Exhibit 13

[FRONT COVER]
[Picture of a soccer player kicking a soccer ball]

                            [Bontex logo] BONTEX [R]


<PAGE>




                                    CONTENTS



                           [Bontex Symbol] BONTEX [R]


                         Consolidated 2000 Annual Report

         "With over 50 years of experience, Bontex is a global leader in
         our core industries we serve. Almost all the branded footwear
         in the world use Bontex, and during 2000, Bontex continued to
             develop and introduce more new and advanced products."


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

3    Message to Shareholders               11   Consolidated Financial
                                                Statements and Notes

4    Financial Highlights                  26   Independent Auditors' Report



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

1946       Bontex was originally established as a leather       1996        The Company restructures and officially
           processing operation in Newark, New Jersey.                      operates 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
1959       Bontex goes public with stock issuance and listing               Kong to further expand export sales.
           on NASDAQ stock market.                                          Bontex enters into a key strategic
                                                                            partnership to market nonwoven materials.
1969       Bontex begins Bontex SA investment in Belgium,                   Bontex becomes the first global
           then and today, one of the world's largest and                   manufacturer in our industry to be ISO
           highest capacity factory manufacturing elastomeric               9001 certified, SATRA accredited
           wet web fiberboard products.                                     laboratory certified and SATRA Quality
                                                                            Mark approval for several products.
1986       Bontex establishes a base of operations in Italy,
           as Bontex Italia begins sales, marketing, and        1999-2000   Bontex begins long-term repositioning as a
           converting operations.                                           multi-dimensional Company. Bontex
                                                                            introduces a broader range of footwear
1995       Bontex sales exceed $50 million. Bontex                          materials, including Bontex 90 Insole
           establishes Bontex de Mexico to expand export                    Seatboard, economical insole products,
           sales.                                                           Bon-Stitch linings, and Bon-Stitch next
                                                                            generation nonwoven insoles. Bontex
                                                                            embarks on an advanced material systems
                                                                            for footwear and non-footwear applications.
</TABLE>



                                        1

<PAGE>



MISSION STATEMENT

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



CORPORATE PROFILE

Bontex, Inc. was originally founded in June 1946 under the laws of the State of
New Jersey as a leather processing operation. 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 marketing organizations at Bontex de Mexico, S.A. de C.V., in Leon, Mexico,
Bontex Vietnam, Hochiminh City Vietnam, 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


Bontex is embarking on repositioning the Company to manufacture and supply a
range of advanced material systems to both footwear and non-footwear
applications. During the next year, the Company anticipates introducing several
new products.

                                        2

<PAGE>



MESSAGE TO SHAREHOLDERS

(Bontex Symbol) BONTEX [R]  ONE BONTEX DRIVE
                            BUENA VISTA, VIRGINIA 24416-1500
                            email: 74313.2761@compuserve.com
                            http://www.bontex.com

Dear Fellow Shareholder:

I am pleased to report to you that Bontex, Inc. and its subsidiaries increased
sales and returned to profitability during the second half of fiscal 2000,
reversing a trend which started over two and half years ago. Overall, sales
volume (tons sold) for the year increased almost 10%, and consequently, if
foreign currency exchange rates had remained unchanged from the prior year,
consolidated net sales would have increased by $2.6 million or 7%. However, the
positive results from the second half were not enough to offset the losses
incurred during the first half of the fiscal year, as detailed in the financial
review in Management's Discussion and Analysis.

We are hopeful that the momentum from the second half of the year will continue
into the next fiscal year. While the increase in sales reflects positively on
our marketing efforts to grow sales of our core footwear products, in spite of
extremely challenging market conditions, we remain focused on repositioning the
Company for future sales growth and profitability from a wider range of revenue
sources.

Simply stated, the future success of Bontex remains with developing and
marketing new products. To that end, our fundamental areas of focus at this time
are:

          *    Footwear: Expanding our product line within our core footwear
               segment in order to leverage our existing global market position
               as an industry leader.

          *    Advanced Material Systems: Developing through a series of
               complementary strategic alliances, Advanced Material Systems
               (AMS) for specifically targeted applications.

          *    Cost Control: Implementing additional measures to control costs.

For over half a century, Bontex has been dependent primarily on Bontex cellulose
products for use as an insole in footwear, as well as for headwear, luggage,
leathergoods and allied industries. We believe that the various initiatives
which we have implemented over the course of the past two years will be
significant in repositioning the Company for long-term growth and profitability.
Maintaining our position in the footwear industry is crucial to providing a
revenue base from which to build upon for both footwear and non-footwear
products.

In order to strengthen our position in supplying footwear materials, we have
added several new footwear products to our line-up: Bontex 90G (patent pending),
an insole seat-board; Bontex 347 FF and Bontex 60 FF, a series of high volume
economical cellulose insoling materials, and a range of new Bon-Stitch nonwoven
materials for insoling and linings. Sales of the new footwear products have not
yet been significant, but based on the positive results of recent testing and
trials by several major branded footwear companies, we would expect sales of
these products to increase during fiscal 2001.

Bontex has what we believe to be the most efficient and highest capacity machine
in the world manufacturing elastomeric fiberboard products. To capitalize on
this significant asset located at Bontex S.A., Bontex has begun to target a
market category that we really did not service before: the high volume
economical cellulose insole products. We believe this market represents the
largest and fastest growing segment for Bontex-type products.

Our efforts to develop new non-footwear products also remain an important
priority. Although much progress has been made, significant work continues to be
ahead of us in order to develop new and viable specialty materials. We will
continue to utilize consultants with the technical knowledge to enable Bontex to
develop these new materials.

Some of our initial responses to address the situation at Bontex over the past
couple of years have been several major cost control initiatives. We have made
significant cost reductions in many areas of operations, including fibers,
purchase contracts for primary raw materials to provide pricing stability, staff
reductions, decreased salaries, and other restructuring of operations. We have
listed our Newark, New Jersey warehouse for sale for $860,000. We anticipate
selling it next year and using the proceeds to pay down debt. These cost cutting
measures plus realizing sales from new products will be crucial to the long-term
profitability of the Company.

As outlined in my letter to you last year, after an analysis of our business
model for the past fifty years, we realized that the long-term success of the
Company depends on changing into a multi-dimensional company. This entails an
inherently long process that requires the engagement of the entire Company. We
have begun the process and remain focused on our key initiatives, but this major
effort will take much time.

Over the past few years, Bontex has been confronted with several challenges,
including pricing pressures, environmental mandates, volatile raw material
prices, increased usage of alternative materials, and a contraction of the
domestic market. We will always face such challenges, but your management team
is attempting to establish a framework for growing Bontex into a more diverse
company, which will not be as vulnerable to these issues.

We greatly appreciate our shareholders support of our efforts to develop Bontex
into a multi-dimensional company, as well as the commitment and invaluable role
of our Board of Directors, employees and distributors globally, and the loyalty
and trust from our customers. We look forward to strengthening our relationships
as we embark on the next century.

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 o Fax: (540)261-3784 o
                Email: bontex@bontex.com o http://www.bontex.com
 Bontex SA (Belgium), Bontex S.r.l. (Italy), Bontex Hong Kong, Bontex de Mexico

                                        3

<PAGE>



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

                                                                                 Years Ended June 30,

                                     2000      1999      1998      1997      1996      1995      1994      1993      1992      1991

<S>     <C>    <C>    <C>    <C>    <C>    <C>
Net sales                         $ 39,455  $ 39,325  $ 43,483  $ 50,333  $ 47,618  $ 50,998  $ 47,729  $ 46,710  $ 46,534  $ 44,734
                                   =======   =======   =======   =======   =======   =======   =======   =======   =======   =======

Income (loss) before
   cumulative effect of
   change in accounting
   principles                     $   (659) $   (778) $   (446) $  1,733  $   (602) $ (1,458) $    935  $    193  $    942  $    212

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

Net income (loss)                 $   (659) $   (778) $   (446) $  1,733  $   (602) $ (1,458) $  1,335  $    193  $    942  $    311
                                   =======   =======   =======   =======   =======   =======   =======   =======   =======   =======

Income (loss) per share:
Before cumulative effect
   of change in accounting
   principles                     $   (.42) $   (.49) $   (.28) $   1.10  $   (.38) $   (.93) $    .60  $    .12  $    .60  $    .14

Cumulative effect of change
   in accounting principles              -         -         -         -         -         -       .25         -         -       .06
                                   -------   -------   -------   -------   -------   -------   -------   -------   -------   -------

Net income (loss)                 $   (.42) $   (.49) $   (.28) $   1.10  $   (.38) $   (.93) $    .85  $    .12  $    .60  $    .20
                                   =======   =======   =======   =======   =======   =======   =======   =======   =======   =======

Total assets                      $ 30,885  $ 31,164  $ 32,513  $ 32,906  $ 33,181  $ 39,527  $ 31,032  $ 28,840  $ 28,669  $ 22,753

Total stockholders' equity        $  8,948  $  9,893  $ 10,891  $ 11,515  $ 10,308  $ 11,186  $ 12,080  $ 10,521  $ 10,825  $  9,313

Capital expenditures              $    854  $ 1, 067  $  2,334  $  2,389  $  2,157  $  1,704  $  1,868  $  1,226  $  1,787  $  1,591

Cash flows provided by
   (used in) operating activities $  1,608  $    122  $     57  $  3,037  $  1,180  $ (2,073) $  1,078  $   (122) $    215  $  2,024

Long-term debt,
   noncurrent                     $  2,327  $  2,601  $  2,256  $  2,761  $  2,330  $  1,364  $  1,511  $  1,056  $  1,493  $    964

Book value per share              $   5.69  $   6.29  $   6.92  $   7.32  $   6.55  $   7.11  $   7.68  $   6.69  $   6.88  $   5.92

Cash dividends per
   common share                   $      -  $      -  $      -  $      -  $      -  $      -  $      -  $    .05  $      -  $      -

Current ratio                          .98      1.02      1.05      1.16      1.06      1.07      1.30      1.26      1.34      1.43

Total debt to equity ratio            2.45      2.15      1.99      1.86      2.22      2.53      1.57      1.74      1.65      1.44

Capital structure                 $ 11,756  $ 13,006  $ 13,791  $ 14,570  $ 12,819  $ 12,703  $ 14,162  $ 12,224  $ 12,991  $ 10,950

</TABLE>

                         Common Stock and Dividend Data

The stock of Bontex, Inc. was previously traded over the counter on the Nasdaq
National Market. Effective July 23, 1998, the stock of Bontex, Inc. was listed
on the Nasdaq SmallCap Market under the symbol BOTX. At September 8, 2000 there
were approximately 688 stockholders of record. No cash dividends were declared
or paid during fiscal years 1996 through 2000.

<TABLE>
<CAPTION>
                             2000                  1999               1998               1997                1996
                           --------               -------            ------             ------              -------
                       High       Low        High      Low       High      Low      High       Low      High     Low
                      ------     ------    -------    ------    -------  -------   -------   -------  -------   ------
<S>     <C>    <C>    <C>    <C>    <C>    <C>
First Quarter       $  2.75    $  1.75    $  3.38   $  2.25   $  9.63   $  4.25   $  4.00   $  3.13  $  4.25   $  2.75
Second Quarter         2.63       1.50       2.62      1.50      8.50      4.50      5.13      3.50     3.88      2.38
Third Quarter          5.47       1.75       4.00      1.00      5.25      3.25      5.38      4.50     3.25      2.38
Fourth Quarter         3.75       1.75       3.00      1.50      4.25      2.88      5.00      4.25     4.38      2.88
</TABLE>



                                        4

<PAGE>



                          Bontex, Inc. and Subsidiaries
                      Management's Discussion and Analysis


GENERAL

The lack of profits in fiscal year 2000 was attributable to the increased cost
of primary raw materials, latex and pulp, and extreme competition within the
cellulose markets we serve. Bontex has continued to work to mitigate raw
materials costs and has additional expectations for improved technologies in
this area. Low sales volumes in the first part of the year also hindered the
return to overall profitability. Several new products mentioned in last year's
report are nearing the marketability stage and could add volume to our
operations. It is not possible to accurately predict the viability of any of
these products at this time.

The Company's consolidated financial statements and notes to the consolidated
financial statements should be read as an integral part of this discussion.
Except for historical data set forth herein, the following discussion contains
forward-looking statements within the meaning of the Private Securities
Litigation Act of 1995. Forward-looking statements include, for example,
statements about future results of operations or market conditions and involve
certain risks, uncertainties and assumptions. Actual results may differ
materially from these forward-looking statements. Factors that could cause or
contribute to those differences include, but are not limited to, excessive
worldwide footwear inventories, a shrinking domestic market for Bontex products,
decreased sales to key customers, increased competition from non-woven
materials, the reduction of prices by competitors, the increase in the relative
prices of Bontex's products due to foreign currency devaluations, increased pulp
and latex prices, capital illiquidity, unexpected foreign tax liabilities, and
decreases in the Company's borrowing base.


RESULTS OF OPERATIONS

                                    Overview

In fiscal 2000, market share gains exceeded losses resulting in higher net sales
of $39.5 million or an increase of $130,000 as compared to the prior year. If
the currency exchange rates had remained unchanged for the current year, net
sales would be higher by $2.6 million as compared to a $600,000 translation
increase in the prior year. The Company's footwear business continues to exhibit
increased competition and lower margins. Management expects continued pressure
on our profit margins as a result of competition and rising prices for our
primary raw materials. The Company's development efforts to optimize products
and formulations should further mitigate some of the negative trends mentioned.
Management also recognizes the need to further diversify product lines and has
embarked on a plan to accomplish this goal.

                                      Sales

Consolidated net sales were $39.5 million, $39.3 million, and $43.5 million, for
fiscal years 2000, 1999, and 1998, respectively. Bontex succeeded in maintaining
its position in specification footwear sales. Some declines were experienced
during 2000 for Bontex insole materials due mainly to competition from
non-wovens, particularly in the athletic footwear sector. Lower selling prices,
caused by competitive pressures and the loss of sales volume in certain markets,
offset the success of 2000 sales initiatives in Asia and South America.



                                        5

<PAGE>



The cellulose insole market, in particular, continues to be affected by low
quality competition, especially in Far East markets. In China for instance,
oversupply of low quality materials creates abnormal downward pressure on
prices. Although most of these low-end producers are not in direct competition
with Bontex, their impact on the market is pervasive. Bontex hopes to benefit,
in upcoming years, from improved trade relations between the U.S. and China.
Bontex continues to allocate increased resources to our marketing network in
China. We have reorganized our personnel and added staff in key areas in order
to continue the momentum initiated last year in this increasingly important
market.

Bontex has recently developed several new innovative products for footwear that
it believes, based on early marketing efforts, to have good sales potential. The
Company has also solidified its marketing relationships for stitch-bonded
non-wovens, foams, thermoplastics, and other advanced materials. Each of these
projects brings advanced technology to the footwear industry. Bontex management
believes 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
rapidly bring them to the marketplace. Sales from these projects were expected
to occur during fiscal year 2000, but development was slower than anticipated.
To date, the Company has incurred a minor amount of research and development
expenses related to development of these new products. It is impossible to
accurately predict the level of sales potential or profitability at this time.
However, it is reasonable to expect one or more of these projects to generate
sales during fiscal year 2001.

                                      Costs

Cost of sales were 72.5 percent of net sales in 2000, 74.1 percent of net sales
in 1999, and 71.5 percent of net sales in 1998. The decrease in costs as a
percentage of sales from 1999 was mainly due to improved efficiency from prior
investments and other cost control measures taken by management.

The Company's United States operations use the last in, first out (LIFO) method
of inventory accounting. For comparison with other companies, if the first-in,
first-out, (FIFO) method of accounting had been used, reported gross profit
would have been higher by $28,000 in 2000, and lower by $93,000 in 1999, and
lower by $96,000 in 1998. Net income would have been higher by $18,000 or $.01
per share in 2000, lower by $60,000 or $.04 per share in 1999 and lower by
$61,000 or $.04 per share in 1998. Footwear production in North America
continued to decline as more companies closed domestic production facilities in
favor of lower labor cost markets such as China. While Bontex has a strong
export program, selling and third party costs tend to be higher for exports than
for domestic sales. The Company continues to pursue remaining opportunities for
footwear and non-footwear sales in the United States.

As a percent of sales, selling, general and administrative (SG&A) expenses over
the previous three years were 26.1 percent in 2000, 26.0 percent in 1999, and
27.4 percent in 1998. 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
and 2000 where cost reductions took stronger effect. In 1999, legal costs
associated with certain lawsuits against the Company and some of its officers
significantly increased SG&A costs. These expenses did not recur in this
magnitude during 2000, but increased shipping costs, new employees for future
growth and flat sales kept the percentage and amount approximately the same.

The decrease in interest expense over the past year was due primarily to a
decrease in long and short-term borrowing offset somewhat by higher interest
rates. Bontex has implemented more control over capital spending for the next
fiscal year with the budgeted amount being less than $250,000. The company
anticipates certain proceeds from the sale of the Newark, New Jersey facility.
These proceeds are expected

                                        6

<PAGE>



to reduce the Company's debt and should decrease interest expense during fiscal
year 2001 as well as reduce operating costs when the Company relocates to a less
costly location.

The consolidated income tax expense for the Company was $335,000 in 2000, as
compared to an income tax benefit of $208,000 in 1999 and $137,000 in 1998. The
tax expense in 2000 is significantly higher due to a $239,000 tax accrual
established with respect to a prior years tax examination of one of the
Company's foreign subsidiaries.

During fiscal year 2000, the Ministere Des Finances, the Belgian tax
authority, completed an examination of Bontex S.A.'s ("BXSA"), the Company's
Belgian subsidiary, tax returns for 1997, 1998 and 1999 and extended the tax
examination to 1995 and 1996 based on certain items. BXSA has received notices
of proposed tax adjustments to these tax returns. The proposed tax adjustments
arise from items which are considered disallowed expenses by tax authorities,
including commissions paid to certain distributors and clients, certain travel
expenses and various smaller items including allowances for doubtful receivables
and certain insurance premiums. The proposed tax adjustments by the Belgian
authorities approximate $820,000. The Company believes, based in part on written
opinion of external counsel, it has meritorious legal defenses to many of the
claims and the Company intends to defend such claims. The Company's best
estimate of the most likely amount payable for the foregoing tax matters is
$239,000, and accordingly, a provision for this amount has been accrued at June
30, 2000. Similar deductions relating to the year ended June 30, 2000 that in
light of the current information may be disallowed have been treated as
disallowed expenses in the calculation of the current year's tax provision. The
Company's actual liability pursuant to the foregoing examination may exceed
$239,000, and such excess liability could adversely affect the Company's
financial condition.

                                  Profitability

The net loss of $659,000 or $.42 per share generated in 2000 compares favorably
to $778,000 or $.49 per share net loss in 1999, and unfavorably to the loss of
$446,000 or $.28 per share in 1998. The unprofitable 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. The lower
sales volumes of Bontex's cellulose 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. However, as previously noted,
selling price reductions offset some of the cost reductions. Management expects
its recent cost reduction and control measures, product development efforts, and
Bontex's strong market position to provide a platform for future profitability.
Nevertheless, 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
globally. 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
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. However, some foreign

                                        7

<PAGE>



exchange exposure remains, and Bontex continues to have some gains and losses
due to currency fluctuation. The exchange losses during 1999 and 1998 are mainly
due to declines in value of the Mexican peso, Canadian dollar and the overall
strength of the US dollar during that period.

On January 1, 1999, the EURO became the official currency of the European
Economic and Monetary Union (EMU). The EURO has had an impact on the Company's
operations, as approximately 24.6 percent of the Company's consolidated sales
are to customers in the European Union. Refer to Notes 1 and 7 of the Notes to
the Consolidated Financial Statements for further details regarding currencies,
market risks, and financial instruments, as well as the following section of
this Management Discussion and Analysis titled, Market Risk of Financial
Instruments.


LIQUIDITY 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.

Cash flows from operations totaled $1.6 million, $122,000 and $57,000 in
2000,1999 and 1998, respectively. In 2000, cash flows were primarily effected by
an increase of $1,695,000 in accounts payable and accrued expenses which were
partially offset by an increase in trade accounts receivable and other
receivables. In 1999 and 1998, cash flows were effected from reductions in
inventory in 1999 and a decrease in trade accounts receivable in 1998, both
offset by lower profits. Trade accounts receivable increased $422,000 to $12.2
million at June 30, 2000 as compared to last year due primarily to improved
sales. Inventories at June 30, 2000 are lower by $333,000 over 1999 due mainly
to increased efforts to improve turnover and global stock requirements. The
Company's cash conversion efficiency, cash flows from operations divided by net
sales, increased from less than one percent in 1999 to 4.1 percent this year.
The Company's current ratio has decreased slightly from 1.02 in 1999 to .98 this
year.

Capital expenditures for property, plant and equipment of $854,000 in 2000 is
the lowest in three years due to tight controls in this area. Through targeted
capital and other investments, the Company believes that Bontex Belgium's
facility has developed into one of the most efficient and highest capacity
operation of its type in the world. Bontex USA has invested in facility
improvements that further enhance its reliability as a supplier to the markets
the Company serves.

Bontex has also invested heavily in environmental equipment at both
manufacturing facilities to protect the environment and help ensure compliance
with government mandates. Capital investments during 2000 primarily relate to
non-recurring items in production and the environment. These projects are
expected to help establish Bontex as an industry leader in quality, efficiency,
and reliability and as a responsible corporate citizen. The Company continues to
pursue plans for the sale of the Newark, New Jersey facility. The Newark
property is for sale with negotiations in progress. Bontex anticipates
completion of the Newark sale during calendar year 2001 and the Company does not
expect material costs related to this sale. Bontex plans to continue service of
its customers in the New York metropolitan area utilizing rented space.

On June 30, 2000, the Company had loans of $11.2 million outstanding consisting
of $8.2 million short-term and $3.0 million long-term. Short-term borrowings
decreased by $1 million while accounts payable and accrued expenses increased by
$1.7 million compared to 1999 amounts. The decrease in short-term

                                        8

<PAGE>



borrowings relates to cash flow from operations. The weighted average interest
rate on short-term borrowings during 2000 and 1999 was 7.3 and 6.0 percent,
respectively. Financial instruments and market risk are discussed in more detail
below under Market Risk and Sensitivity.

On January 26, 2000, Bontex paid off and terminated its credit facility with
Wachovia Bank, N.A., and entered into a loan and security agreement with
Congress Financial Corporation providing for a credit facility and a term loan.
The new credit facility provides for a revolving loan in an amount up to $4
million, based on a lending formula that evaluates, among other items, the
current accounts receivable and inventory of Bontex. The lending availability
fluctuates daily. Based on the lending formula, from the inception of the loan
through June 30, 2000, an average amount of approximately $3.1 million has been
available to Bontex under the revolving loan. Further, on five days notice to
Bontex, Congress may change the lending formula and in effect reduce the amount
available to Bontex under the revolving loan. The new credit facility also
requires Bontex to maintain a specified adjusted tangible net worth. During 2000
and 1999, Bontex was subject to various loan covenants under its secured debt
agreements and has pledged certain assets as collateral. Bontex was in
compliance with the applicable covenants at June 30, 2000 and 1999. Please refer
to Note 4 of Notes to the Consolidated Financial Statements for further details
on Bontex's indebtedness.

                                    Year 2000

Over the past two years Bontex has invested approximately $200,000 in modern
information systems to improve data efficiency. Bontex did not experience any
material disruptions due to the year 2000 computer issue.


MARKET RISK AND SENSITIVITY

As previously discussed, the Company is exposed to certain risks related to
interest rates 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 risk associated with its international sales or
foreign exchange risk, interest rate risk and commodity prices. In general, our
policy is not to speculate on interest rates and commodities in the markets.

Fair Value of Financial Instruments (dollars in thousands):
<TABLE>
<CAPTION>

                                         Face Amount/
                                        Carrying Amount              Fair Value
<S>  <C> <C>
June 30, 2000

Interest Rate Exposure:
Long-term debt                            $  2,953                   $    2,695
Short-term debt                           $  8,251                   $    8,251

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)
</TABLE>




                                        9

<PAGE>



The table below provides information about the Company's 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. Weighted average variable rates are based on implied
forward rates in the yield curve at the reporting date.

Financial Instruments held for other than trading purposes at June 30, 2000
(dollars in thousands).
<TABLE>
<CAPTION>

                                                  Expected Maturity Date

                                                                                           There-                   Fair
                              2001          2002         2003         2004         2005     after       Total       Value
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Liabilities
Long-term debt:
   Fixed Rate               $   426      $   425      $   425      $   424       $   336      ---    $  2,036     $  1,778
   Average Interest Rate       4.97%        4.97%        4.97%        4.97%         5.27%     ---        5.02%

   Variable Rate            $   200      $   200      $   200      $   200       $   117      ---    $    917     $    917
   Average Interest Rate       10.5%        10.5%        10.5%        10.5%         10.5%     ---        10.5%
</TABLE>


Approximately $9.2 million of variable rate debt is not covered by interest rate
swaps and 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. At June 30, 2000, the Company did not have any
derivative instruments or hedging. Because the Company has used in the past and
continues to consider in the future the use of derivative instruments and
hedging activities this statement could have an impact on the Company's future
financial statements.

                                       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, 2000, 1999 and 1998
                      (In Thousands, Except Per Share Data)

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

                                                                             2000          1999            1998

<S>                                                                      <C>           <C>            <C>
NET SALES                                                                $     39,455  $     39,325   $      43,483
COST OF SALES                                                                  28,598        29,152          31,080
                                                                          -----------   -----------    ------------

     Gross Profit                                                              10,857        10,173          12,403

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                   10,293        10,224          11,903
                                                                          -----------   -----------    ------------

     Operating income (loss)                                                      564           (51)            500
                                                                          -----------   -----------    ------------

OTHER (INCOME) EXPENSES:
     Interest expense                                                             834           923           1,056
     Interest income                                                               (2)           (3)            (76)
     Foreign currency exchange (gain) loss                                        (29)           40             115
     Other - net                                                                   85           (25)            (12)
                                                                          -----------   -----------    ------------
                                                                                  888           935           1,083
                                                                          -----------   -----------    ------------

LOSS BEFORE INCOME TAXES                                                         (324)         (986)           (583)

INCOME TAX EXPENSE (BENEFIT)                                                      335          (208)           (137)
                                                                          -----------   -----------    ------------

NET LOSS                                                                         (659)         (778)           (446)
                                                                          -----------   -----------    ------------

OTHER COMPREHENSIVE LOSS
     Foreign currency translation adjustment                                     (286)         (220)           (178)
                                                                          -----------   -----------    ------------

COMPREHENSIVE LOSS                                                       $       (945) $       (998)  $        (624)
                                                                          ===========   ===========    ============

NET LOSS PER SHARE                                                       $       (.42) $       (.49)  $        (.28)
                                                                          ===========   ===========    ============

Consolidated Statements of Changes in Stockholders' Equity:                  2000          1999            1998

Stockholders' Equity, beginning balance                                  $      9,893  $     10,891   $      11,515

Net loss                                                                         (659)         (778)           (446)

Other comprehensive loss
     Foreign currency translation adjustment                                     (286)         (220)           (178)
                                                                          -----------   -----------    ------------

Stockholders' Equity, ending balance                                     $      8,948  $      9,893   $      10,891
                                                                          ===========   ===========    ============

See accompanying notes to consolidated financial statements
</TABLE>

                                       11

<PAGE>
<TABLE>
<CAPTION>



BONTEX, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

                             June 30, 2000 and 1999
                      (In Thousands, Except Per Share Data)

                                                                                 2000            1999
<S>     <C>    <C>    <C>    <C>    <C>    <C>
ASSETS
CURRENT ASSETS:
     Cash                                                                     $       457    $        336
     Trade accounts receivable, less allowance for doubtful
       accounts of $170 ($128 at 1999)                                             12,187          11,765
     Other receivables                                                                378             278
     Inventories                                                                    5,465           5,798
     Deferred income taxes                                                            135             124
     Income taxes refundable                                                           49              67
     Other current assets                                                             120             152
                                                                              -----------    ------------
                Total current assets                                               18,791          18,520
                                                                              -----------    ------------

PROPERTY, PLANT AND EQUIPMENT:
     Land and land improvements                                                       350             361
     Building and building improvements                                             5,525           5,953
     Machinery, furniture and equipment                                            17,797          17,885
     Construction in progress                                                         526             239
                                                                              -----------    ------------
                                                                                   24,198          24,438
     Less accumulated depreciation and amortization                                13,491          12,915
                                                                              -----------    ------------
     Net property, plant and equipment                                             10,707          11,523

Deferred income taxes                                                                 736             599
Other assets, net                                                                     651             522
                                                                              -----------    ------------
                Total assets                                                  $    30,885    $     31,164
                                                                              ===========    ============


LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
     Short-term borrowings                                                    $     8,251    $      9,215
     Long-term debt due currently                                                     626             781
     Accounts payable                                                               7,756           6,375
     Accrued expenses                                                               1,902           1,590
     Income taxes payable                                                             594             197
                                                                              -----------    ------------
                Total current liabilities                                          19,129          18,158

Long-term debt, less current portion                                                2,327           2,601
Deferred income taxes                                                                  42              48
Other long-term liabilities                                                           439             464
                                                                              -----------    ------------
                Total liabilities                                                  21,937          21,271
                                                                              -----------    ------------

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                                                              7,461           8,120
     Accumulated other comprehensive income                                          (221)             65
                                                                              -----------    ------------
                Total stockholders' equity                                          8,948           9,893
                                                                              -----------    ------------
                Total liabilities and stockholders' equity                    $    30,885    $     31,164
                                                                              ===========    ============
</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, 2000, 1999 and 1998
                                 (In Thousands)

                                                                             2000          1999            1998

<S>     <C>    <C>    <C>    <C>    <C>    <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers                                            $     37,378  $     39,152   $      44,499
Cash paid to suppliers and employees                                         (34,886)      (38,237)        (43,245)
Interest received                                                                  4            10              76
Interest paid                                                                   (814)         (931)         (1,063)
Income taxes received (paid), net                                                (74)          128            (210)
                                                                          -----------   -----------    ------------
                Net cash provided by operating activities                     1 ,608           122              57
                                                                          -----------   -----------    ------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property, plant and equipment                               -             -              15
Purchases of property, plant and equipment                                      (854)       (1,067)         (2,334)
                                                                          -----------   -----------    ------------
                Net cash used in investing activities                           (854)       (1,067)         (2,319)
                                                                          -----------   -----------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term borrowings, net                               (404)          898             888
Long-term debt incurred                                                          545           547           1,000
Principal payments on long-term debt                                            (752)         (669)           (594)
                                                                          -----------   -----------    ------------
                Net cash provided by (used in) financing activities             (611)          776           1,294
                                                                          -----------   -----------    ------------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                          (22)          (12)            112
                                                                          -----------   -----------    ------------
NET INCREASE (DECREASE) IN CASH                                                  121          (181)           (856)

CASH AT BEGINNING OF YEAR                                                        336           517           1,373
                                                                          -----------   -----------    ------------

CASH AT END OF YEAR                                                     $        457  $        336   $         517
                                                                          ===========   ===========    ============

RECONCILIATION OF NET LOSS TO NET CASH
  PROVIDED BY OPERATING ACTIVITIES:
   Net loss                                                             $       (659) $       (778)  $        (446)
   Adjustments to reconcile net loss to net cash provided by
     operating activities:
       Depreciation and amortization                                           1,322         1,372           1,272
       Gain on sale of property, plant and equipment                               -             -              (8)
       Provision for bad debts                                                    92           (39)            252
       Deferred income taxes                                                    (154)         (191)           (271)
       Change in assets and liabilities:
         (Increase) decrease in trade accounts and other receivables           1,495        (1,226)           (522)
         (Increase) decrease in inventories                                   (1,290)           (5)            547
         (Increase) decrease in other assets                                    (322)         (186)            146
         Increase (decrease) in accounts payable and accrued
           expenses                                                            1,988          (367)           (856)
         Increase (decrease) in income taxes payable                             (77)          421             143
         Increase (decrease) in other liabilities                                308            15            (189)
                                                                          -----------   -----------    ------------
   Net cash provided by operating activities                            $      1,608  $        122   $          57
                                                                          ===========   ===========    ============

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

See accompanying notes to consolidated financial statements.

                                       13

<PAGE>



BONTEX, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                          June 30, 2000, 1999 and 1998
                  (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. Depreciation and amortization are 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 sales terms.

Stock Options - The Company uses 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 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 is anti-dilutive. 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 - When appropriate, 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. Because the Company has used in the past and continues to consider in the
future the use of derivative instruments and hedging activities this statement
could have an impact on the Company's future financial statements.

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 - 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.

                                       15

<PAGE>



[2]      INVENTORIES

Cost of inventories of approximately $1,873 in 2000 and $1,740 in 1999, is
determined by the last-in, first-out method (LIFO). Replacement cost for LIFO
inventories approximated $2,187 in 2000 and $2,082 in 1999. Inventories of
approximately $3,592 in 2000 and $4,058 in 1999, are determined by the first-in,
first-out (FIFO) and weighted average bases.

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

                                                                 2000            1999

<S>                                                          <C>             <C>
Finished goods                                               $     3,849     $     3,341
Raw materials                                                      1,222           2,025
Supplies                                                             708             774
                                                              ----------      ----------
Inventories at FIFO and weighted average cost                      5,779           6,140
LIFO reserves                                                        314             342
                                                              ----------      ----------

                                                             $     5,465     $     5,798
                                                              ==========      ==========
</TABLE>

During 1999 and 1998, LIFO layers were reduced resulting in charging lower
inventory costs to cost of sales of $255 and $55, respectively. In 2000, LIFO
layers were not reduced.


[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>

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

2000                $   6,731           $   16,366            $   14,264             $   2,094         $  39,455
1999                $   7,086           $   15,301            $   15,315             $   1,623         $  39,325
1998                $   7,790           $   18,115            $   16,473             $   1,105         $  43,483
</TABLE>


No single customer accounts for 10 percent or more of the Company's consolidated
net sales for 2000, 1999 and 1998. One distributor accounted for 19.2 percent in
2000, 15.2 percent in 1999 and 10.8 percent in 1998 of the Company's
consolidated net sales.

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

                                            North American        European
                                              Operations         Operations       Eliminations        Consolidated
<S>     <C>    <C>    <C>    <C>    <C>    <C>
2000:
   Total assets                               $    16,046       $     16,904      $      2,065        $     30,885
   Net loss                                          (508)              (151)                -                (659)
   Operating income (loss)                           (733)             1,297                 -                 564
   Net sales                                       16,861             22,990              (396)             39,455
   Interest expense                                   372                462                 -                 834
   Depreciation and amortization                      815                507                 -               1,322
   Income tax expense (benefit)                      (151)               486                 -                 335
   Total expenditures for additions to
     property, plant and equipment                    381                473                 -                 854
</TABLE>


                                       16

<PAGE>



<TABLE>
<CAPTION>


<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

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

</TABLE>


Retained earnings of foreign operations not available for distribution amounted
to approximately $757 and $763 at June 30, 2000 and 1999, respectively.


[4]      LONG-TERM DEBT AND FINANCING AGREEMENTS


The following long-term debt was outstanding as of June 30, 2000 and 1999:
<TABLE>
<CAPTION>

                                                                                         2000             1999
<S>     <C>    <C>    <C>    <C>    <C>    <C>
10.5%(prime rate plus 1%) loan payable to a United States bank in monthly
     installments of $17 through January 2005; collateralized by property and
     equipment located in the U.S. and subject to various loan
     covenants.                                                                     $         917   $             -

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.
     Refinanced January 2000.                                                                   -               720

4.70% loan payable to a Belgian bank in quarterly
     installments of $8 through June 2005.                                                    166               215

4.70% loan payable to a Belgian bank in quarterly
     installments of $15 through June 2005.                                                   296               384

5.20% loan payable to a Belgian bank in quarterly
     installments of $30 through June 2005.                                                   592               768

5.50% loan payable to a Belgian bank in quarterly
     installments of $7 through June 2005.                                                    148               192
</TABLE>



                                       17

<PAGE>



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

5.85% loan payable to a Belgian bank in quarterly
     installments of $23 through June 2005.                                         $         455   $           591

3.95% loan payable to a Belgian bank in quarterly
     installments of $24 through April 2004.                                                  379               512
                                                                                     ------------    --------------
                                                                                            2,953             3,382

Less long-term debt due currently                                                             626               781
                                                                                     ------------    --------------
Long-term debt                                                                      $       2,327   $         2,601
                                                                                     ============    ==============

</TABLE>

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

2001                                                            $       626
2002                                                                    625
2003                                                                    625
2004                                                                    624
2005                                                                    453
                                                                 ----------


Total                                                           $     2,953
                                                                 ==========

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
$7,186 and $8,633 at June 30, 2000 and 1999, respectively. As of June 30,
borrowings under these facilities were as follows:
<TABLE>
<CAPTION>

                                                                        2000            1999

<S>     <C>    <C>    <C>    <C>    <C>    <C>
Short-term bank loans with variable interest rates, ranging
   from 4.77% to 7.45% at June 30, 2000                              $   5,100       $    6,642
Overdrafts                                                                   -                2
                                                                      --------        ---------

                                                                     $   5,100       $    6,644
                                                                      ========        =========
</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, 2000 and 1999 one of the banks under these facilities
had the right to request a security interest up to $1.184 and $1,280,
respectively. Bontex S.A. committed to one of the banks to maintain certain
covenants which were met at June 30, 2000.

Bontex USA has a line of credit arrangement whereby Bontex USA may borrow up to
$4,000, based on the value of certain assets, at prime plus 1.00 percent (10.5
percent at June 30, 2000). At June 30, 2000, Bontex USA had borrowings of $3,151
outstanding under this line of credit. The secured line of credit is
collateralized by trade accounts receivable, inventory and other noncurrent
assets. At June 30, 1999, Bontex USA had a line of credit arrangement whereby
Bontex USA could 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 $2,750
outstanding under this line of credit.

Consolidated weighted average interest rates on short-term borrowings at June
30, 2000 and 1999 are 6.9 and 6.0 percent, respectively.

During 2000 and 1999, Bontex USA was subject to various loan covenants under its
secured debt agreements and has pledged certain current and noncurrent assets as
collateral. Bontex USA was in compliance with the applicable covenants at June
30, 2000 and 1999. In January 2000, Bontex USA refinanced its previous long and
short-term debt with a new secured debt agreement.


[5]      INCOME TAXES

The U.S. and foreign components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>

                                                        Current          Deferred          Total
<S>     <C>    <C>    <C>    <C>    <C>    <C>
2000:
     Federal                                         $          -      $      (136)     $     (136)
     State                                                      -              (15)            (15)
     Foreign                                                  489               (3)            486
                                                      -----------       -----------      ----------

                                                     $        489      $      (154)     $      335
                                                      ===========       ===========      ==========

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)
                                                      ===========       ===========      ==========
</TABLE>


                                       19

<PAGE>



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

                                                           2000                   1999                  1998

<S>                                  <C>               <C>                      <C>                  <C>
Federal income tax at statutory rate (34%)             $      (110)             $    (334)           $     (198)
Increase (reduction) in income taxes
   resulting from:
     Foreign income at other than
       U.S. rates                                               82                     25                    33
     State and local taxes, net of federal
       income tax benefit                                      (10)                   (27)                  (27)
     Accrual for tax examination                               239                      -                     -
     Other differences, net                                    134                    128                    55
                                                        ----------              ---------            ----------

     Income tax expense (benefit)                      $       335             $     (208)          $      (137)
                                                        ==========              =========            ==========
</TABLE>

During fiscal year 2000, the Ministere Des Finances, the Belgian tax
authority, completed an examination of Bontex S.A.'s ("BXSA"), the Company's
Belgian subsidiary, tax returns for 1997, 1998 and 1999 and extended the tax
examination to 1995 and 1996 based on certain items. BXSA has received notices
of proposed tax adjustments to these tax returns. The proposed tax adjustments
arise from items which are considered disallowed expenses by tax authorities,
including commissions paid to certain distributors and clients, certain travel
expenses and various smaller items including allowances for doubtful receivables
and certain insurance premiums. The proposed tax adjustments by the Belgian
authorities approximate $820,000. The Company believes, based in part on written
opinion of external counsel, it has meritorious legal defenses to many of the
claims and the Company intends to defend such claims. The Company's best
estimate of the most likely amount payable for the foregoing tax matters is
$239,000, and accordingly, a provision for this amount has been accrued at June
30, 2000. Similar deductions relating to the year ended June 30, 2000 that in
light of the current information may be disallowed have been treated as
disallowed expenses in the calculation of the current year's tax provision.

The components of deferred tax assets and liabilities at June 30, 2000 and 1999
are presented below:
<TABLE>
<CAPTION>

                                                                                   2000             1999

<S>     <C>    <C>    <C>    <C>    <C>    <C>
Deferred tax assets:
   Accounts receivable, principally due to allowance
     for doubtful accounts                                                      $       15      $        10
   Inventories, principally due to additional costs
     capitalized for tax purposes                                                      101               95
   Other assets, due to difference in amortization of
     trademarks                                                                        170              161
   Accrued pension and retirement benefits                                             117              119
   Net operating loss carryforwards                                                  1,263            1,077
   Alternative minimum tax credit carryforwards                                         36               36
   Other                                                                                81               90
                                                                                 ---------       ----------
                  Total gross deferred tax assets                                    1,783            1,588
                                                                                 ---------       ----------
Deferred tax liabilities:
   Plant and equipment, principally due to differences
     in depreciation and capital gain recognition                                     (942)            (900)
   Other                                                                               (12)             (13)
                                                                                 ---------       ----------

                  Total gross deferred tax liabilities                                (954)            (913)
                                                                                 ---------       ----------

                  Net deferred tax assets                                       $      829      $       675
                                                                                 =========       ==========

</TABLE>

                                       20

<PAGE>



The U.S. and foreign components of the net deferred tax asset at June 30, 2000
and 1999 are presented below:
<TABLE>
<CAPTION>

                                  Current                Noncurrent                  Total
<S>     <C>    <C>    <C>    <C>    <C>    <C>
2000:
   U.S. Operations           $          103           $           736            $        839
   European Operations                   32                       (42)                    (10)
                                 ----------            --------------             -----------

                             $          135           $           694            $        829
                                 ==========            ==============             ===========

   1999:
   U.S. Operations           $           92           $           599            $        691
   European Operations                   32                       (48)                    (16)
                                 ----------            --------------             -----------

                             $          124           $           551            $        675
                                 ==========            ==============             ===========
</TABLE>

At June 30, 2000, in addition to an alternative minimum tax credit carryforward
of $36 at Bontex USA, the Company had approximately $3,473 at Bontex USA in net
operating loss carryforwards to offset future taxable income, of which $258,
$361, $851, $1,491 and $512 at Bontex USA expire in 2010, 2011, 2013, 2019 and
2020, respectively.

At June 30, 2000, the Company has not recognized a deferred tax liability of
$106 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, 2000, undistributed income of the foreign subsidiaries
was approximately $2,122, of which approximately $757 is not available for
distribution.

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.


[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, 2000, 1999 and 1998. 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>

                                                                           2000                        1999

<S>     <C>    <C>    <C>    <C>    <C>    <C>
Actuarial present value of benefit obligations:
   Accumulated benefit obligation, including
     vested benefits (2000, $4,436 and 1999, $4,289)                   $     4,491                 $     4,351
                                                                        ==========                  ==========

Change in Benefit Obligation:
Benefit obligation at beginning of year                                $     5,240                 $     5,582
Service cost                                                                   111                         110
Interest cost                                                                  381                         384
Plan participants' contributions                                                68                          83
Actuarial (gain) loss                                                          (91)                       (476)
Benefits paid                                                                 (438)                       (443)
                                                                        ----------                  ----------
Benefit obligation at end of year                                      $     5,271                 $     5,240
                                                                        ==========                  ==========

Change in Plan Assets:
Fair value of plan assets at beginning of year                         $     5,710                 $     5,553
Actual return on plan assets                                                    89                         517
Plan participants' contributions                                                68                          83
Benefits paid                                                                 (438)                       (443)
                                                                        ----------                  ----------
Fair value of plan assets at end of year                               $     5,429                 $     5,710
                                                                        ==========                  ==========

Funded status                                                          $       158                 $       470
Unrecognized net actuarial loss                                               (533)                       (847)
Unrecognized prior service cost                                                118                         132
Unrecognized transition obligation                                             (65)                        (82)
                                                                        ----------                  ----------
Accrued benefit costs                                                   $     (322)                 $     (327)
                                                                        ==========                  ==========
</TABLE>

The Company's net periodic benefit costs for its United States pension plan for
the years ended June 30, 2000, 1999 and 1998 include the following components:
<TABLE>
<CAPTION>

                                                         2000                1999                1998

<S>                                                <C>                   <C>                 <C>
Service cost                                       $          179        $        193        $        182
Interest cost                                                 381                 384                 397
Expected return on plan assets                               (496)               (517)               (766)
Net amortization and deferral                                 (29)                (20)                330
                                                      -----------         -----------         -----------
Net periodic benefit cost                          $           35        $         40        $        143
                                                      ===========         ===========         ===========
</TABLE>

The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligations was 7.75 percent for 2000, 1999 and
1998. The rate of increase for future compensation levels used in determining
the obligation was 5.0 percent for 2000, 1999, and 1998. The expected long-term
rate of return on plan assets in 2000, 1999 and 1998 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, managed by the
insurance company, which include domestic equity, domestic government, corporate
and private placement bonds and domestic real estate equity.

The pension expense relating to the foreign subsidiary's insured pension and
disability plan amounted to $96, $62, and $45 in 2000, 1999 and 1998,
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 2000,
1999 and 1998 was $3, $4, and $6, respectively.

The Company provides certain supplemental retirement benefits to the President
of the Company. Expenses related to these benefits were approximately $49 in
1999 and $112 in 1998. There was no expense for 2000. 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.

The Company has granted stock options to certain key executives to purchase
shares of the Company's common stock. These options generally vest in six months
or less and expire 10 years from the grant date. Additional information with
respect to stock option activity is as follows:

<TABLE>
<CAPTION>
                                                    Number              Weighted Average
                                                  Of Shares              Exercise Price

<S>                 <C> <C>                                                    <C>
Outstanding at June 30, 1998                                 -            $           -
     Granted                                           112,000                     4.90
                                                --------------
Outstanding at June 30, 1999                           112,000                     4.90
     Granted                                            59,997                     2.00
     Cancelled                                         (60,000)                    4.90
                                                --------------
Outstanding at June 30, 2000                           111,997                     3.35
                                                ==============

Options exercisable at June 30, 1999                   112,000                     4.90
                                                ==============

Options exercisable at June 30, 2000                    52,000                     4.90
                                                ==============
</TABLE>

The following table summarizes information about stock options outstanding and
exercisable at June 30, 2000:
<TABLE>
<CAPTION>

                            Stock Options Outstanding

                                            Weighted Average
      Range of             Number of            Remaining           Weighted
      Exercise              Options            Contractual           Average
       Prices             Outstanding         Life in Years      Exercise Price
<S>     <C>    <C>    <C>    <C>    <C>    <C>

   $ 2.00 - $5.63           111,997               8.75          $       3.35
</TABLE>
<TABLE>
<CAPTION>

                              Stock Options Exercisable

       Range of            Number of            Weighted
      Exercise               Shares              Average
       Prices             Exercisable        Exercise Price
<S>     <C>    <C>    <C>    <C>    <C>    <C>

   $4.50 - $5.63            52,000            $   4.90
</TABLE>


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. Had compensation cost
for the stock options been determined consistent with SFAS No. 123, the
Company's net loss and net loss per share would have been increased to the pro
forma amounts shown below:
<TABLE>
<CAPTION>

                                        2000            1999
<S>     <C>    <C>    <C>    <C>    <C>    <C>
Net Loss:
As reported                          $      659      $     778
Pro forma                            $      709      $     826

Net Loss Per Share:
As Reported                          $      .42      $     .49
Pro forma                            $      .46      $     .52
</TABLE>



                                       23

<PAGE>



The weighted average fair value of stock options granted during 2000 and 1999
was $1.29 and $.67 per share, respectively. These amounts were determined using
the Black-Scholes option-pricing model. The assumptions used in the model were
as follows for stock options granted in 2000 and 1999:
<TABLE>
<CAPTION>

                                            2000           1999
<S>     <C>    <C>    <C>    <C>    <C>    <C>

Risk-free interest rate                       6.30%        5.93%
Expected volatility of common stock           55.3%        44.5%
Dividend yield                                   -           -
Expected life of options                        10      8 to 8.8 years

</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 has periodically used 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, 2000, the Company had no outstanding interest
rate swap agreements. At June 30, 1999, the Company had one outstanding interest
rate swap agreement with a bank having a notional amount of $1,000, which
terminated January 20, 2000. This swap agreement provided for the payment of
interest based on a fixed rate of 6.35 percent, and remained unchanged over the
term of the agreement. The floating rate of the swap agreement was based on the
London Inter Bank Offered Rate (LIBOR) and was reset every 90 days based on
market conditions. The nature of the swap agreement changed variable rate debt
to fixed rate debt. The interest rate differential paid or received under a 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 $6, $44, and $41
was paid during 2000, 1999, and 1998, respectively.

The contract or notional amounts and estimated fair value of the Company's
interest rate swaps at June 30, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>

                                                  2000                                              1999
                            Contract or Notional             Estimated              Contract or         Notional Estimated
                                   Amount                    Fair Value                Amount               Fair Value
<S>                                 <C>                         <C>                   <C>                     <C>
Interest rate swap                  $ -                         $ -                   $ 1,000                 $ (8)
</TABLE>


As of June 30, 2000, approximately $9.2 million of variable rate debt is not
covered by interest rate swaps and is therefore 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. During fiscal years 2000 and 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 $2,695 at June 30, 2000. Unrealized gains or losses on the fair
value of interest rate swap agreements are estimated based on current interest
rates.

                                       24

<PAGE>



[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. 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 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, other than those discussed in
note 5, against or involving the Company that, 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 had 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 implemented a change
over plan which convert, among other things, pricing, financial reporting,
banking facilities, financing, currency hedging, and information systems.

Leases - Rental expenses for all operating leases amounted to $106, $117 and
$127 in 2000, 1999 and 1998, 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 LLP [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, 2000 and 1999, 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, 2000. 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 auditing standards generally accepted
in the United States of America. 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, 2000 and 1999, and the results of their operations
and their cash flows for each of the years in the three-year period ended June
30, 2000, in conformity with accounting principles generally accepted in the
United States of America.



                                                              KPMG LLP

August 25, 2000


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



----------------------------------------------------
DIRECTORS, EXECUTIVES & OFFICERS
----------------------------------------------------

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

    William J. Binnie                               +*            Director

    Michael J. Breton                                             Director of International Operations

    William B. D'Surney                                           Director

    David A. Dugan                                                Controller and Assistant
                                                                      Corporate Secretary

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

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

    Frank B. Mayorshi                               +*            Director

    Larry E. Morris                                               Technical Sales Director and Director

    Dr. Joseph F. Raffetto                                        Director

    Patricia S. Tischio                                           Director

    Robert J. Weeks                                 +*            Director


                                                                  +Member of Executive Committee
                                                                  *Member of Audit Committee

----------------------------------------------------
    COUNSEL
----------------------------------------------------

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

----------------------------------------------------
    INDEPENDENT AUDITORS
----------------------------------------------------

    KPMG LLP
    Certified Public Accountants                                  Roanoke, Virginia

----------------------------------------------------
    TRANSFER AGENT
----------------------------------------------------

    Registrar & Transfer Company                                  Cranford, New Jersey



</TABLE>

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



-------------------------------------------------------          -----------------------------------------------------
LOCATIONS                                                          STOCKHOLDERS' INFORMATION
-------------------------------------------------------          -----------------------------------------------------

World Headquarters and North American                             Annual Meeting
Manufacturing                                                         10:30 a.m. November 2, 2000
    Bontex, Inc.                                                      Best Western Inn at Hunt Ridge
    One Bontex Drive                                                  Willow Springs Drive
    Buena Vista, Virginia 24416-1500 U.S.A.                           Lexington, Virginia 24450
    800-733-4234 / 540-261-2181
    E-mail:  bontex@bontex.com
    Website:  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
    Website: 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
    301 International Trade Centre                                    Bontex, Inc.
    11 Sha Tsui Road, Tsuen Wan                                       One Bontex Drive
    Hong Kong                                                         Buena Vista, Virginia 24416-1500

    Bontex Vietnam
    Floor 2, Room 204, 99 Pasteur St.
    Dist.1, HCMC Vietnam

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.                                        Accepted by the American Podiatric Medical
    76-1, 4Ga, Chung Angdong                                      Association (LOGO)
    Chung-Gu, Busan, 600-014, Korea

    Bontex Taiwan                                                 BS EN ISO 9001 Registered Company SATRA
    8FL.,  No. 52, Sec. 2                                         (Logo)
    Chung Shan N. Rd.                                             National Accreditation of Certification Bodies
    Taipei, 10419, Taiwan                                         (Logo)

North American Warehouse Facilities                               SATRA - Footwear Technology Centre (Logo)
    Paterson, New Jersey
    St. Louis, Missouri
    Cambridge, Ontario, Canada
    Montreal, Quebec, Canada                                      (RECYCLE LOGO) Recycled Paper


</TABLE>


<PAGE>


[BACK COVER]

                            [Bontex Logo] BONTEX [R]

               One Bontex Drive, Buena Vista, Virginia 24416-1500
                    Telephone: 540-261-2181 Fax: 540-261-3784
                 e-mail: bontex@bontex.com http://www.bontex.com

   Manufactured by: BONTEX [R] Buena Vista, VA BONTEX S.A., Stembert, Belgium
             Distributed and Converted by: BONTEX [R] Italia S.R.L.,
                          Villafranca, Verona, Italy.
            BONTEX [R] de Mexico, Leon, Mexico, BONTEX [R] Hong Kong