

Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities", was to be effective for periods
beginning after June 15, 1999, but implementation has been delayed by the
Financial Accounting Standards Board to be effective for periods beginning after
June 15, 2000. This statement requires that the Company recognize all
derivatives as either assets or liabilities in the balance sheet, and measure
those instruments at fair value. The Company is currently in the process of
reviewing the impacts of this Statement. Refer to Note 7 of Notes to the
Consolidated Financial Statements for further details regarding SFAS 133.

BONTEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS) and COMPREHENSIVE INCOME (LOSS)
and CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

Years Ended June 30, 1999, 1998 and 1997
(In Thousands, Except Per Share Data)

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss):

1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>

NET SALES $ 39,325 $ 43,483 $ 50,333
COST OF SALES 29,152 31,080 34,241
---------- ---------- ----------

Gross Profit 10,173 12,403 16,092

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 10,224 11,903 12,083
---------- ---------- ----------

Operating income (loss) (51) 500 4,009
---------- ---------- ----------

OTHER (INCOME) EXPENSES:
Interest expense 923 1,056 1,247
Interest income (3) (76) (45)
Foreign currency exchange (gain) loss 40 115 (26)
Other - net (25) (12) (13)
---------- ---------- ----------

935 1,083 1,163
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES (986) (583) 2,846

INCOME TAX EXPENSE (BENEFIT) (208) (137) 1,113
---------- ---------- ----------

NET INCOME (LOSS) (778) (446) 1,733
---------- ---------- ----------

OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustment (220) (178) (526)
---------- ---------- ----------

COMPREHENSIVE INCOME (LOSS) $ (998) $ (624) $ 1,207
========== ========== ==========

NET INCOME (LOSS) PER SHARE $ (.49) $ (.28) $ 1.10
========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>

Consolidated Statements of Changes in Stockholders' Equity:

1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>

Stockholders' Equity, beginning balance $ 10,891 $ 11,515 $ 10,308

Net income (loss) (778) (446) 1,733

Other comprehensive income (loss)
Foreign currency translation adjustment (220) (178) (526)
---------- ---------- ----------

Stockholders' Equity, ending balance $ 9,893 $ 10,891 $ 11,515
========== ========== ==========
</TABLE>

See accompanying notes to consolidated financial statements

BONTEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

June 30, 1999 and 1998
(In Thousands, Except Share and Per Share Data)

1999 1998
<S> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 336 $ 517
Trade accounts receivable, less allowance for doubtful
accounts of $128 ($268 at 1998) 11,765 11,618
Other receivables 278 417
Inventories 5,798 6,436
Deferred income taxes 124 347
Income taxes refundable 67 56
Other current assets 152 338
------------- -------------
Total current assets 18,520 19,729
------------- -------------

PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 361 369
Building and building improvements 5,953 5,575
Machinery, furniture and equipment 17,885 17,199
Construction in progress 239 781
------------- -------------
24,438 23,924
Less accumulated depreciation and amortization 12,915 11,882
------------- -------------
Net property, plant and equipment 11,523 12,042

Deferred income taxes 599 187
Other assets, net 522 555
------------- -------------
Total assets $ 31,164 $ 32,513
============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 9,215 $ 8,664
Long-term debt due currently 781 1,364
Accounts payable 6,375 7,133
Accrued expenses 1,590 1,520
Income taxes payable 197 41
------------- -------------
Total current liabilities 18,158 18,722

Long-term debt, less current portion 2,601 2,256
Deferred income taxes 48 50
Other long-term liabilities 464 594
------------- -------------
Total liabilities 21,271 21,622
------------- -------------

STOCKHOLDERS' EQUITY:
Preferred stock of no par value. Authorized 10,000,000
shares; none issued - -
Common stock of $.10 par value. Authorized 10,000,000
shares; issued and outstanding 1,572,824 shares 157 157
Additional capital 1,551 1,551
Retained earnings 8,120 8,898
Accumulated other comprehensive income 65 285
------------- -------------
Total stockholders' equity 9,893 10,891
------------- -------------
Total liabilities and stockholders' equity $ 31,164 $ 32,513
============= =============
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

BONTEX, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended June 30, 1999, 1998 and 1997
(In Thousands)

1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers $ 39,152 $ 44,499 $ 48,846
Cash paid to suppliers and employees (38,237) (43,245) (44,283)
Interest received 10 76 45
Interest paid, net of amount capitalized (931) (1,063) (1,220)
Income taxes received (paid), net 128 (210) (351)
------------ ----------- ---------
Net cash provided by operating activities 122 57 3,037
------------ ----------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property, plant and equipment - 15 -
Purchases of property, plant and equipment (1,067) (2,334) (2,389)
------------ ----------- ---------
Net cash used in investing activities (1,067) (2,319) (2,389)
------------ ----------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings, net 898 888 (403)
Long-term debt incurred 547 1,000 2,675
Principal payments on long-term debt (669) (594) (2,023)
------------ ----------- ---------
Net cash provided by financing activities 776 1,294 249
------------ ----------- ---------

EFFECT OF EXCHANGE RATE CHANGES ON CASH (12) 112 (239)
------------ ----------- ---------
NET INCREASE (DECREASE) IN CASH (181) (856) 658

CASH AT BEGINNING OF YEAR 517 1,373 715
------------ ----------- ---------

CASH AT END OF YEAR $ 336 $ 517 $ 1,373
============ =========== =========

RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net income (loss) $ (778) $ (446) $ 1,733
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,372 1,272 1,189
(Gain) loss on sale of property, plant and equipment - (8) 1
Provision for bad debts (39) 252 75
Deferred income taxes (191) (271) 844
Change in assets and liabilities:
(Increase) decrease in trade accounts and other
receivables (522) 1,495 (807)
(Increase) decrease in inventories 547 (1,290) (261)
(Increase) decrease in other assets 146 (322) 16
Increase (decrease) in accounts payable and accrued
expenses (367) (856) 320
Increase (decrease) in income taxes 143 (77) (78)
Increase (decrease) in other liabilities (189) 308 5
------------ ----------- ---------
Net cash provided by operating activities $ 122 57 $ 3,037
============ =========== =========

SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Construction in progress accrued in accounts payable $ - 122 $ 49
============ =========== =========
</TABLE>

See accompanying notes to consolidated financial statements.

<PAGE>

BONTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 1999, 1998 and 1997
(All amounts in thousands, except share data)

[1] SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation - The accounts of Bontex, Inc. and its wholly-owned subsidiaries,
Bontex S.A., Belgium, Bontex Italia, S.r.l., Italy and Bontex de Mexico C.V.,
Mexico, and its majority-owned subsidiary, Bontex Hong Kong Limited, (the
Company) are included in the consolidated financial statements after elimination
of significant intercompany accounts and transactions. Bontex Hong Kong
Limited's minority interest is not presented separately because it is not
material to the Company's consolidated financial statements.

Foreign Currency Translation - The financial statements of the Company's
subsidiaries outside the United States are measured using the local currency as
the functional currency. Assets and liabilities of these foreign subsidiaries
are translated into U.S. dollars at the rates of exchange as of the balance
sheet date. The resulting translation adjustments are included in other
comprehensive income as foreign currency translation adjustment and in
accumulated other comprehensive income. Income and expense items are translated
at weighted average monthly exchange rates in effect during the year. Gains and
losses from foreign currency transactions are included in net income (loss).

Cash Equivalents - For purposes of the statements of cash flows, the Company
considers all highly liquid debt instruments with original maturities of three
months or less to be cash equivalents.

Inventories - Inventories are stated at the lower of cost or market. Cost of
inventories maintained in North America is determined on the last-in, first-out
(LIFO) method and in Europe on the first-in, first-out (FIFO) and weighted
average methods.

Property, Plant and Equipment - Property, plant and equipment are stated at
cost. The Company capitalizes interest cost as a component of the cost of major
construction in progress. There was no capitalized interest during 1999, 1998,
and 1997.

Depreciation and Amortization - Depreciation and amortization is provided by the
straight-line method over the estimated useful lives of the related assets.
Estimated useful lives are 10 to 40 years for buildings and building
improvements, and 3 to 25 years for machinery, furniture and equipment.

Other Assets - Other assets consist principally of cash surrender value of life
insurance, trademarks and various deposits. Trademark costs are amortized on a
straight-line basis over five years.

Revenue Recognition - Sales and cost of sales are recognized at the time of
product shipment or delivery to the customer, based on shipping terms.

Stock Options - The Company has implemented the disclosure provisions of SFAS
No. 123, "Accounting for Stock Based Compensation" (Note 6). The Company
continues to measure compensation expense for its stock-based compensation plans
using the intrinsic value based method of accounting prescribed by Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees."

<PAGE>

Earnings Per Share - Net income (loss) per share has been computed on the basis
of the weighted average number of common shares outstanding during each year
(1,572,824 shares). Diluted earnings per share is not presented because the
effect of stock options issued in 1999 was antidilutive. See note 6 for
information relating to stock options that could potentially dilute basic
earnings per share in the future.

Derivative Instruments and Hedging Activities - The Company enters into interest
rate swap transactions to manage its interest rate exposure. Income or expense
arising from these transactions is accounted for as an adjustment to interest
expense over the term of the agreements. On a limited basis, the Company manages
its exposure to pulp price changes with pulp futures. In accordance with hedge
accounting, gains or losses are recorded as a component of the underlying
inventory purchase, since these contracts effectively meet the risk reduction
and correlation criteria. Gains or losses on hedges that are terminated prior to
the execution of the inventory purchase are recorded in inventory until the
inventory is sold. Statement of Financial Accounting Standards (SFAS) No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued in
June 1998. This Statement addresses the accounting for derivative instruments,
including certain derivative instruments embedded in other contracts, and
hedging activities. The Statement, as amended, will be effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. Future adoption of
this Statement could have a material impact on the Company's consolidated
financial position or results of operations.

Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of - The
Company reviews its long-lived assets and certain identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future undiscounted net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
estimated fair value of the assets. Assets to be disposed of are reported at the
lower of the carrying amount or estimated fair value less costs to sell.

Income Taxes - Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.

Use of Estimates and Forward-Looking Data - The preparation of financial
statements in conformity with generally accepted accounting principles 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 date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from these
estimates. Except for the historical data set forth herein, certain
forward-looking information is contained in these disclosures. Actual amounts
may differ from these projections. Factors that could cause or contribute to
such differences include inherent limitations of model characteristics and
assumptions.

<PAGE>

[2] INVENTORIES

Cost of inventories of approximately $1,740 in 1999 and $2,618 in 1998, is
determined by the last-in, first-out method (LIFO). Replacement cost for LIFO
inventories approximated $2,082 in 1999 and $2,867 in 1998. Inventories of
approximately $4,058 in 1999 and $3,818 in 1998, are determined by the first-in,
first-out (FIFO) and weighted average bases.

Inventories are summarized as follows:
<TABLE>
<CAPTION>

1999 1998

<S> <C> <C>
Finished goods $ 2,025 $ 3,782
Raw materials 3,341 2,117
Supplies 774 786
------------- -----------
Inventories at FIFO and weighted average cost 6,140 6,685
LIFO reserves 342 249
------------- -----------

$ 5,798 $ 6,436
============= ===========
</TABLE>

During 1999, 1998 and 1997, LIFO layers were reduced resulting in charging lower
inventory costs to cost of sales of $255, $55 and $37, respectively.

[3] BUSINESS SEGMENT INFORMATION
AND INTERNATIONAL OPERATIONS

Bontex, Inc. and all majority-owned subsidiaries are predominantly engaged in
the manufacturing and distribution of uncoated and coated BONTEX(R) elastomeric
fiberboard products. The Company operates manufacturing facilities at Bontex USA
in North America and Bontex S.A. in Belgium. BONTEX(R) products are primarily
used as an insole material in footwear, as well as visorboard in headwear,
stiffener and laminating base for luggage, leathergoods and allied industries
globally.

Information related to net sales by geographic area follows:
<TABLE>
<CAPTION>

Europe/
North America Asia/Pacific Middle East Latin America Total
<S> <C> <C> <C> <C> <C> <C>

1999 $ 7,086 $ 15,301 $ 15,315 $ 1,623 $ 39,325

1998 $ 7,790 $ 18,115 $ 16,473 $ 1,105 $ 43,483

1997 $ 8,764 $ 19,532 $ 19,724 $ 2,313 $ 50,333
</TABLE>

No single customer accounts for 10 percent or more of the Company's consolidated
net sales for 1999, 1998 and 1997. One distributor accounted for 15.2 percent in
1999, 10.8 percent in 1998 and 13.5 percent in 1997 of the Company's
consolidated net sales.

Information related to the North American and European operations follows:
<TABLE>
<CAPTION>

North American European Eliminations Consolidated
Operations Operations
<S> <C> <C> <C> <C> <C> <C>
1999:
Total assets $ 14,817 $ 18,345 $ (1,998) $ 31,164
Net income (loss) (829) 51 - (778)
Operating income (loss) (1,327) 1,276 - (51)
Net sales 15,661 23,954 (290) 39,325
Interest expense 308 615 - 923
Depreciation and amortization 794 578 - 1,372
Income tax expense (benefit) (402) 194 - (208)
Total expenditures for additions to
property, plant and equipment 389 678 - 1,067
</TABLE>

<S> <C> <C> <C> <C> <C> <C>
1998:
Total assets $ 16,550 $ 17,961 $(1,998) $ 32,513
Net income (loss) (789) 343 - (446)
Operating income (loss) (1,524) 2,024 - 500
Net sales 18,382 25,560 (459) 43,483
Interest expense 286 770 - 1,056
Depreciation and amortization 763 509 - 1,272
Income tax expense (benefit) (444) 307 - (137)
Total expenditures for additions to
property, plant and equipment 1,175 1,159 - 2,334

1997:
Total assets $ 15,551 $ 19,801 $(2,446) $ 32,906
Net income 784 949 - 1,733
Operating income 707 3,302 - 4,009
Net sales 21,141 29,709 (517) 50,333
Interest expense 328 919 - 1,247
Depreciation and amortization 736 453 - 1,189
Income tax expense 315 798 - 1,113
Total expenditures for additions to
property, plant and equipment 956 1,433 - 2,389
</TABLE>

Retained earnings of foreign operations not available for distribution amounted
to approximately $763 at June 30, 1999 and 1998.

[4] LONG-TERM DEBT AND FINANCING AGREEMENTS

The following long-term debt was outstanding as of June 30, 1999 and 1998:
<TABLE>
<CAPTION>

1999 1998
<S> <C> <C> <C> <C> <C> <C>
8.50% loan payable to a United States bank in quarterly
installments of $80 through July 2001; collateralized
by accounts receivable, inventory and other
noncurrent assets in the U.S. and subject
to various loan covenants $ 720 $ 1,040

4.70%, previously 7.72% in 1998, loan payable to a
Belgian bank in annual installments beginning
May 15, 1992, subsequently rescheduled to quarterly
installments through June 2005. Twenty-four quarterly
installments of $9 are outstanding at June 30, 1999 215 263

4.70%, previously 7.72% in 1998, loan payable to a
Belgian bank in annual installments beginning
September 1995, subsequently rescheduled to quarterly
installments through June 2005. Twenty-four quarterly
installments of $16 are outstanding at June 30, 1999 384 470

<PAGE>

5.20% loan payable to a Belgian bank in annual installments
beginning September 1997 subsequently rescheduled to
quarterly installments through June 2005. Twenty-four
quarterly installments of $32 are outstanding at
June 30, 1999 $ 768 $ 940

5.50% loan payable to a Belgian bank in quarterly
installments of $8 through June 2005 192 235

5.85% loan payable to a Belgian bank in quarterly
installments of $26 through June 2005 591 672

3.95% loan payable to a Belgian bank in quarterly
installments of $26 through July 2004 512 -
---------- ----------
3,382 3,620

Less long-term debt due currently 781 1,364
---------- ----------
Long-term debt $ 2,601 $ 2,256
========== ==========
</TABLE>

The principal payments of long-term debt are as follows:

2000 $ 781
2001 781
2002 548
2003 468
2004 462
Thereafter 342
--------

Total $ 3,382
========

The loans payable to a Belgian bank are collateralized with a mortgage on Bontex
S.A.'s buildings and the right to request a second mortgage on the buildings.

European operations have short-term credit facilities totaling approximately
$8,633 and $8,776 at June 30, 1999 and 1998, respectively. As of June 30,
borrowings under these facilities were as follows:
<TABLE>
<CAPTION>

1999 1998
<S> <C> <C> <C> <C> <C> <C>
Short-term bank loans with variable interest rates, ranging
from 2.95% and 6.27% at June 30, 1999 $ 6,642 $ 6,084
Overdrafts 2 66
----------- -----------

$ 6,644 $ 6,150
=========== ===========
</TABLE>

<PAGE>

Three banks in Belgium share a security interest in most of the assets of Bontex
S.A. for 37.5 percent of the credit facilities granted, and the right to request
additional security interest of another 37.5 percent of the credit facilities
granted. As of June 30, 1999 and 1998 one of the banks under these facilities
had the right to request a security interest up to $1,280 and $1,075,
respectively.

Bontex USA has a line of credit arrangement whereby Bontex USA may borrow up to
$2,750 at prime plus 1.25 percent (9.0 percent at June 30, 1999). At June 30,
1999, Bontex USA had borrowings of $2,571 outstanding under this line of credit.
The secured line of credit is collateralized by the same security as the
long-term debt discussed below. At June 30, 1998, Bontex USA had lines of credit
arrangements with three banks whereby Bontex USA could borrow up to $ 2,750
secured and $ 450 unsecured at the one-month London Inter Bank Offered Rate
(LIBOR) plus 2.0 percent and 1.75 percent, respectively, (7.69 percent and 7.44
percent, respectively, at June 30, 1998). At June 30, 1998, Bontex USA had
borrowings of $2,514 outstanding under these lines of credit.

Consolidated weighted average interest rates on short-term borrowings at June
30, 1999 and 1998 are 6.0 and 7.5 percent, respectively.

During 1999 and 1998, Bontex USA was subject to various loan covenants under its
secured debt agreement and has pledged certain current and noncurrent assets as
collateral. At June 30, 1999, decreases in various financial ratios caused
Bontex USA to obtain an amended loan agreement. Bontex USA was in compliance
with the amended debt covenants at June 30, 1999. The amended agreement also
requires that the Company seek alternative means of capital and/or financing,
which management is in the process of doing. As a result of decreases in various
financial ratios relating to $1,040 of long-term debt at June 30, 1998, Bontex
USA obtained a waiver from such requirements. At that time, there was no
assurance Bontex USA would be able to obtain future waivers from such
requirements, and accordingly, all of Bontex USA's long-term debt was classified
as current at June 30, 1998.

[5] INCOME TAXES

The U.S. and foreign components of the provision (benefit) for income taxes
are presented as follows:
<TABLE>
<CAPTION>

Current Deferred Total
<S> <C> <C> <C> <C> <C> <C>

1999:
Federal $ (151) $ (210) $ (361)
State (17) (24) (41)
Foreign 151 43 194
------------ -------------- ------------

$ (17) $ (191) $ (208)
============ ============== ============

1998:
Federal $ (72) $ (334) $ (406)
State (18) (41) (59)
Foreign 224 104 328
------------ -------------- ------------

$ 134 $ (271) $ (137)
============ ============== ============

1997:
Federal $ 41 $ 246 $ 287
State (1) 29 28
Foreign 229 569 798
------------ -------------- ------------

$ 269 $ 844 $ 1,113
============ ============== ============
</TABLE>

<PAGE>

The provision (benefit) for income taxes differs from the expected tax expense
(benefit), computed by applying the U.S. Federal corporate rate to income or
loss before income taxes, as follows:
<TABLE>
<CAPTION>

1999 1998 1997
<S> <C> <C> <C> <C> <C> <C>
Federal income tax at statutory rate $ (334) $ (198) $ 968
Increase (reduction) in income taxes
resulting from:
Foreign Sales Corporation - - (96)
Foreign income at other than
U.S. rates 25 33 116
State and local taxes, net of federal
income tax benefit (27) (27) 18
Other differences, net 128 55 107
----------- ----------- ----------

Provision (benefit) for income taxes $ (208) $ (137) $ 1,113
=========== =========== ==========

Effective income tax rate (21)% (23)% 39%
=========== =========== ==========

U.S. Federal statutory income tax rate 34% 34% 34%
=========== =========== ==========
</TABLE>

The components of deferred tax assets and liabilities at June 30, 1999 and
1998 are presented below:
<TABLE>
<CAPTION>

1999 1998

<S> <C> <C> <C> <C> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance
for doubtful accounts $ 10 $ 20
Inventories, principally due to additional costs
capitalized for tax purposes 95 127
Other assets, due to difference in amortization of
trademarks 161 151
Accrued pension and retirement benefits 119 158
Net operating loss carryforwards 1,077 713
Alternative minimum tax credit carryforwards 36 36
Other 90 129
---------- ----------
Total gross deferred tax assets 1,588 1,334
---------- ----------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation and capital gain recognition (900) (823)
Other (13) (27)
---------- ----------

Total gross deferred tax liabilities (913) (850)
---------- ----------

Net deferred tax assets $ 675 $ 484
========== ==========
</TABLE>

<PAGE>

The U.S. and foreign components of the net deferred tax asset at June 30,
1999 and 1998 are presented below:
<TABLE>
<CAPTION>

Current Noncurrent Total
<S> <C> <C> <C> <C> <C> <C>
1999:
U.S. Operations $ 92 $ 599 $ 691
European Operations 32 (48) (16)
---------- -------------- -----------

$ 124 $ 551 $ 675
========== ============== ===========

1998:
U.S. Operations $ 270 $ 187 $ 457
European Operations 77 (50) 27
---------- -------------- -----------

$ 347 $ 137 $ 484
========== ============== ===========
</TABLE>

At June 30, 1999, in addition to the alternative minimum tax credit carryforward
of $36 at Bontex USA, the Company had approximately $2,961 at Bontex USA in net
operating loss carryforwards to offset future taxable income, of which $258,
$361, $851 and $1,491 at Bontex USA expire in 2010, 2011, 2013 and 2019,
respectively.

In assessing the reliability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Based upon the level of
historical taxable income, anticipation of future taxable income over the
periods which the deferred tax assets are deductible, reversal of the temporary
differences and available tax planning strategies, management believes it is
more likely than not the Company will realize these deferred tax assets.

At June 30, 1999, the Company has not recognized a deferred tax liability of
$109 for the cumulative amount of undistributed income of its foreign
subsidiaries, because there are no plans to pay dividends in the foreseeable
future. As of June 30, 1999, undistributed income of the foreign subsidiaries
was approximately $2,195, of which approximately $763 is not available for
distribution.

[6] RETIREMENT AND COMPENSATION PLANS

The Company has pension plans covering substantially all full-time domestic
employees and certain foreign employees. The benefits from the Company's
domestic contributory defined benefit plan are based upon years of service and
the employee's average earnings for the five highest consecutive years of
compensation during the ten years immediately preceding retirement. Participant
contributions to the plan were 3.5 percent of employee annual earnings for
fiscal years ending June 30, 1999 and 1998 and 1.7 percent of employee annual
earnings for fiscal year ended June 30, 1997. The Company's funding policy is to
contribute amounts to the plan sufficient to meet the minimum funding
requirements set forth in the Employee Retirement Income Security Act of 1974,
and any such additional amounts as the Company may determine to be appropriate
from time to time. Annual provisions for accrued pension costs are based on
independent actuarial valuations.

<PAGE>

The Plan's change in benefit obligation, change in plan assets, funded status
and amounts recognized in the Company's consolidated financial statements at
June 30 for its United States pension plan are as follows:
<TABLE>
<CAPTION>

1999 1998
<S> <C> <C> <C> <C> <C> <C>

Actuarial present value of benefit obligations: $4,351 $4,493
Accumulated benefit obligation, including
vested benefits (1999, $4,289 and 1998, $4,404)

Change in Benefit Obligation:
Benefit obligation at beginning of year $ 5,582 $ 5,242
Service cost 110 16
Interest cost 384 397
Plan participants' contributions 83 71
Actuarial (gain) loss (476) 103
Benefits paid (443) (247)
---------- ----------
Benefit obligation at end of year $ 5,240 $ 5,582
========== ==========

Change in Plan Assets:
Fair value of plan assets at beginning of year $ 5,553 $ 4,868
Actual return on plan assets 517 766
Employer contribution - 95
Plan participants' contributions 83 71
Benefits paid (443) (247)
---------- ----------
Fair value of plan assets at end of year $ 5,710 $ 5,553
========== ==========

Funded status $ 470 $ (29)
Unrecognized net actuarial loss (847) (392)
Unrecognized prior service cost 132 147
Unrecognized transition obligation (82) (98)
---------- ----------
Accrued benefit costs $ (327) $ (372)
========== ==========
</TABLE>

The Company's net periodic benefit costs for the years ended June 30, 1999, 1998
and 1997 include the following components:
<TABLE>
<CAPTION>

1999 1998 1997

<S> <C> <C> <C>
Service cost $ 193 $ 182 $ 175
Interest cost 384 397 370
Actual return on plan assets (517) (766) (574)
Employee contributions (83) (71) (46)
Net amortization and deferral (20) 330 190
----------- ---------- ----------
Net periodic benefit cost $ (43) $ 72 $ 115
=========== ========== ==========
</TABLE>

The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligations was 7.75 percent for 1999, 1998 and
1997. The rate of increase for future compensation levels used in determining
the obligation was 5.0 percent for 1999, 1998, and 1997. The expected long-term
rate of return on plan assets in 1999, 1998 and 1997 was 9.0 percent.

Pension assets are held under a group annuity contract with an insurance
company. Certain amounts are commingled with the general assets of the insurance
company and the remainder is invested in separate accounts, which include
domestic equity, domestic government, corporate and private placement bonds and
domestic real estate equity, of the insurance company, at fair value.

The pension expense relating to the foreign subsidiary's insured pension and
disability plan amounted to $62, $45, and $69 in 1999, 1998 and 1997,
respectively. Benefits are based on years of service and the average of the last
five years annual earnings.

<PAGE>

The Company provides a tax deferred compensation benefit plan for certain
executives. The plan allows the employee to defer up to four percent of his
compensation with a Company match of up to one percent of compensation. The
Company's contribution funds life insurance policies on each executive, with the
Company as owner and beneficiary. The Company's expense for the plan in 1999,
1998 and 1997 was $4, $6, and $3, respectively.

The Company provides certain supplemental retirement benefits to the President
of the Company. Expenses related to these benefits were approximately $49 in
1999, $112 in 1998 and $146 in 1997. The agreement contains a change in control
provision that would accelerate the payment of these benefits. The maximum
liability under this agreement, in such event, would be approximately $226.

At the Company's annual stockholder meeting on January 28, 1999, the
stockholders approved the granting of stock options to certain key executives to
purchase 112,000 shares of the Company's common stock. The option price for
72,000 shares is $4.50 and for 40,000 shares is $5.63 which are both above the
market price of $ 1.875 at the date of grant. The weighted average option price
is $4.90. The time period for exercise of stock options is no later than January
22, 2007 for 72,000 shares and November 21, 2007 for 40,000 shares.

The Company applies APB Opinion No. 25 in accounting for its stock-based
compensation and, accordingly, no compensation cost has been recognized for its
stock options in the consolidated financial statements. The per share
weighted-average fair value of stock options granted during 1999 was $ .67 on
the date of grant using the Black Scholes option-pricing model with the
following weighted-average assumptions: no expected dividend yield, risk-free
interest rate of 5.93 percent, expected volatility of 44.5 percent, and an
expected life of 8 to 8.8 years. Had compensation cost for the stock options
been determined consistent with SFAS No. 123, the Company's net loss and net
loss per share for 1999 would have been increased to the pro forma amounts shown
below:
<TABLE>
<CAPTION>

Net Loss Net loss per share
<S> <C> <C> <C> <C> <C> <C>
As reported $778 $.49
Pro forma $826 $.52
</TABLE>

[7] FINANCIAL INSTRUMENTS

The Company uses various financial instruments in the normal course of business.
By their nature, all such instruments involve risk, and the Company's maximum
potential loss may exceed amounts recorded in the balance sheet. As is customary
for these types of instruments, the Company does not require collateral or other
security from other parties to these instruments. However, because the Company
manages exposure to credit risk through credit approvals, credit limits and
monitoring procedures, the Company believes that reserves for losses are
adequate.

The Company uses derivative instruments for the purpose of hedging commodity and
interest rate exposures. As a policy, the Company does not engage in speculative
transactions, nor does the Company hold or issue financial instruments for
trading purposes.

Interest Rate Swaps - At June 30, 1999, The Company had one outstanding interest
rate swap agreement with a bank having a notional amount of $1,000, which will
terminate January 20, 2000. This swap agreement provides for the payment of
interest based on a fixed rate of 6.35 percent, and remains unchanged over the
term of the agreement. The floating rate of the swap agreement is based on the
London Inter Bank Offered Rate (LIBOR) and is reset every 90 days based on
market conditions. The nature of the swap agreement changes variable rate debt
to fixed rate debt. The interest rate differential paid or received under this
swap is recognized over the term of the contract as adjustments are made to the
effective yield of the underlying debt. An interest premium of $44, $41, and $67
was paid during 1999, 1998, and 1997, respectively. The Company may be exposed
to credit loss in the event of nonperformance by the other party to the interest
rate swap agreement. However, the Company does not anticipate such
nonperformance.

The contract or notional amounts and estimated fair value of the Company's
interest rate swaps at June 30, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>

1999 1998
Contract or Notional Estimated Contract or Notional Estimated
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C> <C> <C>
Interest rate swaps $ 1,000 $(8) $ 2,343 $ (48)
</TABLE>

<PAGE>

The Company's interest rate swap fixes the rate of interest for $1,000 of $9,215
total variable rate debt. In the event of lowering LIBOR rates, the Company is
exposed to a higher fixed rate. The $8,215 variable rate debt not covered by the
interest rate swaps is subject to market risk of rate changes.

Commodities - During the first quarter of fiscal year 1998, the Company began on
a limited basis to manage its exposure to pulp price changes with pulp futures.
In accordance with hedge accounting, gains or losses are recorded as a component
of the underlying purchase, since these contracts effectively meet the risk
reduction and correlation criteria. Gains or losses on hedges that are
terminated prior to the execution of the inventory purchase are recorded in
inventory until the inventory is sold. At June 30, 1999, the Company did not
hold any related derivatives for pulp futures.

Fair Value of Financial Instruments - The following assumptions were used by the
Company to estimate the fair value of its financial instruments: The carrying
amounts reported in the balance sheets for cash, cash equivalents, trade
accounts receivable, other receivables, short-term borrowings, accounts payable
and accrued expenses approximate fair value because of the short maturity of
these instruments. The fair value of long-term debt is estimated using
discounted cash flows based on the Company's incremental borrowing rates, and
approximates the carrying amount in the balance sheets. Unrealized gains or
losses on the fair value of commodity futures and interest rate swap agreements
are estimated based on current interest and pulp exchange rates.

[8] COMMITMENTS AND CONTINGENCIES

Regulatory and Environmental Matters - As with other related manufacturers, the
Company is subject to regulations by various federal, state, foreign and local
agencies concerning compliance with environmental control statutes. These
regulations impose limitations on the use of chemicals in manufacturing
processes and discharge of effluent and emissions into the environment, and
establish standards for solid and hazardous waste disposal, treatment, and
storage, as well as require the Company to obtain and operate in compliance with
the conditions of environmental permit. The Company believes that it is in
substantial compliance with such existing domestic and foreign environmental
statues and regulations. Failure to comply with applicable environmental control
standards could result in interruption of operations or could require additional
expenditures at these facilities.

In recent years, various agencies have increased their screening and testing the
effects of chemicals or mixtures, including those that occur naturally. The
Company's product formulations, in some instances, may include compounds that
are or will be subject to these tests. The Company continually devotes
significant resources to improve product formulation for, among other things,
comfort, health, cost, quality and other performance features.

The Company has made and intends to continue to make capital investments,
operating expenditures, and production adjustments in connection with compliance
with environmental laws and regulations. Since the Company is essentially
comprised of two fiberboard plants, Bontex USA and Bontex S.A., water quality
discharge remains the primary environmental concern. Both plants are operating
new waste water treatment facilities, which the Company believes to be operating
within compliance of applicable environmental requirements.

Bontex USA is also impacted by regulations concerning air emissions relating to
the operation of certain coating and converting equipment. The Company entered
into a Consent Order with the Virginia Department of Environmental Quality
pursuant to which the Company committed to take appropriate corrective action
with respect to air quality emissions and to achieve compliance by December 31,
1997. The air emission control equipment has been installed at a cost of
approximately $456, and appears to be operating within compliance of applicable
environmental requirements.

The actual costs of future environmental compliance may differ from projected
costs due to, among other things, continued emergence of newer environmental
laws and regulations and improving efficiencies in environmental control or
process technology developments.

Litigation - In March 1998, a civil complaint was filed in the Superior Court of
New Jersey, Law Division, Essex County, by Patricia Surmonte Tischio, a director
of Bontex (the "Company") against the Company, James C. Kostelni, the President
and Chief Executive Officer of the Company, and Mr. Kostelni's spouse. Both Mrs.
Tischio and Mrs. Kostelni are daughters of the Company's founder and serve as
co-executors and co-trustees of, and are designated beneficiaries under, an
estate and certain trusts, which in the aggregate beneficially own approximately
43 percent of the Company's outstanding common stock. The case was transferred
to the United States District Court for the Western District of Virginia.

<PAGE>

On February 23,1999, the United States district court of the Western District of
Virginia granted the Motion for Judgement on the Pleadings filed by the
defendants with regard to the tortious interference with contractual relations
and conspiracy claims, dismissing those claims with prejudice. No appeal was
taken from the Court's ruling by Mrs. Tischio. The court declined to enter
declaratory judgement regarding plaintiff's alleged lifetime contract with the
Company. The court also found that the case presented a nonjusticiable issue for
the breach of contract, promissory estoppel and wrongful discharge in violation
of public policy claims and dismissed those claims without prejudice.

Purchase Commitments - In connection with purchasing certain commodities (pulps
and latex) for future manufacturing requirements, the Company enters into a
number of purchase commitments, as deemed appropriate, to manage the effects of
market price fluctuations and to secure adequate raw material supplies. These
purchase commitments have limited terms and the Company expects future sales
will be sufficient to meet these requirements. Refer to Note 7 of the Notes to
Consolidated Financial Statements for further details regarding commodities.

EURO Currency Conversion - On January 1, 1999, the EURO became the official
currency of the Economic and Monetary Union (EMU). Accordingly, the EURO will
have a significant affect on the Company's operations, as approximately 25
percent of the Company's consolidated sales are to customers located in the
Europe Union. Additionally, a large portion of the Company's manufacturing and
marketing operations are based in Belgium and Italy. The Company has begun to
implement a change over plan to convert, among other things, pricing, financial
reporting, banking facilities, financing, currency hedging, and information
systems.

Leases - Rental expenses for all operating leases amounted to $117, $127 and
$116 in 1999, 1998 and 1997, respectively. The Company anticipates future rental
expenses for operating leases to approximate $130 each year for the next five
years.

<PAGE>

INDEPENDENT AUDITORS' REPORT

KPMG LOGO

10 S. Jefferson Street, Suite 1710
Roanoke, VA 24011-1331

The Board of Directors and Stockholders of Bontex, Inc.:

We have audited the accompanying consolidated balance sheets of Bontex, Inc. and
subsidiaries as of June 30, 1999 and 1998, and the related consolidated
statements of income (loss) and comprehensive income (loss), changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended June 30, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Bontex, Inc. and
subsidiaries as of June 30, 1999 and 1998, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 1999, in conformity with generally accepted accounting principles.

KPMG LLP

August 20, 1999

<PAGE>

DIRECTORS, EXECUTIVES & OFFICERS

James C. Kostelni + Chairman of the Board, President,
Chief Executive Officer, Director

William J. Binnie +* Director

Michael J. Breton Corporate Director of
International Operations, Director

William B. D'Surney Director

David A. Dugan Controller and Assistant
Corporate Secretary

Charles W. J. Kostelni Senior Vice President, Corporate Controller
and Corporate Secretary

Jeffrey C. Kostelni Senior Vice President, Treasurer and
Chief Financial Officer, Director

Frank B. Mayorshi +* Director

Larry E. Morris Technical Sales Director, Director

Dr. Joseph F. Raffetto Director

Patricia S. Tischio Director

Robert J. Weeks +* Director

+Member of Executive Committee
*Member of Audit Committee

COUNSEL

Woods, Rogers & Hazlegrove, P.L.C.
Attorneys at Law Roanoke, Virginia

INDEPENDENT AUDITORS

KPMG LLP
Certified Public Accountants Roanoke, Virginia

TRANSFER AGENT

Registrar & Transfer Company Cranford, New Jersey

</TABLE>

<PAGE>

LOCATIONS STOCKHOLDERS' INFORMATION

Global Headquarters and U.S. Manufacturing Annual Meeting
Bontex, Inc. 10:30 a.m. October 28, 1999
One Bontex Drive Best Western Inn at Hunt Ridge
Buena Vista, Virginia 24416-1500 Willow Springs Drive
800-733-4234 / 540-261-2181 Lexington, Virginia 24450
E-mail: [email protected]
http://www.bontex.com

European Headquarters and Manufacturing Independent Auditors
Bontex S. A. KPMG LLP
Rue Slar 10 S. Jefferson Street, Suite 1710
4801 Stembert, Belgium Roanoke, Virginia 24011-1331
E-mail: [email protected]
http://www.bontex.be

Sales and Distribution Centers Registrar and Transfer Agent
Bontex Italia s.r.l. Registrar and Transfer Company
Via Francia 10 Commerce Drive
37069 Villafranca (Verona) Post Office Box 1010
Italy Cranford, New Jersey 07106

Bontex De Mexico, S. A. De C. V. Form 10-K
Boulevard Mariano Excobedo #801 Interior 2 A copy of the Company's 10-K filed with the
Colonia Andrade, C. P. 37370 Securities and Exchange Commission is
Leon, Guanajuato available without charge to any stockholder.
Mexico Requests should be sent to the attention of:

Bontex Hong Kong Corporate Controller
2108 Mega Trade Centre Bontex, Inc.
1-6 Mei Wan Street One Bontex Drive
Tsuen Wan, Hong Kong Buena Vista, Virginia 24416-1500

International Liaison Offices Bontex logo
Bontex Australia
20 Munro Street The Bontex(R) logo is a registered trademark of
Macleod VIC 3085 Bontex, Inc.
Australia
Bontex, Inc. is an equal opportunity employer.
Bontex Korea
Rm. 601, Songnam Bldg.
76-1, 4Ga, Chung Angdong Accepted by the American Podiatric Medical
Chung-Gu, Busan, 600-014, Korea Association (LOGO)

Bontex Taiwan
8FL., No. 52, Sec. 2 BS EN ISO 9001 Registered Company SATRA
Chung Shan N. Rd. (Logo)
Taipei, Taiwan National Accreditation of Certification Bodies
(Logo)
North American Warehouse Facilities SATRA - Footwear Technology Centre (Logo)
St. Louis, Missouri
Cambridge, Ontario, Canada
Montreal, Quebec, Canada (RECYCLE LOGO) Recycled Paper
</TABLE>

EXHIBIT 21

LISTING OF SUBSIDIARIES

There are five active subsidiaries of the Company:
<TABLE>
<CAPTION>

Name Under which
Name of Subsidiary Jurisdiction of Incorporation Subsidiary Does Business
<S> <C> <C> <C> <C> <C> <C>
Bontex S.A. Belgium Same

Bontex Italia S.r.l. Italy Same

Bontex, Inc. Virginia Same

Bontex de Mexico Mexico Same

GB Bontex Hong Kong Limited Hong Kong Same
</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BONTEX,
INC.'S AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED
JUNE 30, 1999, AS SET FORTH IN THE COMPANY'S 1999 ANNUAL REPORT TO STOCKHOLDERS
AND ANNUAL REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 336
<SECURITIES> 0
<RECEIVABLES> 12,171
<ALLOWANCES> 128
<INVENTORY> 5,798
<CURRENT-ASSETS> 18,520
<PP&E> 24,438
<DEPRECIATION> 12,915
<TOTAL-ASSETS> 31,164
<CURRENT-LIABILITIES> 18,158
<BONDS> 2,601
0
0
<COMMON> 157
<OTHER-SE> 9,736
<TOTAL-LIABILITY-AND-EQUITY> 31,164
<SALES> 39,325
<TOTAL-REVENUES> 39,353
<CGS> 29,152
<TOTAL-COSTS> 40,339
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (39)
<INTEREST-EXPENSE> 923
<INCOME-PRETAX> (986)
<INCOME-TAX> (208)
<INCOME-CONTINUING> (778)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (778)
<EPS-BASIC> (.49)
<EPS-DILUTED> (.49)

</TABLE>