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
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<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

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                                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



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                             MESSAGE TO STOCKHOLDERS

BONTEX LOGO
ONE BONTEX DRIVE
BUENA VISTA, VIRGINIA 24416-1500
email: 74313.2761@compuserve.com
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: bontex@bontex.com
                              http://www.bontex.com
 Bontex SA (Belgium), Bontex S.r.l. (Italy), Bontex Hong Kong, Bontex de Mexico

                                        3

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                         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
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                         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.
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                             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
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                      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.


                                        5

<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.

                                        6

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                                  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.



                                        7

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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

                                        8

<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

                                        9

<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.

                                       10

<PAGE>
<TABLE>
<CAPTION>



                          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

                                       11

<PAGE>
<TABLE>
<CAPTION>



                          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.

                                       12

<PAGE>

<TABLE>
<CAPTION>


                          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.

                                       13

<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."



                                       14

<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.


                                       15

<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>



                                       16

<PAGE>
<TABLE>
<CAPTION>



<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



                                       17

<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>



                                       18

<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>




                                       19

<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>



                                       20

<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.

                                       21

<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.


                                       22

<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>



                                       23

<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.

                                       24

<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.

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.

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.

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.

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.

                                       25

<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


                                       26

<PAGE>



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

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>


                                       27

<PAGE>

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

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:  bontex@bontex.com
    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:  bontexsa@mail.att.net
    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>



                                       28