Bontex Inc. (fka BOTX)

[pennypauly]

Very good read

This is from 8k 2003!!! Yes it’s old but look at there numbers back THEN!!!!!

THEY WERE MAKING $250,000.00 A WEEK!!!!!! IN 2003!!!

The Company maintains corporate headquarters, manufacturing, converting, sales office, and a warehouse facility in Buena Vista, Virginia; (prior to January 15, 2004, a wholly-owned manufacturing subsidiary, Bontex S.A. in Stembert, Belgium); (prior to July 1, 2003 a wholly-owned distribution and converting subsidiary, Bontex Italia SRL in Villafranca, Verona, Italy); a wholly- owned distribution subsidiary, Bontex de Mexico, S.A. de C.V. in Leon, Mexico; Bontex Vietnam (Representative office); and a majority owned distribution subsidiary, Bontex Hong Kong Limited in Hong Kong. See the discussion below in “Item 2. Properties.” The Company utilized a wholly-owned foreign sales corporation (FSC) organized and existing under the laws of the Virgin Islands to facilitate export sales. The U.S. government is negotiating with the World Trade Organization and European Community regarding the application of foreign sales corporations, and at a later date, the Company may have to change its tax strategies for export sales. The situation with our FSC is not expected to have a material impact on the Company’s operations, since the Company has significant net operating loss carry-forwards to off-set future taxable income.

Additionally, Bontex maintains a network of liaison offices and warehouses, Bontex Korea, Bontex Taiwan, Bontex China, Bontex Thailand, and Bontex Indonesia to service Asian markets.

The Company currently employs 98 full-time and 2 part-time employees in Buena Vista, Virginia; (prior to January 15, 2004, 76 full- time and 2 part-time employees in Belgium); (prior to July 1, 2003, 12 full-time and 1 part-time employee in Italy); 3 full-time and 1 part- time employees in Mexico; 2 full-time employees in Hong Kong and 7 full-time employees in China. Revenue per employee was approximately $219,000 and $237,000 in fiscal years 2002 and 2001, respectively.

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

PRODUCTS

BONTEX elastomeric wet web fiberboard materials are primarily used as an insole material in footwear, as well as visor-board in headwear, dielectric sealing base in automotive door panels, backing substrate, stiffener and laminating base in luggage, leathergoods, and allied products. All BONTEX fiberboard products are designed to be “environmentally-friendly,” because Bontex uses recycled and primary cellulose fibers originally derived from trees, a renewable resource.

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Bontex USA manufactures uncoated and coated BONTEX fiberboard products; breathable (moisture vapor transmission) cushion foams, that are marketed under trademarks BON-FOAM, MAXXON and SURE-FOAM, and are sold in a variety of grades for use as shock absorbing insole material; BONTEX 200 RECYCLED and BONTEX 300 RECYCLED, which are produced from 100 percent recovered paper with a minimum 80 percent “post-consumer waste” for use in footwear, visor-board in headwear, a backing substrate, stiffener pieces and laminating base; BON-PEL, a hybrid nonwoven substrate, which is exceptionally strong and flexible; BONTEX 48 MA, an uncoated visor-board for use in military headwear, which has been approved by NATICK military laboratory. Bontex USA also combines certain products, such as foams, fabrics, and vinyl, with BONTEX fiberboard. Bontex also markets a range of nonwoven products under the name Bon-stitch. During 1999 and 2000, Bontex introduced a broad range of footwear materials, including Bontex 90 Insole Seat-board, economical insole products, and Bon-Stitch linings and Bon-Stitch next generation nonwoven insoles.

Bontex S.A., Stembert, Belgium, manufactured uncoated BONTEX products. Bontex Italia, SRL was a distribution company and operated converting equipment primarily servicing the Italian market.

The Company’s research efforts are directed primarily toward developing new advanced composite products and processing techniques, and improving product performance, often in close association with customers. The Company customizes many composite products with BONTEX fiberboard, foam and nonwoven products, as well as bio-engineered products.

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

COMPETITION

As with most industries, the industry in which the Company operates is highly competitive. Participants in the industry compete through quality and price, including the ability to control costs, risk management, innovation, delivery and customer service. Presently, it is management’s opinion that the Company offers superior product quality and customer service in major markets globally. Globally, there is one other primary competitor, but regionally, there are more than twenty five cellulose insole manufacturers with which Bontex competes. In the United States, there is one other manufacturer of BONTEX type material. There are, however, other materials, such as nonwoven materials, which may be substituted for the same applications. The Company estimates that during fiscal year 2002, its products were in approximately 20 percent of non-rubber footwear manufactured in the United States using cellulose insoling. This estimate is based on Footwear Industries of America (FIA) data as to total sales.

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

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In Europe, there are six major manufacturers of material similar to BONTEX. These competitors are located in Germany, Italy, Finland, Slovenia, and the former USSR. The Company estimates that it sells approximately 30 percent of the BONTEX type materials sold in the European Union. These estimates are based on SATRA Common Market statistics as to total sales, and other generally available industry information.

There are a number of manufacturers of elastomeric fiberboard materials in Asia; however, there are an estimated fourteen competitors operating in the Peoples Republic of China, which negatively impacts selling prices. There are duties, currency, employment and environmental regulations that adversely impact the Company’s sales position. For example, many Asian suppliers do not have to maintain as high environmental, employment regulations and salary requirements as Bontex in USA and employment in Belgium. There are also several nonwoven manufacturers globally that compete with Bontex cellulose products, and over the past several years, nonwoven materials have increased their market penetration, especially in the athletic categories.

As there are many customers globally who purchase BONTEX and convert it into innersoles and other application components, the actual total worldwide market penetration is difficult to estimate. However, Bontex has a strong market position globally as supported by Bontex supplying most of the world’s leading branded footwear.

TRADEMARKS

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

PRODUCTION AND SALES

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

The Company’s sales are diversified with one of the largest customer bases in the industry we serve, as well as numerous geographic regions. Asia, where an estimated 70 percent of global shoe production occurs, is the largest market for Bontex products. The Company offers a wide range of elastomeric products for use in a variety of applications. However, the majority of the Company’s sales are to the footwear industry. The Company intends to continue its strategy of developing and broadening non-footwear sales.

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Credit terms offered by the Company to meet competition have been longer than terms normally available to the Company from its vendors. Some seasonality exists in that the second half of each fiscal year is usually more productive and consequently more profitable than the first half. This seasonality is largely because of customers’ buying cycles with scheduled vacations, shutdowns and holidays, which normally occur during the first half of each fiscal year. Substantially all export sales are denominated in US dollars, negotiated letters of credit and sight drafts, and are covered by foreign credit insurance. During 2002, one single customer accounted for 11.3 percent of the Company’s consolidated net sales, and during 2001 and 2000 no single customer represented more than 10 percent of the Company’s consolidated net sales of Bontex cellulose products.

Foreign operations, principally in Belgium and Italy, constituted a significant portion of the Company’s business. Production of BONTEX elastomeric fiberboard products was allocated between the United States and Belgium manufacturing facilities based on such factors as availability of capacity, production efficiencies, logistical considerations, and foreign currency exchange rates. The Company is currently operating at less than full capacity. During the past three fiscal years, approximately 40 percent of total production was manufactured in the United States. The backlog of firm orders in the United States at the end fiscal 2002 was about three weeks of production or approximately $750,000 in sales. The current backlog at Bontex USA is approximately six weeks or $2.5 million.

In Europe, the backlog at the end of fiscal year 2001 was about three weeks of production or approximately $950,000 in sales. The Company expects all the orders in the backlog will be manufactured and shipped during the next fiscal year.

The Company sells most of its products on a specification basis directly to brand name customers through its own sales force and commissioned sales representatives throughout the world. The Company also sells products through distributors and other intermediaries who may convert and resell these products to others. Prior to January 15, 2004, Bontex USA mainly services North and South America, as well as certain Asian markets. Over the past three years, Bontex USA’s export sales to markets outside of the United States have increased from approximately 50 to over 90 percent. This primarily reflects the decline of the domestic market and continued emphasis on overseas markets, and to a lesser degree, the consolidation of manufacturing at Bontex, Inc. in the United States.

Bontex USA maintains strategically located leased bonded warehouses in North America in Leon, Mexico; Cambridge, Ontario, Canada; Montreal, Quebec, Canada.

Bontex S.A. marketed its products through its own sales force, distributors and sales representatives in most countries in Europe, Central and Eastern Europe, Africa, the Middle East, as well as certain Asian markets. The Company’s former subsidiary, Bontex Italia SRL serviced the Italian market directly and through localized converters and commissioned representatives.

Over the past several years, sales of Bontex cellulose insole products, particularly to the athletic segment, have also declined because of the trend of increased usage of nonwoven insole materials, an alternative material and construction to cellulose board lasted construction. Nonwoven insole materials are used mainly in force last or strobel-stitch applications, whereas Bontex cellulose products are mainly used in cement or board lasted construction. The overall volume of nonwoven

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