SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1996
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD ___ TO ___
Commission File Number 333-10721
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BRUNSWICK TECHNOLOGIES, INC.
(Exact Name of Registrant As Specified In Its Charter)
Maine 01-0402052
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(State or other jurisdiction (I.R.S. Employer Identification No.)
of Incorporation or organization)
43 Bibber Pkwy., Brunswick, Maine 04011
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (207) 729-7792
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.0001 par value
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes No X
---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the registrant's Common Stock held by
nonaffiliates as of March 24, 1997 was approximately $26,355,119 based on the
closing price as reported on such date on the Nasdaq National Market.
Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock, as of March 24, 1997: 4,547,604 shares of Common Stock,
$0.0001 par value
The following document is hereby incorporated by reference into Part
III of this Form 10--K: The registrant's Proxy Statement for its Annual Meeting
of Stockholders to be held on April 29, 1997, to be filed with the Securities
and Exchange Commission.
PART I
Item 1.
BUSINESS
GENERAL
Brunswick Technologies, Inc. (the "Company") is a technologically
advanced, leading developer and producer of engineered reinforcement fabrics
used in the fabrication of composite materials. The Company's technologically
advanced stitchbonding equipment and processes prepare glass, carbon and other
fibers for combination with resin to produce laminates used in the construction
of such diverse items as boats, skis, diving boards, protective helmets and
ballistic armor applications, car and truck parts, and industrial tanks and
pipes. Since the invention of composite reinforcement fabrics in the early
1940's, these materials have developed broad applicability as substitutes for
wood, steel, and concrete.
Composite products offer substantial benefits over conventional
materials, including: a higher strength-to-weight ratio, greater design
flexibility while maintaining structural integrity, chemically inert properties
and lower maintenance requirements. As a result of their superior features,
composite reinforcement fabrics are increasingly demanded by a growing number of
industries and applications, including transportation, infrastructure,
recreation, petro-chemical and construction. Management believes the use of
engineered composite reinforcement fabrics will continue to grow as the market
is made more aware of the positive features of such materials and as the cost of
more advanced composite fibers such as carbon continues to decline.
The Company's principal strength lies in its innovative quadraxial
single-step stitchbonding fabrication process. Through use of its proprietary
production equipment, the Company can quickly and cost effectively produce
engineered composite reinforcement fabrics in sizes and shapes not otherwise
generally available. Fabrics created from the Company's proprietary
manufacturing process offer characteristics integral to the production of
composite materials in infrastructure, industrial and large scale commercial
applications.
The Company has introduced a number of manufacturing processes that not
only more efficiently create composite reinforcement fabrics, but also optimize
the performance characteristics of such fabrics. In a proprietary single-step
production process, the Company is able to stitchbond fibers in different
directions without diminishing the composite fibers' inherent properties, thus
dramatically improving the structural strength of the reinforcement fabric. This
compares favorably, firstly, with traditional composite fabrics which are woven,
and therefore require the use of more resin to achieve the same degree of
structural integrity, and secondly, with the more costly multi-step processes of
other weft-insertion or stitchbonding manufacturing technologies used by
competitors. In addition, the Company's proprietary, high through-put
manufacturing processes have the ability to produce heavyweight quadraxial
fabrics over 100 inches wide in a single-step, which allows for cost-effective
fabrication of composite parts of up to 10 inches thick. The combination of
these features produces fabrics which enable composite fabricators to
manufacture end-products at competitive costs while maintaining the maximum
structural integrity of these products.
In a move to accelerate the implementation of its strategic business
plan and expand its product line, the Company acquired Advanced Textiles, Inc.
("ATI"), a subsidiary of Burlington Industries, Inc. ("Burlington") on October
30, 1996. ATI, which now operates as a wholly-owned subsidiary of the Company,
produces first generation light-weight composite reinforcement fabrics targeted
towards specialized niche markets. These light-weight fabrics typically sell for
a higher margin than other types of composite reinforcement fabrics. ATI
manufactures these fabrics from fiberglass and other higher modulus fibers such
as carbon and aramid; therefore, ATI's product line complements that of the
Company and, therefore, provides it with an enhanced ability to offer a broader
spectrum of product types. The Company believes that by offering a product line
which satisfies a broader range of composite reinforcement fabric requirements,
it will be better positioned to be the principal provider of these fabrics to
its expanded customer base. The Company believes it will capture additional
market share by cross-marketing its existing products to ATI's customers and
vice versa.
The Company's strategy is to increase revenues and net income through
increasing its domestic and international market share in the composite
reinforcement fabric industry as well as making additional strategic
acquisitions for product and market presence, and engaging in joint projects.
The key elements of this strategy include: (i) targeting additional applications
for composite reinforcement fabrics in the transportation, offshore
petro-chemical and infrastructure sectors; (ii) increasing its international
presence; (iii) continuous innovation of its state-of-the-art manufacturing
processes; (iv) extension of its product offerings further along the value-added
chain towards net shape products and (v) acquiring additional businesses or
engaging in joint projects with companies which complement the Company's
strategy, including the expansion of its manufacturing capacity and the
broadening of its geographic market presence.
INDUSTRY BACKGROUND
Since the invention of composite reinforcement fabrics made from
fiberglass in the early 1940's, various attempts have been made to commercialize
the potential of these fabrics as replacements for wood, steel and concrete.
These diverse pioneering projects include the 1953 Corvette and Wonder Bread
delivery trays from the early 1950's. While these efforts were remarkable for
their day, the potential of these materials did not start to be realized until
the mid 1960's when the recreational boat industry converted from wood to
composite reinforcement fabrics. This development spurred the expansion of the
composite fiber industry from occasional to broad usage in a wide variety of
consumer products such as skis, diving boards and protective helmets, and in
industrial applications, including cars, trucks, ballistic armor applications
and industrial tanks and pipes. Over this period the processes used to create
fabrics composed of composite fibers have dramatically evolved.
Traditionally, reinforcement fibers were woven together to create a
composite reinforcement fabric. The weaving process aligns these fibers along
the zero-to-ninety degree axis, inserting them over and under each other to
create the weave, resulting in the bending of such fibers, or crimping. While
woven fabrics are highly suitable for certain applications such as ballistic
protection, the crimping which occurs in the weaving process reduces each
individual fiber's strength and reinforcement properties. As the mechanical
properties of the composite reinforcement fabric is the key parameter for the
design of the underlying product or application, the integrity of the fiber's
performance defines the amount of such fibers needed to achieve specific
performance specifications. In contrast to weaving, stitchbonding a composite
fabric allows the manufacturer to optimize the fibers' mechanical properties,
thus reducing the volume of fibers required as compared to the weaving process.
The Company's innovative stitchbonding production processes align the composite
reinforcement fibers in a variety of axes. All of this takes place in a single
production step and at high production throughputs, all without crimping the
fiber and thereby avoiding diminishing the fiber's strength. While certain of
the Company's competitors also can offer weft-inserted or stitchbonded
reinforcement fabrics, they generally manufacture their products in multi-step
processes. The competitors' manufacturing processes are more costly due to the
greater number of steps in the process and the lower throughput rate as compared
to the Company's proprietary, high throughput, one-step process.
The first generation of knitted fabrics offered significant strength
advantages compared to woven reinforcements, and thus were able to produce
savings in material usage and weight. These fabrics, however, were priced at a
substantial premium over traditional woven fabrics. Today, lighter-weight
knitted specialty fabrics, such as those manufactured by ATI, have become a
higher-margin, niche product in the composite reinforcement market.
In 1990, the Company introduced a revolutionary new product line,
BiTex(R), the first generation of price-competitive, heavy-weight stitchbonded
reinforcement fabrics. For the first time, weft-inserted or stitchbonded
composite reinforcement fabrics, whose market potential was previously limited
by their high cost, became competitive in numerous composite applications, from
automobile bumpers and one-piece molded commercial aircraft structures to
high-strength consumer products such as boat hulls and skis.
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COMPANY STRATEGY
The Company's strategy to continue its current growth includes the
following elements:
* Successful integration of ATI's operations, products, customer base
and capacity with the Company's existing operations, including the application
of the Company's specialized know-how and technical skills to ATI's
manufacturing capabilities, from which the Company expects to achieve: (i)
cost-savings through economies of scale; (ii) the opportunity for
cross-marketing to both ATI's and the Company's existing customers with a more
complete product line; (iii) rationalization of distribution channels; (iv)
higher manufacturing efficiencies at ATI's production facility; and (v) overall
greater horizontal prevalence in the composite reinforcement fabrics market;
* Continued expansion of its leadership position in the composite
reinforcement fabrics industry, development of new products and processes to
answer the needs of a wide range of industries including the continuing
integration of fabric design elements with the specific needs of composite
fabricators and capitalization upon the Company's position as the only supplier
of composite reinforcement fabrics to develop and manufacture its own production
equipment;
* Pursuit of additional acquisitions to broaden further the Company's
product line as well as manufacturing capacity, product market coverage, and
distribution channels;
* Extension of activities into international markets, in particular
Europe and Latin America, and further expansion into specific product niche
markets with ATI's specialty products;
* Fostering of more joint projects with a wide range of manufacturers
as well as universities and state and federal governments to develop new
composite products incorporating composite reinforcement fabrics; and
* Development of component products which will reduce the steps between
fabric formation and end-user products, and the manufacture of completed
components for certain end-user products.
ACQUISITION OF ADVANCED TEXTILES, INC.
On October 30, 1996, the Company acquired all of the outstanding
capital stock of ATI pursuant to a Stock Purchase Agreement dated as of October
22, 1996 among the Company, Burlington and Peter L. DeWalt, the President (and
partial owner) of ATI. In consideration for the capital stock of ATI, the
Company (i) agreed to pay to Burlington the sum of $600,000 in cash (discounted
to $513,000 using an interest rate of 8.25%) over a two to six year period and
issued to Burlington a convertible subordinated promissory note in the aggregate
principal amount of $7,296,500 (the "Convertible Note"), and (ii) issued to Mr.
DeWalt 5,350 shares of Common Stock.
The acquisition was the result of extensive negotiations between the
Company and Burlington. The Company elected to pursue this acquisition because
it believes that by offering a product line which satisfies a broader range of
composite reinforcement fabric requirements, it will be better positioned to be
the principal provider of these fabrics to its expanded customer base. The
Company believes it will capture additional market share by cross-marketing its
existing products to ATI's customers and vice versa. The Company also believes
that it can apply its specialized know-how and technical skills to ATI's
manufacturing capabilities and achieve cost-savings through economies of scale.
Additionally, the acquisition offers integrated distribution channels and higher
manufacturing efficiencies at ATI's production facility.
The Company intends to integrate the operations of ATI into its
existing operations, and has caused ATI to enter into an Employment Agreement
with Mr. DeWalt. The Company also expects to upgrade certain of the capital
equipment of ATI located in its Seguin, Texas manufacturing facility and
consolidate certain duplicative functions.
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PRODUCTS
The Company currently manufactures composite reinforcement fabrics,
also referred to as stitchbonded or non-crimped fabrics, primarily from glass
fibers, and is distributing them under the BiTex(R) and Cofil(R) trade names.
The Company is continuously researching new methods of producing other types of
composite fabrics and the use of new fibers to create them. The Company's
introduction of its proprietary stitchbonding production processes in 1990
enabled composite reinforcement fabrics to compete more successfully with
conventional materials by reducing such fabric's manufacturing costs, which
previously had been prohibitively high.
ATI was a pioneer in the industry's transition to non-crimped
reinforcement fabrics, although it still produces some woven fabrics for
specific applications, such as ballistic armor applications. ATI's present
product range focuses on high-margin, high-quality, specialty products required
by a wide range of end users. In general, the weft-inserted light-weight and
super-light-weight fabrics that ATI produces are not sold as commodities;
rather, composite manufacturers seek out ATI's products for very specific
applications.
The Company's composite reinforcement fabrics permitted a reduction in
the quantity of fibers used and the consequential reduction in the quantity of
resin required, leading to significant reductions in cost for equivalent
mechanical performance. The Company believes that it is currently the only
supplier of composite reinforcement fabrics which develops and manufactures its
own production equipment. The Company's proprietary production processes allow
it to offer composite reinforcement fabrics of varying weights, widths and fiber
orientations, and to produce fabric at unrivaled efficiencies. Furthermore,
these fabrics can be engineered to respond to a customer's specific
requirements. The Company's experience indicates that these proprietary
processes can be successfully applied to other base materials, allowing for
production of reinforcement fabrics from various carbon, aramid and other
fibers. The Company's current output is presently used by end-product
manufacturers to build a wide range of products, including boats, diving boards,
snowboards, swimming pools, truck bodies, ballistic protection products and
corrosion sensitive vessels.
Engineered composite reinforcement fabrics offer significant advantages
over other currently used materials:
* Strength-to-Weight Ratio. Composite products possess a
strength-to-weight ratio much higher than that of steel, wood or concrete.
Composite reinforcement fabrics are uncommonly strong for their weight and
density. Use of these materials in transportation industries provides for
substantial fuel savings and greater payload capacity. The marine market is the
most mature of the industries currently using composite reinforcement fabrics.
Truck and railcar manufacturers are developing bodies made out of these
materials. Certain light-weight woven fabrics offer high energy-absorbtion
characteristics and, therefore, are ideal for ballistic shielding applications.
Furthermore, due to their inherent strength-to-weight ratio, construction
materials can be built from reinforcement fabrics in both load and no-load
designs and in shapes too complex to be built from much heavier metals. The
Company is working in a joint development project to develop products for
infrastructure applications such as bridges and reinforced column wrapping for
earthquake protection.
* Longer Life-Cycle. Products produced from composite reinforcement
fabrics do not rust or rot, are chemically inert, non-conductive and generally
maintenance free, making their life-cycles significantly longer than those of
steel, concrete or wood. These features allow use of composite reinforcement
fabrics in environmentally corrosive situations, such as salt water immersion or
highway construction. Accordingly, these products are increasingly used in
finished products such as marine pilings, telephone poles, one-piece septic
tanks, guardrails, building columns, bridge columns, and bridges. The housing
industry is using these materials in construction, both residential and
commercial.
* Greater Safety. Products produced with composite reinforcement
fabrics do not suffer from the disintegration failures suffered by steel and
concrete. Moreover, composite materials offer significantly greater high-energy
impact absorption, and their one-piece fabrication means that no weak seams need
to be introduced into the part. The Company is working with its customers to
develop products made from composite reinforcement fabrics which will offer
non-varying mechanical strength and stiffness through the entire life-cycle of
the product, and to lower the risk of continuous deterioration and degradation
of strength, which can be caused by metal fatigue in steel
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or environmental erosion in concrete. These tougher products are being developed
for use in automotive and highway safety applications, bullet-resistant
applications, structural support, and as components of deep-sea oil drilling
platforms.
* Design and Process Freedom and Efficiency. Composite reinforcement
fabrics can be molded in tremendously flexible ways, allowing the creation of
complex parts. Manufacturers assembling final products using these materials are
able to use one part, formed in a complex shape, instead of having to use two or
more simpler parts formed from metals. This obviously results in significant
cost savings, in both material and labor costs. Architecturally, designers can
create shapes that would not otherwise be buildable from conventional
construction materials. Furthermore, many final products, through weight
savings, can be installed in one piece, such as septic tanks. Other ongoing
projects include the development of on-site fabrication of parts using new
injection molding and bonding techniques.
* Environmental Benefits. Use of the Company's stitchbonded products
reduces the amount of resin required to manufacture the end-product, resulting
in the decreased release of volatile organic compounds by end-product
fabricators. The use of composite reinforcement fabrics in products which
substitute for wood, steel or concrete can diminish the amount of chemicals
released in the environment. For example, marine pilings and telephone poles
constructed of composite materials would not be treated with arsenic or other
toxic substances presently required to provide adequate product cycle life to
wood products. Due to their high strength-to-weight ratios, composite
reinforcement fabrics offer the transportation industry substantial fuel savings
and permit the transport of greater payloads due to increased truck capacity.
The construction industry is starting to use these fabrics as a shield from
noise, heat, weather, and electro-magnetic interference. These products can be
highly insulating, in addition to their chemically non-reactive nature, making
them ideal for use as pipes, tanks and ducting, especially in corrosive
situations. The paper and petrochemical industries are starting to use these
types of products in hostile environments.
PRODUCT ENGINEERING, MANUFACTURING AND DEVELOPMENT
The Company believes that its strongest competitive advantage is its
technical and developmental know-how. The principal reasons for its progress in
technical development thus far are the quality of its product design and its
engineering and manufacturing capabilities. These capabilities enable the
Company to design and engineer products that meet or exceed end-product
manufacturers' performance and reliability specifications. The Company believes
that it has created and will continue to create know-how and technology to
manufacture products at lower costs than its competitors by pursuing its
engineering and manufacturing development in-house. The quality of the
technology and know-how of a business or product line is an important factor in
the Company's evaluation of potential acquisition candidates.
The Company's operations utilize current-generation computer systems
for product design and documentation as well as for performance testing. A key
to the Company's ability to reduce manufacturing cost has been the reduction of
direct labor through the introduction of its proprietary single-step, automated
or semi-automated manufacturing processes.
The Company believes that its ability to produce fabric in a single
step at 20 feet/minute is the fastest in the composite reinforcement fabrics
industry. It also believes that it has the unique capacity to produce quadraxial
reinforcements over 100 inches wide in a single step. The Company's proprietary
capabilities allow composite reinforcement fabrics to be produced by
continuously placing reinforcement fibers in layers at different angular
orientations and concurrently stitching them together to achieve certain desired
properties, depending upon the application, such as greater carrying capability
and corresponding strength. The Company's machines are capable of producing
reinforcements in five different directions/orientations and planes or any
combination thereof.
The Company has continued to build on the success of its BiTex(R)
product line, and has introduced the following product and process innovations:
* First commercial binderless mat production process introduced in 1990;
* First single-step quadraxial products introduced in 1992;
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* First 100+ inch-wide single-step quadraxial fabrics commercialized in
1993; and
* First capability to produce, in a single-step, 150 inch 0-90 degree
binderless mat product, and commercialization of same in 1994.
The Company believes that it can apply its technical and developmental
expertise to ATI's operations. Management expects that the application of the
Company's engineering and design ability to ATI's current weft-insertion
equipment and manufacturing process should result in a greater range of
light-weight and super-light-weight specialty products, which would be
manufactured with greater efficiencies. The Company intends to upgrade certain
of ATI's machinery at the earliest appropriate time and to increase the
throughput of ATI's manufacturing facility.
With the acquisition of ATI, the Company expects that its manufacturing
operations, which include 22 production machines and facilities aggregating
approximately 90,000 square feet will be sufficient for approximately the next
30 months, supplemented by a certain amount of capital expenditures to update
certain of ATI's equipment and to purchase additional equipment. The Company has
not experienced any material shutdowns in its history.
The Company invests in product development to meet and anticipate
customer requirements. The Company also undertakes end-product
manufacturer-sponsored or joint sponsored product development contracts.
Accordingly, the Company's development activities are generally product or
program specific. The Company spent $373,955, $408,247 and $498,038 on both
Company-sponsored and customer-sponsored research and development in the fiscal
years ended December 31, 1994, 1995 and 1996, respectively.
Certain of the Company's current research and development activities
are directed toward producing new processing equipment which can manufacture in
a single step composite reinforcement fabrics double the weight of those
currently produced by the Company.
Certain other of the Company's research and development activities are
focused upon manufacturing processes and equipment so that the Company might
produce certain end-user products. Such equipment may mold or "net-shape"
composite fabrics into specific shapes or continuous forms such as piping or
tubular structures on-site.
MARKETING AND SALES
The Company's competitive position in the marketplace is dependent upon
its continuing ability to design innovative processes to generate products for
specific composite fabricator applications. The Company's marketing philosophy
is to have a team of employees work directly with prospective and active
composite fabricators. The Company markets its products primarily through its
own marketing and sales force directly to composite fabricators either
individually or at trade shows.
Although 89%, 78% and 76.3% of the Company's gross sales were made
through four distributors (GLS Corporation, M.A. Hanna Resin Distribution,
Plastic Sales, Inc. and RP Associates) in 1994, 1995 and 1996 (not including
sales made by ATI), respectively, each distributor is comprised of a subset of
multiple regional distributors. As to GLS Corporation, the Company made sales of
$4,934,489, $7,357,071 and $9,506,427 in 1994, 1995 and 1996, respectively. As
to M.A. Hanna Resin Distribution, the Company made sales of $1,738,229,
$2,499,410 and $2,157,908 in 1994, 1995 and 1996, respectively. As to Plastic
Sales, Inc., the Company made sales of $850,598, $914,399 and $1,053,091 in
1994, 1995 and 1996, respectively. As to RP Associates, the Company made sales
of $1,422,262, $1,985,714 and $2,262,759 in 1994, 1995 and 1996, respectively.
In 1994, 1995 and 1996 the Company made 4.3%, 9.8% and 12.0% respectively of its
sales directly to composite fabricators.
The four largest purchasers of ATI's products accounted in the
aggregate for 76%, 75% and 80% of ATI's net sales for the fiscal years ended
October 1, 1994, September 30, 1995 and September 28, 1996, respectively. FRP
Supply, Inc., ATI's largest customer, accounted for approximately 53% of ATI's
net sales, or $5,559,289, $5,876,330, $5,286,161, respectively, for each of the
last three fiscal years. S-2 Yachts accounted for net sales of $1,215,889,
$961,000, and $905,071 for each of ATI's last three fiscal years. General
Fiberglass accounted for net sales of $891,249,
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$731,982, and $651,087 for each of ATI's last three fiscal years. Fibercast
accounted for net sales of $694,903, $668,207, and $698,222 for each of ATI's
last three fiscal years. In ATI's 1994, 1995 and 1996 fiscal years, it made 34%,
37% and 36%, respectively of its sales directly to composite fabricators.
Management believes that the key to the Company's sales and marketing
strategy is the development of long-term relationships with end-product
manufacturers through its team approach of combining product development and
sales. The Company's production and sales managers work with sales staff in all
markets to develop products for particular end-product manufacturers. The
Company believes that its recent acquisition of ATI will enable it to market a
greater spectrum of products to a wider group of distributors and end-product
manufacturers, including ATI's distributors and customers. In addition, certain
of the products currently being sold by the Company will be available for sale
to the former customers of ATI.
SUPPLY
There are only three significant suppliers from which the Company may
purchase its fiberglass requirements: PPG Industries, Inc., Owens-Corning
Fiberglass, Inc. and Vetrotex. The Company was party to a contract with Vetrotex
which expired in August 1996 pursuant to which Vetrotex was required to supply,
and the Company was required to purchase, 90% of its fiberglass requirements.
Even though the supply contract has expired, the Company currently purchases
over half of its fiberglass requirements from Vetrotex under terms substantially
the same as those of the expired supply contract. The Company believes that it
is a significant purchaser of fiberglass strands from Vetrotex and the Company
and Vetrotex have mutually expressed an interest in negotiating a new supply
contract. The Company is negotiating with, and purchasing from, additional
vendors to ensure a continued supply of fiberglass for its production needs. The
Company believes that the acquisition of ATI may improve its ability to
negotiate more favorable terms with its suppliers because it will be purchasing
larger gross amounts of raw materials. The Company's ability to operate and to
grow is dependent upon its ability to obtain an adequate supply of fiberglass.
BACKLOG
The Company's backlog as of December 31, 1996, was $957,214, or
approximately 2.6 weeks of sales. Backlog as of December 31, 1995, was
approximately $2,919,400, or approximately 8.2 weeks of sales. In December 1995,
over $1,216,000 of the backlog consisted of orders that were past their shipping
date as a result of capacity and raw material constraints present in the market
at the time. This caused distributors and customers to hedge against future
shortages and place additional orders, which drove the backlog to very high
levels. In the second quarter of 1996, backlog returned to more historic levels
as fiberglass supplies became more plentiful.
Due to the capacity and raw material constraints present in the market
in the first quarter of 1996, the Company's net sales were increased as its
distributors built their inventory levels to cushion against the industry-wide
supply shortage that existed throughout 1995. In the second quarter of 1996, the
Company's distributors reduced their inventory in response to the general
availability of fiberglass, thereby contributing to a reduction in the Company's
net sales to $4.4 million from $4.7 million in the first quarter of 1996. A
decrease in net sales to $4.25 million occurred for the same reasons in the
third quarter of 1996. Management estimates that during the remainder of 1996
its distributors maintained an approximate three-week supply of composite
reinforcement fabrics as opposed to an approximate twelve-week supply in the
second quarter of 1996. Management expects this trend of returning to historic
distribution supply levels to continue as long as fiberglass supplies remain
plentiful.
The industry-wide shortage of fiberglass was caused by increasing
demand and insufficient capacity to meet the demand. The demand increase caused
fiberglass suppliers to take action to increase their production capabilities.
To increase such capabilities, however, fiberglass suppliers needed to reduce or
stop their output temporarily, in order to modify their production equipment and
furnaces. Such shut-downs or slow-downs exacerbated the supply shortage.
JOINT PROJECTS
In February 1995, the Company entered into a Collaborative Agreement
with E.I. du Pont de Nemours and Company, Inc. ("DuPont"), Hardcore Composites
Ltd. ("Hardcore"), The Dow Chemical Company and Johns
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Hopkins University under the Federal Advanced Technology Program to develop
agile heavyweight composites for large civil bridge infrastructure applications.
For its part in the cooperative project, the Company was awarded up to $750,000
in matching funds over three years as part of a $13.5 million grant from the
U.S. Department of Commerce and the National Institute of Standards and
Technology. The project is directed toward the study of the manufacturing
competency of composites produced with Seeman Composite Resin Infusion Molding
Process (SCRIMP) technology (a process of layering dry fabric and drawing resin
through the layered fabric with the use of vacuum pressure) and their ability to
increase the life of large structures such as bridges, while reducing such
structures' cost and weight. The Company believes that the project will also
assist in the development of cost-effective design and manufacturing
technologies for composite materials that can be used to build other large
structures which are strong, lightweight, and resistant to corrosion and seismic
shock. In addition to being the sole supplier of composite fabrics for the
project, the Company has undertaken to try to develop enabling technology which
would enhance the speed, quality and cost-effectiveness of composite
reinforcement fabric production. To accomplish this goal, the Company is working
towards developing machinery, procedures and alternative methods of bonding
together reinforcement fabrics. The project participants are also working
towards the development of a prototype system which would allow rapid style
changes and the production of fabrics with variable widths.
The entire budget of the program contemplated by the Collaborative
Agreement is approximately $1,547,000, which is to be spent over three years.
The Company has estimated that the cost to complete this program to be
approximately $772,000, with the Company being responsible for half of that
amount. The remaining $386,000 cost will be supplied by a grant from the
National Institute of Standards and Technology. The Company is responsible for
adherence to applicable federal laws and regulations covering both federal funds
and non-federal funds, including allowability of costs.
The parties to the Collaborative Agreement have mutually agreed to
protect each other's proprietary information for a period of five years. Any
technology jointly developed in the performance of the Collaborative Agreement
("Program Technology") is to be owned jointly by the project participants, with
the right to use the same on an unrestricted basis. The Program Technology may
also be subject to a non-exclusive, non-transferable paid-up license to the
United States government which may not publicly disclose any proprietary
information relative to the Program Technology.
The Company is also involved in a collaboration with Hardcore DuPont
Composites LLC ("Hardcore DuPont"), a joint venture between Hardcore and DuPont,
wherein the Company provided the engineered composite fabric for the manufacture
of two railroad cars using the SCRIMP process. These successful prototypes have
permitted the consortium comprised of Hardcore DuPont, Burlington Northern and
Trinity Industries to propose a project for the industrial manufacture of
railroad cars using the Company's composite fabric.
In October 1995, the Company began a joint venture project with the
University of Maine ("UM") to develop a composite plywood alternative utilizing
waste wood fibers from the paper industry (the "Composite Panel Project"). The
project is funded in part by the Center for Technology Transfer ("CTT"), a
non-profit partnership among the Maine Science and Technology Foundation, UM,
the University of Southern Maine, the Maine Technical College System, and
certain companies in Maine operating in the metals and electronics industries.
Funding for CTT is provided by a grant from the U.S. Department of Energy under
its Experimental Program to Stimulate Competitive Research (EPSCoR). The project
was undertaken as part of a proposal to develop hybrid (wood and fiberglass)
composite structural panels which have commercial application for the
construction industry. The goal is to develop products that will be cost
competitive with traditional wood products. The Company and UM will individually
own the intellectual property rights to any technology developed separately, and
will own jointly any intellectual property rights arising from technology
developed together. Furthermore, UM agreed to license to the Company any and all
of its intellectual property rights arising from the project, on an exclusive,
world-wide, and reasonable basis.
Together with UM, the Company is required to furnish all personnel,
facilities, materials and services to complete the Composite Panel Project. The
cost sharing obligation of the Company for the project is $29,376 cash match and
$14,663 in-kind match. UM and the Company are required to pay back $113,587 as a
contribution to CTT out of profits generated from the activities of the project,
payable from revenues to the Company from net sales of
-8-
new products developed under the project or revenues UM or the Company derive
from license fees or royalties on the use of intellectual property developed
thereunder.
The Department of Defense has awarded funding through the 1995 Defense
Experimental Program to Stimulate Competitive Research (DEPSCoR) to UM relative
to a study of the dynamics of thick composite structures. The Company has agreed
to provide the project with industrial composite expertise, laminate
engineering, reinforcement materials, composite fabrication through
subcontracts, and participation through analytical reviews and program
management reviews. The Company will also provide up to $45,000 of in-kind
support to UM for this project. While the Company does not expect to generate
material profits from this project, it will provide the Company with valuable
experience and modeling techniques for the use of the Company's heavyweight
fabrics in the Naval, off-shore oil, sub-marine and waterfront infrastructure
materials markets.
The Company is currently working with ABB Offshore Technology ("AOT"),
a division of ASEA Brown Boveri S.A. in AOT's development of a full range of
composite well head covers and pipe protection structures for the offshore oil
and gas industry constructed from advanced engineered composite reinforcement
fabrics. These lightweight structures range in size up to 90' by 90' by 90' and
would replace corrosion-prone heavy steel structures.
In December, 1996 the Company entered into an agreement with Norsk
Hydro A.S., one of the largest North Sea oil operators pursuant to which the
parties will identify opportunities for the application of the Company's
technology to new markets, including the use of composite structures in the
off-shore oil industry, with the aim of developing strategies to address such
opportunities.
Funding for each of these projects is part of the Company's regular,
on-going research and development expense. Except for Hardcore DuPont, a
participant in the NIST project, and North End Composites, a subcontractor in
the DEPSCoR project, the Company does not have any supply arrangements with the
entities involved in these projects.
COMPETITION
The Company's principal competitors are producers of woven
reinforcement fabrics and other producers of stitched or weft-inserted
reinforcement products. Competition is based on price, product performance and
customer support. The Company's continued success will depend in part on its
ability to continue to develop and introduce cost competitive quality products
that meet or exceed end-product manufacturer requirements.
There is no competitor that manufactures products that are
substantially similar to or competitive with all of the Company's products.
However, there are competitors for each of the Company's products and the
Company believes that there are only two companies remaining after its
acquisition of ATI that have significant shares of the stitched or weft-inserted
reinforcement markets. These are Johnston Composite Industries, a subsidiary of
Johnston Industries Inc., and Knytex, a subsidiary of Owens-Corning Fiberglass.
The Company believes that it has one of the largest shares of the United States
market for weft-inserted or stitchbonded (non-crimped) composite reinforcement
fabrics.
EMPLOYEES
As of December 31, 1996, the Company had 127 full time employees, of
whom 103 were employed in engineering and manufacturing, 10 in sales and
marketing and 14 in administrative and management functions. No employees are
represented by unions.
INTELLECTUAL PROPERTY
Although the Company has three registered trademarks and owns two
patents relating to its product, the Company relies almost entirely upon
unpatented technology in its production processes. The Company relies in part
upon state and federal trade secrets and unfair competition laws to protect its
intellectual property. Management's philosophy is to patent only those processes
as to which the process may be determined when analyzing the product
-9-
produced. There can be no assurances that the Company can adequately protect its
rights in such unpatented proprietary technology or that others will not
independently develop substantially equivalent or better proprietary information
or techniques, or otherwise gain access to the Company's proprietary technology
or disclose such technology. The Company will seek additional protection for
newly developed intellectual property as deemed appropriate. One patent, which
expires in September 2011, relates to a bound and structurally reinforced
thermoplastic multi-layer composite fabric which is moldable. No product
relating to this patent has yet been commercialized. Although the other patent,
which expires in December 2009, relates to a manufacturing process
commercialized by the Company, management believes that it would be very
difficult to assess whether a competitive product was produced by a process
which infringes the process covered by such patent.
Hexcel Corporation, formerly named Knytex, Inc. ("Hexcel") sued ATI in
1988 in the United States District Court for the Western District of Texas ("the
Court"). The suit concerned certain obligations of ATI's then president (the
"Employee"), who had been previously employed by the parent of Hexcel (the
"Employer"). The Employee, while working for the Employer, had co-invented a
structural reinforcement fabric in the form of a double-bias fabric and a
continuous double-bias process for making such double-bias fabric. The
co-inventors filed a patent with respect to the bias process invention (the
"Patent"). The co-inventors assigned the Patent application to Hexcel. The
Employee also signed agreements with the Employer relative to the nondisclosure
of inventions made by him while in the employ of Employer to others outside the
Company. Following Employee's separation from Employer in 1983, the Employee,
Peter L. DeWalt and Burlington formed ATI, and the lawsuit concerned certain of
ATI's production processes.
The judgment and order resulting from the lawsuit concluded that a
manufacturing process used by ATI infringed the Patent and that ATI and the
Employee were liable for misappropriation of trade secrets due to ATI's use of
double- and triple-bias fabric processes. The court awarded Hexcel lost profits
adjudged to be approximately $2.24 million plus interest and attorneys' fees.
ATI ultimately paid Hexcel approximately $3.1 million in May, 1992, upon losing
its appeal of the judgment. The Court also found that when ATI changed its
process in 1988, it discontinued the use of the processes at issue, and
therefore, the Court issued no injunction.
Item 2.
PROPERTIES
The Company's executive offices and major manufacturing/warehouse
facility is located in a facility in Brunswick, Maine, of approximately 50,000
square feet which was completed in March 1996. The Company leases the property
from Brunswick Development Corporation ("BDC"), a Maine corporation wholly owned
by the town of Brunswick. The Company's lease is for a term of 10 years and
commenced on January 1, 1996, with an option to extend the term for one
additional five-year period. The Company also has an option to purchase the
facility at any time between the conclusion of the fifth year of the current
lease and the end of the lease, at an option price equal to the greater of fair
market value of the facility or the residual debt payable by BDC on the bonds
issued to finance the construction of the facility. The Company may, however,
consider the purchase of the property prior to the option date, which purchase
would require the consent of the bond holders. The rent for the facility is
$181,500 annually for the first five years of the lease; the lease provides for
periodic scheduled rent increases, with a final annual rent of $206,000 for the
last year of the current lease.
With the acquisition of ATI, the Company acquired approximately 40,000
square feet of manufacturing, office and warehouse space in Seguin, Texas,
including the underlying real estate. ATI is currently using this space for its
operations.
The Company also maintains 10,400 square feet of warehouse space at
another location in Brunswick, Maine, for which it pays rent of $44,495 per year
and 6,000 square feet of warehouse space in Seguin, Texas, for which it pays
rent of $6,900 per year.
-10-
Item 3.
LEGAL PROCEEDINGS
The Company is involved from time to time in litigation incidental to
its business. The Company is not party to any material pending legal
proceedings.
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5.
MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's shares of Common Stock (trading symbol: BTIC) have been
quoted and traded on the Nasdaq National Market tier of the Nasdaq Stock Market
since February 5, 1997. The initial public offering price for the Common Stock
was $9.50 per share. The following table sets forth the high and low sale prices
as reported by Nasdaq for the fiscal period indicated:
1997 High Low
------------------ -------- -----
First Quarter(1) $10 7/8 $9 1/2
(1) For the period from February 5 (initial public trading day) through
March 24, 1997.
The approximate number of stockholders of record of the Company's
Common Stock as of March 24, 1997 is 86.
To date, the Company has not paid any dividends on its Common Stock.
The Company currently intends to retain future earnings to finance the growth
and development of the Company's business and does not anticipate paying any
dividends in the foreseeable future. The payment of dividends is within the
discretion of the Board of Directors and will depend upon the Company's
earnings, its capital requirements, financial condition and other relevant
factors. Under the terms of its existing bank loan agreements, the Company may
not pay dividends without the consent of the lender.
-11-
Item 6.
SELECTED FINANCIAL DATA
The selected financial data set forth below for each of the Company's
fiscal years ended December 31, 1993 and 1994 and at December 31, 1994 are
derived from the financial statements of the Company audited by KPMG Peat
Marwick LLP, independent public accountants, which are included elsewhere in
this Report. The selected financial data set forth below for the Company's
fiscal years ended December 31, 1995 and 1996 and at December 31, 1995 and 1996
are derived from the financial statements of the Company audited by Coopers &
Lybrand L.L.P., independent accountants, which are included elsewhere in this
Report. The selected financial data set forth below for ATI's fiscal years ended
September 30, 1994, 1995 and 1996 are derived from the financial statements of
ATI audited by Ernst & Young LLP, independent accountants, which appear
elsewhere in this Prospectus. The selected financial data set forth below for
ATI for the fiscal years ended 1992 and 1993 are derived from the unaudited
financial statements of ATI, and in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of financial position and the results of operations. The
selected financial data set forth below should be read in conjunction with the
Financial Statements and Notes thereto and with MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS appearing elsewhere in
this Report.
<TABLE>
<CAPTION>
BRUNSWICK TECHNOLOGIES, INC.
Years Ended
December 31,
--------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales ....................... $ 4,701 $6,376 $9,596 $15,476 $19,816
Cost of goods sold .............. 3,700 4,996 7,382 11,979 15,318
Gross profit .................... 1,001 1,380 2,214 3,497 4,498
Other operating expenses ........ 971 1,258 1,874 2,492 3,521
Moving costs .................... - - - 9 248
Facility repair costs ........... - - - 150 (148)
----- ----- ----- ----- -----
Operating income (loss) ......... 30 122 340 846 877
Other income (expense), net ..... (27) (11) (26) (61) 51
----- ----- ----- ----- -----
Income (loss) before income taxes 3 111 314 785 928
Income tax benefit (expense) .... - - - 122 (335)
----- ----- ----- ----- -----
Net income (loss) ............... 3 111 314 907 593
----- ----- ----- ----- -----
Preferred stock dividend ........ (269) (332) (450) (450) (450)
Accretion of preferred stock
redemption value .............. (51) (71) (76) (82) (69)
----- ----- ----- ----- -----
Net income (loss) attributable to
common stock .................. $ (317) $ (292) $ (212) $ 375 $ 74
===== ===== ===== ===== =====
Pro forma earnings per common share $ 0.26 $ 0.17
===== =====
Pro forma weighted average common
shares outstanding ............ 3,460 3,498(2)
===== =====
At December 31,
--------------------------------------------
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
(in thousands)
BALANCE SHEET DATA:
Working capital ................. $ (252) $ 548 $ 631 $ 905 $ 1,412
Total assets .................... 2,472 4,338 5,665 7,867 18,634
Long-term liabilities ........... 460 337 1,177 1,069 8,975
Total liabilities ............... 1,810 1,873 2,886 4,168 14,289
Preferred stock ................. 2,918 5,012 5,538 6,070 6,589
Stockholders' equity (deficit) .. $(2,256) $(2,547) $(2,759) $(2,371) $(2,244)
===== ===== ===== ===== =====
- ------------------
</TABLE>
(1) Reflects the consolidation of the operations and financial condition of ATI
with those of the Company for the last two months of 1996.
(2) Calculation is shown in Note 1 of Notes to Financial Statements of the
Company.
-12-
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
GENERAL
The Company is a leading developer and producer of engineered
reinforcement fabrics used in the fabrication of composite materials. Since the
invention of composite reinforcement fabrics in the early 1940's, these
materials have developed broad applicability as substitutes for wood, steel, and
concrete. The Company's principal strength lies in its innovative quadraxial
single-step stitchbonding fabrication process.
ACQUISITION OF ADVANCED TEXTILES, INC.
On October 30, 1996, the Company acquired Advanced Textiles, Inc.
("ATI"), a subsidiary of Burlington Industries, Inc. ("Burlington") for a total
acquisition cost of $8,539,000, payable through the issuance of a note
($7,296,500) convertible into the Company's common stock, $0.0001 par value (the
"Common Stock") at the initial public offering ("IPO") price of $9.50 per share;
deferred cash payments discounted to $513,000; the issuance of Common Stock
valued at $53,500 to a minority shareholder in ATI; cash payments of $351,000;
and acquisition costs of $325,000. The acquisition is being accounted for under
the purchase method of accounting. The fair market value of the assets acquired
is estimated at $3,178,000, resulting in goodwill of $5,361,000 which amount
will be amortized over 20 years.
The operations of ATI for November and December 1996 are included in
the 1996 consolidated statements of income and cash flow while ATI's net assets
are included in the December 31, 1996 consolidated balance sheet and statement
of stockholders' deficit. All intercompany transactions have been eliminated in
the consolidated financial statements. Except where noted, the discussion below
is directed at 1996 operations so consolidated. ATI contributed $1,723,573,
$380,162, $105,527, and ($9,890) of net revenue, gross margin, operating income
and net (loss) respectively to the 1996 consolidated statement of income. The
ATI operations for the two months (November and December of 1996) resulted in a
net loss due to the amortization of goodwill ($51,137) and the interest expense
on the debt to Burlington ($122,582). On February 10, 1997, upon the closing of
the Company's IPO, one half of the convertible subordinated note to Burlington
($3,648,250) was paid. This will reduce interest expense by $28,882 a month.
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage
of net sales:
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net Sales....................................... 100.0% 100.0% 100.0%
Cost of goods sold.............................. 76.9 77.4 77.3
----- ----- -----
Gross Profit.................................... 23.1 22.6 22.7
Selling, general and administrative expenses 15.6 13.5 15.2
Research and development expenses............... 3.9 2.6 2.5
Moving costs.................................... 0.0 0.0 1.3
Facility repair cost............................ 0.0 1.0 (0.7)
----- ----- -----
Operating income................................ 3.6 5.5 4.4
Other income (expense):
Interest expense........................... (0.2) (0.8) (1.3)
Miscellaneous, net.............................. (0.1) 0.4 1.6
----- ----- -----
(0.3) (0.4) 0.3
----- ----- -----
Income before income tax........................ 3.3 5.1 4.7
Income tax benefit (expense).................... 0.0 0.8 (1.7)
----- ----- -----
Net income...................................... 3.3% 5.9% 3.0%
===== ===== =====
</TABLE>
-13-
1996 COMPARED TO 1995
Net Sales, Cost of Goods Sold, and Gross Profit. The percentage
increases and per pound values in the net sales, cost of goods sold and gross
profit accounts (all excluding ATI) between 1994 and 1996 are shown below.
<TABLE>
<CAPTION>
1994 % Increase 1995 % Increase 1996
---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C>
Pounds sold 7,718,727 54.1% 11,892,012 9.0% 12,962,646
Net sales $9,596,578 61.3% $15,476,424 16.9% $18,092,138
Average price per pound $1.243 4.7% $1.301 7.3% $1.396
Cost of goods sold $7,382,285 62.3% $11,978,978 16.7% $13,974,208
Average cost per pound $0.956 5.3% $1.007 8.0% $1.078
Gross profit $2,214,293 57.9% $3,497,446 17.7% $4,117,930
Gross profit per pound $0.287 2.5% $0.294 8.2% $0.318
</TABLE>
Revenues have increased during the periods presented due to continued
increases in the number of end uses of the Company's products as well as
increases in market share for existing end use applications. Sales increases
have been experienced in all of the major industry sectors using the Company's
products: marine, transportation, infrastructure, recreational and industrial.
Sales within the periods have been affected by fluctuations in the
general availability of the raw material of fiberglass strands used by the
Company in its manufacturing process. With ample supply of fiberglass (which
occurred in 1996), the Company's customers tend to reduce their inventories on
the basis that supplies are readily available. This resulted in Company sales
for 1996 being adversely effected as customer inventories were reduced to two to
three weeks of use compared to significantly higher customer inventory levels in
1995.
The increases in cost of goods sold and gross profit for 1996 were in
line with the increases in net sales for the year.
Operating Expenses. Operating expenses for 1996 were affected by the
inclusion of two months of ATI's operations. Selling, general and administrative
expenses for 1996 increased by $937,528 or 45%. Within this category, selling
expense increased $216,404 or 34.9%. Salaries and travel accounted for $62,230
and $80,045 of the selling expense increase respectively. Marketing expense
increased $43,594 or 58.3% primarily as a result of special marketing programs.
General and administrative expense (G&A) increased $385,054 or 55.8%. Within
G&A, salaries increased by $106,843 or 39.4% due to increased number of
employees as well as wage rate increases. Also in G&A, property taxes increased
by $32,370 due to the relocation to the new building in Brunswick and the
addition of a new machine; bad debt expense increased by $18,320; and $51,137 in
goodwill amortization resulted from the purchase of ATI.
Moving costs reflect the cost of moving to the new Brunswick facility
which move was completed in the first half of 1996. In connection with the move
to the new facility, the Company recorded in 1995 an expense of $150,000 to
cover the expenses estimated to be incurred for the restoration of the
facilities being vacated. The repairs thought to be required when the expense
was recorded did not materialize and therefore the unexpended amount of $147,545
was recognized as an addition to operating income in June 1996 which offset, to
some extent, other increases in operating expenses.
Research and development expenses increased by $89,791 or 22.0%. A
large increase in this expense grouping was a $16,844 increase in outside
professional fees.
Other Income. The increase in the interest expense is due to the
interest on the debt to Burlington for November and December 1996 in the amount
of $122,582. Reimbursement of expenses related to expenditures on new
technologies from a grant from the National Institute of Standards and
Technology ("NIST") in the amount of $426,070 was included as a benefit to the
1996 Statement of Income. Cost of goods sold was credited for $93,638 of this
amount while $332,432 was credited to other income. The reimbursement of certain
expenditures from this grant resulted in a credit of $34,266 to cost of goods
sold and recognition of $66,742 as other income in the 1995 period.
-14-
Income Taxes. In 1996, the Company recorded income tax expense at an
effective rate of 36%. In 1995, an income tax benefit of $121,900 was recorded
due to the elimination of a valuation allowance which had been established
because of uncertainties that existed with respect to the realization of income
tax benefits.
1995 COMPARED TO 1994
Refer to the table in the section above comparing 1996 to 1995 for a
summary of the changes in the net revenue and cost of goods sold accounts for
1995 compared to 1994.
Net Sales. The increase in net sales was attributable primarily to
volume increases and favorable product mix gains.
Operating Expenses. Selling, general and administrative ("SG&A")
expenses increased $584,593, or 39%. Wage expense increased in all expense
classifications due, to a large degree, to the increase in total employees from
49 at year end of 1994 to 65 at year end in 1995. Shipping expenses are
classified within the SG&A caption throughout the financial statements and were
favorably impacted by an increase in the capacity of trucks used per shipment as
well as results from improved rates from the carrier. Also within the SG&A
category, selling and marketing expense increased by $168,155, from $525,883 in
1994 to $694,038 in 1995. This was primarily due to an increase in wage expense
of $70,534 from $190,548 to $261,082. In addition, there was an increase of
$35,835 from $8,623 in 1994 to $44,458 in 1995 in outside consulting fees for
marketing services. General and administrative expense increased by $204,751.
This was primarily due to an increase in wage expense of $98,068.
Income Taxes. The Company received an income tax benefit of $121,900 in
1995 due to the elimination of a valuation allowance which had been established
because of uncertainties that existed with respect to the realization of income
tax benefits. During 1995, the uncertainties were significantly reduced as the
Company reported substantially higher taxable income suggesting that more likely
than not, the Company's income tax benefits would be fully realized.
LIQUIDITY AND CAPITAL RESOURCES
INITIAL PUBLIC OFFERING. On February 10, 1997, the Company issued and
sold 1,700,000 new shares of its Common Stock in its IPO. As part of the IPO, a
stockholder which owned a large percentage of the Company sold 800,000 of its
shares to the public so that the total sale to the public was 2,500,000 shares.
The price to the public was $9.50 per share. After selling commissions of 7%,
the Company realized proceeds of $8.835 per share or $15,019,500. Expenses
associated with the offering were approximately $1 million so that net proceeds
were about $14 million. In accordance with the terms of the note to Burlington,
upon the closing of the IPO, 50% of the note was redeemed in the amount of
$3,648,250 plus accrued interest of $94,954. Bank debt totaling $2,693,960 was
also paid with the IPO proceeds. The Company plans to use about $3 million over
the next two years to expand its manufacturing capacity through the purchase of
additional capital equipment and another $100,000 for capital improvements at
its plant in Texas. It is expected that the remainder, approximately $4.5
million, will be used for general corporate purposes, including research and
development and possible additional acquisitions of complementary businesses and
product lines.
In connection with the IPO, the Company was recapitalized as follows:
all shares of Common Stock were split on a 33 for 1 basis; all shares of the
Company's preferred stock, converted into shares of Common Stock on a 33 for 1
basis; the holders of preferred stock were issued in the aggregate an additional
211,088 shares of Common Stock in payment of $2,005,342 in accrued cash
dividends pursuant to the terms of the preferred stock; and the Company's no par
value common stock was converted into Common Stock with a par value of $0.0001
per share.
On October 30, 1997, (1 year from the date of the acquisition), the
outstanding balance of the convertible note to Burlington becomes convertible
into common stock at a rate of $9.50 per share. On October 30, 1997, the note
also becomes callable at par by the Company. The note is subordinate to debt
incurred under the bank credit agreement in an amount not to exceed $7,500,000
(such limit to be increased by the amount of any repayment of the principal of
the note).
-15-
OTHER CONSIDERATIONS. The Company has in place a $2,500,000 revolving
credit facility with its bank. Details of this arrangement are given in Note 4
of Notes to the Consolidated Financial Statements of the Company.
FORWARD-LOOKING INFORMATION
From time to time, information provided by the Company may contain
forward-looking information, as defined in the Private Securities Litigation
Reform Act of 1995. The Company cautions investors that there can be no
assurance that actual results or business conditions will not differ materially
from those projected or suggested in such forward-looking statements as a result
of various factors and risks.
The Company's future operating results are dependent on its ability to
achieve increased sales and to control expenses. Factors such as lower than
expected inflation, product cost fluctuations, changes in product mix, continued
or increased competitive pressures from existing competitors and new entrants,
including price cutting strategies, and deterioration in general or regional
economic conditions are all factors which could adversely affect sales
projections. Other components of operating results could be adversely affected
by state or federal legislation or regulation that increases costs, increases in
labor rates due to low unemployment or other factors, or the inability to
control various expense categories.
Furthermore, the market price of the Company's common stock could be
subject to fluctuations in response to quarter to quarter variations in
operating results, changes in analysts' earnings estimates, market conditions,
as well as general economic conditions and other factors external to the
Company.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following described consolidated financial statements of the
Company are included in response to this item:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1995 and 1996.
Consolidated Statements of Income for the years ended December 31,
1994, 1995 and 1996.
Consolidated Statements of Stockholders' Deficit for the years ended
December 31, 1994, 1995 and 1996.
Consolidated Statements of Cash Flow for the years ended December 31,
1994, 1995 and 1996.
Notes to Consolidated Financial Statements
-16-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of BRUNSWICK TECHNOLOGIES,
INC.:
We have audited the accompanying consolidated balance sheets of
Brunswick Technologies, Inc., and subsidiary as of December 31, 1996 and 1995,
and the related consolidated statements of income, stockholders' deficit, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The financial
statements of Brunswick Technologies, Inc. for the year ended December 31, 1994,
were audited by other auditors, whose report dated January 20, 1995, expressed
an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
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 1996 and 1995 financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of Brunswick Technologies, Inc., and subsidiary as of December 31, 1996
and 1995, and the consolidated results of their operations and their cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Portland, Maine
February 28, 1997
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Brunswick Technologies, Inc.:
We have audited the related statements of income, stockholders' deficit, and
cash flows of Brunswick Technologies, Inc., for the year ended December 31,
1994. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations of Brunswick Technologies, Inc.
and its cash flows for the year ended December 31, 1994 in conformity with
generally accepted accounting principles.
/s/ KPMG PEAT MARWICK LLP
January 20, 1995
Boston, Massachusetts
-17-
BRUNSWICK TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
--------------------------------------
ASSETS 1995 1996
<S> <C> <C>
---------------- ----------------
Current assets:
Cash $ 117,959 $ 355,106
Accounts receivable, net of allowance for doubtful
accounts of $7,287 in 1995 and $38,603 in 1996........... 2,013,699 2,619,399
Inventories.................................................. 1,429,864 3,262,850
Refundable income taxes...................................... 16,000 21,061
Deferred income taxes........................................ 306,700 167,000
Other current assets......................................... 119,801 300,190
---------------- ----------------
Total current assets...................................... 4,004,023 6,725,606
Property, plant and equipment:
Land and building............................................ - 800,000
Furniture and fixtures....................................... 212,861 355,963
Leasehold Improvements....................................... 271,595 73,952
Machinery and equipment...................................... 4,475,800 5,114,646
Vehicles..................................................... 60,678 68,039
Machine under construction................................... - 1,040,922
---------------- ----------------
............................................................. 5,020,934 7,453,522
Less accumulated depreciation and amortization.................... (1,261,881) (1,453,090)
---------------- ----------------
Net property, plant and equipment............................ 3,759,053 6,000,432
---------------- ----------------
Deferred charges.................................................. - 512,679
Other assets, net................................................. 103,470 85,783
Goodwill, net..................................................... - 5,309,673
---------------- ----------------
$ 7,866,546 $ 18,634,173
================ ================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Bank overdraft............................................... $ 216,622 $ 300,809
Note payable to bank......................................... - 1,179,968
Current installments of long-term debt....................... 109,162 297,758
Current obligations under capital lease...................... 2,620 -
Due to stockholder........................................... 1,599,678 1,044,559
Accounts payable-trade....................................... 795,192 1,785,384
Accrued expenses............................................. 344,030 705,223
Income taxes payable......................................... 32,000 -
---------------- ----------------
Total current liabilities................................. 3,099,304 5,313,701
Due to stockholder................................................ 32,500 -
Long-term debt, excluding current installments.................... 1,003,971 8,853,304
Deferred income taxes............................................. 32,600 121,900
Commitments
Convertible preferred stock (liquidation preference of $6,641,317 in 1996) 6,069,530 6,589,209
Stockholders' deficit:
Preferred stock $10 par value; 1,000,000 shares authorized, none
outstanding................................................ - -
Common stock, $0.0001 par value; 20,000,000 shares authorized,
301,624 outstanding in 1996 and 289,674 in 1995............ 29 30
Additional paid in capital................................... 410,290 463,989
Treasury stock 3,300 shares at cost.......................... (5,000) (5,000)
Accumulated deficit.......................................... (2,776,678) (2,702,960)
---------------- ----------------
Total stockholders' deficit............................... (2,371,359) (2,243,941)
---------------- ----------------
$ 7,866,546 $ 18,634,173
================ ================
</TABLE>
The accompanying notes are an integral part of the financial statements
-18-
BRUNSWICK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the Years Ended
December 31,
-------------------------------------------------
1994 1995 1996
------------- ------------- ----------
<S> <C> <C> <C>
Net Sales......................................................... $9,596,578 $15,476,424 $19,815,711
Cost of goods sold (raw material purchased from a stockholder
amounted to $4,911,399 in 1994, $7,809,567 in 1995, and
$8,548,754 in 1996).......................................... 7,382,285 11,978,978 15,317,619
----------- ----------- ------------
Gross profit............................................. 2,214,293 3,497,446 4,498,092
Selling, general and administrative expenses...................... 1,500,119 2,084,712 3,022,240
Research and development expenses................................. 373,955 408,247 498,038
Moving costs...................................................... - 8,560 248,314
Facility repair costs............................................. - 150,000 (147,545)
----------- ----------- ------------
Operating income......................................... 340,219 845,927 877,045
----------- ----------- ------------
Other Income (expense):
Interest expense, net........................................ (19,595) (124,122) (251,829)
Miscellaneous, net........................................... (6,428) 62,800 303,181
----------- ----------- ------------
(26,023) (61,322) 51,352
----------- ----------- ------------
Income before income tax................................. 314,196 784,605 928,397
Income tax benefit (expense)...................................... - 121,900 (335,000)
----------- ----------- ------------
Net income............................................... 314,196 906,505 593,397
----------- ----------- ------------
Preferred stock dividend.......................................... (450,120) (450,120) (450,120)
Accretion of preferred stock redemption value..................... (75,910) (81,693) (69,559)
----------- ----------- ------------
Net income (loss) attributable to common stock.................... $ (211,834) $ 374,692 $ 73,718
=========== =========== ============
Pro forma earnings per common share...................... $ 0.26 $ 0.17
=========== ============
Pro forma weighted average common shares outstanding..... 3,460,445 3,498,302
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
-19-
BRUNSWICK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Additional Total
---------------- Paid-in Treasury Accumulated Stockholders'
Shares Amount Capital Stock Deficit Deficit
------ ------ ------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993..................... 271,986 $ 27 $392,617 $ - $(2,939,536) $(2,546,892)
Accrual of preferred stock dividend.............. - - - - (450,120) (450,120)
Accretion of preferred stock redemption value.... - - - - (75,910) (75,910)
Net income....................................... - - - - 314,196 314,196
--------- ------ -------- ------- ---------- -----------
Balance at December 31, 1994..................... 271,986 27 392,617 - (3,151,370) (2,758,726)
Exercise of common stock options................. 13,035 2 3,573 - - 3,575
Exercise of warrants to purchase common stock.... 4,653 - 14,100 - - 14,100
Repurchases of common stock...................... - - - (5,000) - (5,000)
Accrual of preferred stock dividend.............. - - - - (450,120) (450,120)
Accretion of preferred stock redemption value.... - - - - (81,693) (81,693)
Net income....................................... - - - - 906,505 906,505
--------- ------ -------- ------- ---------- -----------
Balance at December 31, 1995..................... 289,674 29 410,290 (5,000) (2,776,678) (2,371,359)
Exercise of common stock options................. 6,600 - 200 - - 200
Issue of stock in acquisition of Advanced
Textiles, Inc............................... 5,350 1 53,499 - - 53,500
Accrual of preferred stock dividend.............. - - - - (450,120) (450,120)
Accretion of preferred stock redemption value.... - - - - (69,559) (69,559)
Net income....................................... - - - - 593,397 593,397
--------- ------ -------- ------- ---------- -----------
Balance at December 31, 1996..................... 301,624 $ 30 $463,989 $(5,000) $(2,702,960) $(2,243,941)
========= ====== ======== ======= ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-20-
BRUNSWICK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended
December 31,
---------------------------------------------------
1994 1995 1996
------------- ------------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 314,196 $ 906,505 $ 593,397
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 266,574 396,595 479,669
Deferred taxes......................................... - (274,100) 229,000
(Gain) on sale of property, plant and equipment........ - (4,164) -
Changes in assets and liabilities:
(Increase) decrease in accounts receivable........... (156,751) (1,071,253) 172,493
(Increase) in inventories............................ (617,119) (104,060) (725,564)
(Increase) in refundable income taxes................ - (16,000) (5,061)
(Increase) decrease in other current assets.......... 12,883 (51,684) (176,721)
Increase (decrease) in due to stockholder............ 161,277 622,888 (587,619)
Increase (decrease) in other accounts payable
and accrued expenses............................... (252,773) 597,585 721,129
Increase (decrease) in income taxes payable.......... - 32,000 (32,000)
----------- ----------- -------------
Net cash provided by (used in) operating activities (271,713) 1,034,312 668,723
----------- ----------- -------------
Cash flows from investing activities:
Acquisition of Advanced Textiles, Inc., net of cash acquired. - - (294,512)
Purchases of property, plant and equipment................... (1,286,797) (899,271) (1,132,236)
Proceeds from sale of property, plant and equipment.......... - 12,126 -
(Increase) decrease in other assets.......................... (48,914) (36,140) 17,687
----------- ----------- -------------
Net cash used in investing activities........... (1,335,711) (923,285) (1,409,061)
----------- ----------- -------------
Cash flows from financing activities:
Bank overdraft............................................... 119,216 97,406 84,187
Net proceeds (repayments) under line of credit............... 80,000 (80,000) 1,179,968
Proceeds from long-term debt borrowings...................... 1,100,00 - 321,375
Repayment of long-term debt.................................. (198,953) (20,662) (92,946)
Net principal repayments under capital lease obligations..... (3,250) (5,293) (2,620)
Proceeds from exercise of common stock options and warrants.. - 17,675 200
Costs related to issuance of convertible preferred stock..... (2,724) - -
Increase in deferred charges................................. - - (512,679)
Repurchase of common stock................................... - (5,000) -
----------- ----------- -------------
Net cash provided by financing activities....... 1,094,289 4,126 977,485
----------- ----------- -------------
Net increase (decrease) in cash................. (513,135) 115,153 237,147
Cash at beginning of period....................................... 515,941 2,806 117,959
----------- ----------- -------------
Cash at end of period............................................. $ 2,806 $ 117,959 $ 355,106
=========== =========== =============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest (including interest capitalized of $14,022 in 1996
and $36,945 in 1994)................................... $ 52,552 $ 128,276 $ 141,886
=========== =========== ============
Income taxes............................................. $ - $ 136,200 $ 168,626
=========== =========== ============
Acquisition of Advanced Textiles, Inc. net of cash acquired;
Working capital, other than cash............................................................... $ 1,259,027
Property, land and equipment................................................................... 1,537,675
Goodwill....................................................................................... 5,360,810
Convertible note due to seller................................................................. (7,296,500)
Other amount due to seller..................................................................... (513,000)
Issuance of common stock....................................................................... (53,500)
-------------
Net cash used to acquire Advanced Textiles, Inc................................................ $ 294,512
=============
</TABLE>
During 1995, the Company entered into a capital lease obligation amounting
to $6,288 for telephone equipment.
The accompanying notes are an integral part of the financial statements.
-21-
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1995 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature Of Business
Brunswick Technologies, Inc. is a developer and manufacturer of
stitchbonded engineered composite reinforcement fabrics made from glass, carbon
and other fibers. Its products are used in a diverse range of products,
including those used in the marine, automotive, construction, and transportation
industries.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Brunswick
Technologies, Inc. and Advanced Textiles, Inc. (ATI), its wholly-owned
subsidiary. The accounts of ATI are included from October 30, 1996, the date of
acquisition. All significant intercompany balances and transactions have been
eliminated in the Consolidated Financial Statements.
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 those estimates.
Inventories
Inventories are stated at the lower of standard cost, which
approximates the first-in, first-out method, or market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation is
provided on the straight-line method over the estimated useful lives as follows:
Years
-----
Buildings................................................ 30
Furniture and fixtures................................... 2-15
Machinery and equipment.................................. 7-15
Vehicles ................................................ 5
Amortization of capitalized leased assets and leasehold improvements is
provided on the straight-line method over the shorter of the lease term or the
useful life. Interest expense incurred on borrowings used to finance the
construction of production machinery is capitalized and included in the cost
basis of the asset.
Expenditures for maintenance, repairs and minor replacements are
charged to operations while expenditures for major replacements and betterments
are added to the property, plant and equipment accounts. When fixed assets are
retired or otherwise disposed of, the asset cost and accumulated depreciation
and amortization are removed from the accounts and any resulting gain or loss is
reflected in income.
Research and Development
Expenditures for research and development are charged to operations as
incurred.
Patents
Costs associated with securing patents for the Company's products are
capitalized and amortized over the shorter period of 17 years, or the estimated
useful life.
-22-
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Grants
The Company recognizes revenues from cost reimbursement grants from
government agencies as reimbursable expenses are incurred.
Stock Split and Authorized Shares
On January 6, 1997, the Board of Directors approved a 33 to 1 stock
split of the Company's common stock to be effective immediately prior to the
effective date of the registration statement for the Company's initial public
offering on February 5, 1997 (see Note 12). All share and per share amounts have
been retroactively restated to reflect this stock split. In addition, on August
14, 1996 the Board and the shareholders approved an increase in the authorized
shares of common stock to 20,000,000 shares, to be effective immediately prior
to the effective date of the registration statement. The Board and the
shareholders also authorized the creation of a new undesignated class of
preferred stock consisting of 1,000,000 shares, $10 par value.
Pro Forma Earnings per Common Share
Earnings per share has been presented on a pro forma basis after giving
effect to the conversion of the outstanding preferred stock (See Note 12) plus
when their effect is dilutive, common stock equivalents consisting of shares
subject to stock options and warrants.
The following table presents information necessary to calculate pro
forma earnings per share:
Years Ended
December 31,
------------------------
1995 1996
---------- ----------
Net Income............................... $ 906,505 $ 593,397
========= =========
Pro forma earnings per common share...... $ 0.26 $ 0.17
========= ==========
Common shares outstanding:
Weighted average common shares........... 280,830 297,140
Common share equivalents................. 630,335 651,882
Conversion of preferred stock............ 2,337,192 2,337,192
Preferred stock dividend................. 211,088 211,088
Directors' stock grants.................. 1,000 1,000
--------- ---------
Adjusted shares outstanding.............. 3,460,445 3,498,302
========= =========
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.
Fair Value of Financial Instruments
At December 31, 1996, the carrying amounts of the Company's financial
instruments included in current assets and current liabilities approximate fair
value because of the short maturity of those instruments. The carrying amounts
of the Company's long-term debt also approximates their fair value as of
December 31, 1996 based upon the borrowing rates currently available to the
Company for loans with similar terms and maturities.
Goodwill
Goodwill, which represents the excess of the cost of the ATI
acquisition over the fair value of ATI's net assets at the date of acquisition,
is being amortized over 20 years.
-23-
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1995 and 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Impairment Accounting
The Company adopted Financial Accounting Standard No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," (SFAS No. 121) in 1996. The Company reviews the recoverability of its
long-lived assets, including goodwill and other intangible assets, when events
or changes in circumstances occur that indicate that the carrying value of the
asset may not be recoverable. The measurement of possible impairment is based on
the Company's ability to recover the asset from the expected future pre-tax cash
flows (undiscounted and without interest charges) of the related operations. The
measurement of impairment requires management to make estimates of expected
future cash flows related to long-lived assets. It is at least reasonably
possible that future events or circumstances could cause these estimates to
change. The Company's policy on impairment prior to the adoption of SFAS No. 121
was not materially different.
New Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS
No. 128) and No. 129, "Disclosure of Information About Capital Structure" (SFAS
No. 129). SFAS No. 128 will require a change in how the Company calculates
earnings per share and SFAS No. 129 will require disclosure of certain
information about the Company's capital structure. The requirements of these
pronouncements are effective for the Company's fiscal year ending December 31,
1997 and the impact of these statements on the Company's financial statements
has not yet been determined.
Reclassifications
Certain prior year amounts primarily relating to the preferred stock
have been reclassified to conform with the presentation used in the 1996
financial statements. Pursuant to Securities and Exchange Commission
regulations, the convertible preferred stock has been reclassified outside of
stockholders' equity and accrued dividends and an increase in the preferred
stock carrying value based on anticipated redemption value have been recorded.
As a result, the accumulated deficit has increased by $526,030, $531,813 and
$519,679 for 1994, 1995 and 1996, respectively.
2. ACQUISITION OF ADVANCED TEXTILES, INC.
On October 30, 1996, the Company acquired ATI, a subsidiary of
Burlington Industries, Inc. for a total acquisition cost of $8,539,000, payable
through the issuance of a note for $7,296,500 convertible into the Company's
common stock at $9.50 per share; deferred cash payments discounted to $513,000;
the issuance of common stock valued at $53,500 to a minority shareholder in ATI;
cash payments of $351,000; and acquisition costs of $325,000. The acquisition is
being accounted for under the purchase method of accounting. The fair market
value of the assets acquired is estimated at $3,178,000, resulting in goodwill
of $5,361,000 which amount will be amortized over 20 years.
Pro forma unaudited results of operations of the Company, assuming the
acquisition had occurred on January 1, 1995 are as follows:
Years Ended
December 31,
--------------------------------
1995 1996
------------- -------------
(in thousands, except per share amounts)
Net sales $ 26,444 $ 28,475
============= =============
Net income $ 2,804 $ 686
============= =============
Earnings per share $ 0.81 $ 0.20
============= =============
-24-
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1995 and 1996
3. INVENTORIES
Inventories consist of the following components:
December 31,
-----------------------------
1995 1996
------------ -----------
Raw materials $ 450,447 $ 576,275
Work in process 324,772 653,026
Finished goods 654,645 2,033,549
------------ ------------
$ 1,429,864 $ 3,262,850
============ ============
4. DEBT
Long term debt consists of the following:
December 31,
----------------------------
1995 1996
------------ ----------
5.75% note payable to a financial
institution, paid in full in January 1997 $ 13,133 $ 9,095
Equipment term loan payable to a bank, paid
in full in February 1997 1,100,000 1,425,414
9.50% convertible subordinated note incurred
in the purchase of ATI - 7,296,500
Non-interest bearing obligation incurred in
the purchase of ATI, discounted at 8.25% - 420,053
------------ ------------
1,113,133 9,151,062
Less current installments (109,162) (297,758)
------------ ------------
Long term debt, excluding current installments $ 1,003,971 $ 8,853,304
============ ============
The schedule of maturities of long-term debt (adjusted to reflect
payments actually made in 1997) at December 31, 1996, are as follows:
1997......................................... $ 5,182,759
1998......................................... 100,000
1999......................................... 100,000
2000......................................... 120,054
2001......................................... 0
Thereafter................................... 3,648,250
-----------------
$ 9,151,063
=================
In May 1996, the Company renegotiated its existing debt facility with a
bank. The new agreement increased the Company's line of credit from $1 million
to $1.5 million and increased an equipment line of credit from $1.1 million to
$1.8 million. In December 1996 the Company increased the line of credit by $1.0
million to $2.5 million and pledged the accounts receivable and inventory of ATI
as collateral. The loan was paid in full in February 1997 with a portion of the
IPO proceeds (see Note 12). Borrowings under the line of credit are based on 75%
of eligible accounts receivable and 50% of eligible inventory. At the Company's
option, interest is charged at either the bank's prime rate or the London
Interbank Borrowing Rate (LIBOR), plus 1.75%. There is a commitment fee of
0.125% on any unused balance. At December 31, 1996, borrowings under the line of
credit amounted to $1,179,968. The weighted average interest rate of borrowings
outstanding at December 31, 1996, was 8.25%. The line of credit expires on June
1, 1997.
Under the equipment term line of credit loan, the bank will advance 75%
of equipment cost to be acquired up to a total loan of $1.8 million. At the
Company's option, interest is charged at either the bank's prime rate or LIBOR,
plus 2.25%. At December 31, 1996, the Company had elected a nine month LIBOR
rate to be effective through March 1, 1997 and which equals 8% including the
2.25% mark up. This loan was paid in full on February 10, 1997.
-25-
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1995 and 1996
4. DEBT, CONTINUED
The terms of the convertible subordinated note required payment of
$3,648,250 of the principal within seven months after the completion of the
Company's initial public offering; this amount was paid in February 1997 (see
Note 12). The remaining principal amount of the convertible note will be payable
on October 30, 2002 and October 30, 2003. On the earlier date, the Company is
required to pay 50% of the then outstanding principal plus any additional amount
permitted under any of the Company's future existing financial covenants with
its senior lenders. On October 30, 1997, the note becomes convertible into the
equivalent amount of the Company's common stock at $9.50 per share.
The non-interest bearing obligation is payable as follows: $100,000 was
paid on December 15 1996; and $100,000 is due annually on December 15 until the
entire obligation is paid. In addition, the annual payment may be increased by
an amount equal to at least $100,000 based on certain income tax effects
experienced by the Company. The obligation has been discounted at 8.25%.
5. LEASES
Commencing January 1, 1996, the Company began leasing a newly
constructed manufacturing facility. The lease term is for ten years with an
option to renew for an additional five years. The Company has the option to
purchase the facility at fair market value at any time between the end of the
fifth year of the lease and the end of the lease. In connection with the
vacating of its former facility in December 1995, the Company recorded $150,000
as its estimated cost to make repairs to the premises as specified in its lease
agreement. However, this estimate was not realized and $147,545 was reversed in
June 1996. In connection with the relocation to its new facility, the Company
has recorded a separate operating expense for the cost of the move, which
includes the rental expense for the old facility for the six months through June
30, 1996. The Company also has operating leases for equipment and a vehicle.
Total rental expense under all operating leases was $164,293, $176,558, and
$288,454 for the years ended December 31, 1994, 1995, and 1996 respectively.
At December 31 1996, future minimum lease payments under all
non-cancelable leases are as follows:
Operating
Leases
-------------
1997........................................... $ 184,065
1998........................................... 181,500
1999........................................... 181,500
2000........................................... 181,500
2001........................................... 181,500
Thereafter..................................... 1,778,500
-------------
Minimum future lease payments.................. $ 2,688,565
=============
-26-
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1995 and 1996
6. CONVERTIBLE PREFERRED STOCK (SEE ALSO NOTE 12 OF NOTES TO FINANCIAL
STATEMENTS)
The Company's convertible preferred stock, no par value consists of
four series whose activity is shown in the following table:
<TABLE>
<CAPTION>
Total
Convertible
Series AA Series BB Series C Series D Preferred Shares
--------- --------- -------- -------- ----------------
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1993 3,657 $264,170 33,167 $1,926,929 18,000 $1,056,032 16,000 $1,764,556 70,824 $5,011,687
Accrual of preferred
stock dividend 18,285 165,835 90,000 176,000 450,120
Accretion of preferred
stock redemption value - 34,465 - 18,432 - 7,031 - 15,982 - 75,910
------ -------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
Balance at December
31, 1994 3,657 316,920 33,167 2,111,196 18,000 1,153,063 16,000 1,956,538 70,824 5,537,717
Accrual of preferred
stock dividend 18,285 165,835 90,000 176,000 450,120
Accretion of preferred
stock redemption value - 39,818 - 18,650 - 7,089 - 16,136 - 81,693
------ -------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
Balance at December
31, 1995 3,657 375,023 33,167 2,295,681 18,000 1,250,152 16,000 2,148,674 70,824 6,069,530
Accrual of preferred
stock dividend - 18,285 - 165,835 - 90,000 - 176,000 - 450,120
Accretion of preferred
stock redemption value - 35,869 - 15,080 - 5,715 - 12,895 - 69,559
----- -------- ------ ---------- ------ ---------- ------ ---------- ------ ----------
Balance at December
31, 1996 3,657 $429,177 33,167 $2,476,596 18,000 $1,345,867 16,000 $2,337,569 70,824 $6,589,209
===== ======== ====== ========== ====== ========== ====== ========== ====== ==========
Liquidation preference at
December 31, 1996 $457,125 $2,487,525 $1,350,000 $2,346,667 $6,641,317
</TABLE>
Shares of all series of preferred stock are entitled to cumulative
dividends at the rate of 10% per annum of the original issue price. In addition,
shares of preferred stock have a liquidation preference. On February 10, 1997,
the date of the closing of the Company's initial public offering, all of the
Company's four series of outstanding preferred stock were converted to 2,337,912
shares of common stock. In addition, holders of shares of preferred stock
received 211,088 shares of common stock in payment of accrued dividends of
$2,005,342 as of the date of conversion.
7. CAPITAL STOCK
The Company has three employee stock option plans, one each established
in 1991, 1994 and 1997. The plans reserve for issuance a total of 990,000 common
shares. Options granted prior to June 29, 1995 vest at a rate of 20% per year
beginning on the date of the grant. Options granted on June 29, 1995 and after
vest at 20% per year beginning one year after the date of grant. All the shares
available in the 1991 and 1994 plans have been granted. The Company's 1997
Equity Incentive Plan was adopted by the Board of Directors on January 22, 1997
and approved by the shareholders at a meeting held on January 23, 1997. A total
of 421,740 shares of Common Stock have been reserved for awards under the 1997
Plan. Pursuant to the 1997 Plan, a committee of the Board of Directors is
authorized to grant incentive stock options, non-statutory stock options, stock
appreciation rights, restricted stock or similar securities defined thereunder,
all in its discretion, to key individuals, consultants and directors of the
Company or one of its affiliates.
-27-
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1995 and 1996
7. CAPITAL STOCK, CONTINUED
A summary of changes in common stock options during 1994, 1995, and
1996 is:
Weighted average
Shares exercise price
-------- ---------------
Outstanding grants at December 31, 1993......... 435,039 $0.54
Granted......................................... 16,500 $1.52
Exercised....................................... -
Canceled........................................ -
-------
Outstanding grants at December 31, 1994......... 451,539 $0.58
Granted......................................... 83,325 $1.52
Exercised....................................... (13,035) $0.27
Canceled........................................ (4,290) $1.10
-------
Outstanding grants at December 31, 1995......... 517,539 $0.74
Granted......................................... 9,900 $9.50
Exercised....................................... (6,600) $0.03
Canceled........................................ - -
-------
Outstanding grants at December 31, 1996......... 520,839 $0.91
=======
Shares exercisable at December 31, 1994......... 308,319
=======
Shares exercisable at December 31, 1995......... 363,429
=======
Shares exercisable at December 31, 1996......... 408,969
=======
The weighted average grant date fair values of options granted during
1995 and 1996 were $0.42 and $2.64, respectively and the range of exercise
prices of all outstanding options at December 31, 1996 was $0.03 to $1.52.
In 1995, the Financial Accounting Standards Board issued "Statement of
Financial Accounting Standard (SFAS) No. 123 - Accounting for Stock-Based
Compensation." This statement requires a fair value based method of accounting
for employee stock options and would result in expense recognition for the
Company's employee stock plans. It also permits a company to continue to measure
compensation expense for such plans using the intrinsic value based method as
prescribed by Accounting Principles Board Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees." The Company has elected to follow APB 25 in
accounting for its employee stock plans, and accordingly, no compensation cost
has been recognized. Had compensation cost for the Company's stock plans been
determined based on the fair value requirements of SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated below:
1995 1996
-------------- --------------
Net income: As reported $ 906,505 $ 593,397
============== ==============
Pro forma $ 904,962 $ 585,920
============== ==============
Earnings per share: As reported $ 0.26 $ 0.17
============== ==============
Pro forma $ 0.26 $ 0.17
============== ==============
The fair value of stock options in the pro forma accounts for fiscal
1995 and 1996 is not necessarily indicative of the future effects on net income
and earnings per share. The fair value of each stock option grant has been
estimated on the date of grant at its minimum value using the following
weighted-average assumptions for both 1995 and 1996:
risk-free interest rate of 6.5%, expected life of five years and no dividend
yield.
-28-
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1995 and 1996
7. CAPITAL STOCK, CONTINUED
Through the date of the Company's IPO, the plans have provided for, at
the option of the Company, the repurchase of stock held by employees when they
terminate service with the Company. In 1995, the Company repurchased 3,300
common shares at $1.52 per share from a former employee. These shares are held
by the Company and recorded as Treasury Stock at their cost of $5,000.
In conjunction with the issuance of the preferred stock, the Company
has issued warrants for the purchase of its common stock. Each warrant is
exercisable for one share of common stock. In 1995, warrants were exercised to
purchase 4,653 common shares at $3.03 per share. At December 31, 1996, the
Company had 211,200 warrants outstanding at an exercise price of $1.52 per
warrant, which expire on or before December 31, 1997.
8. CONCENTRATION OF CREDIT RISK
The Company utilizes a national distribution system that sells to
approximately 600-700 end users. Four individual distributors accounted for
approximately 89%, 78% and 76% of the Company's 1994, 1995 and 1996 revenues,
respectively. The same distributors also represent the aforementioned
percentages of the Company's respective account receivable balances at December
31, 1994, 1995 and 1996.
9. INCOME TAXES
Income tax benefit (expense) consists of the following:
For the Years Ended
December 31,
--------------------------------------
1994 1995 1996
----------- ---------- -----------
Current:
Federal............................. $ - $(120,200) $(103,000)
State............................... - (32,000) (3,000)
----------- --------- -----------
- (152,200) (106,000)
----------- ---------- ------------
Deferred:
Federal............................. - 214,600 (36,000)
State............................... - 59,500 (193,000)
----------- ---------- ------------
- 274,100 (229,000)
----------- ---------- ------------
Total tax benefit (expense).... $ - $ 121,900 $ (335,000)
=========== ========== ============
The actual income tax benefit (expense) differs from the expected tax computed
by applying the U.S. federal corporate tax rate of 34% to income before income
tax as follows:
For the Years Ended
December 31,
---------------------------------------
1994 1995 1996
------------ ----------- -----------
Computed expected income tax... $ (107,000) $ (267,000) $ (315,000)
State income taxes............. (18,000) (47,000) (54,000)
Change in valuation allowance... 138,000 439,100 -
Other........................... (13,000) (3,200) 34,000
----------- ---------- ------------
Total tax benefit (expense).... $ - $ 121,900 $ (335,000)
=========== ========== ============
-29-
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1995 and 1996
9. INCOME TAXES, CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities consist of the
following at:
December 31,
----------------------
1995 1996
-------- ---------
Deferred tax assets (liabilities):
Reserve....................................... $ 70,900 $ 23,000
Other......................................... 42,000 66,000
Net operating loss carryforward............... 303,000 171,000
Alternative minimum tax credit carryforward... 152,200 283,000
Compensation.................................. 26,000 29,000
Other......................................... 36,000 31,100
Depreciation and amortization................. (356,000) (558,000)
-------- ---------
Net deferred tax assets................. $274,100 $ 45,100
======== =========
Current deferred tax assets................... $306,700 $ 167,000
======== =========
Non-current deferred tax liabilities.......... $(32,600) $(121,900)
======== =========
As of December 31, 1996, the Company had net operating loss
carryforwards for federal and state income tax purposes of approximately
$427,000, which expire at various dates through 2006. Under Internal Revenue
Code Section 382, utilization of net operating loss carryforwards may be limited
in the event of changes in the ownership structure of the Company. Such a change
occurred in 1990, and the net operating loss carryforwards are limited for
utilization at approximately $95,000 per year. In addition, the Company has
alternative minimum tax credit carryforwards of approximately $283,000 which
have no expiration date. At December 31, 1994, the Company had a net deferred
tax position which was offset by a valuation allowance of $439,100 due to
uncertainties about the ultimate realization of net operating loss
carryforwards. At December 31, 1995, the Company was still in a deferred tax
asset position and no valuation allowance was recorded as current year
utilization of net operating loss carryforwards and projected utilization in the
future of such carryforwards removed material uncertainties about the ultimate
realization of the deferred tax assets.
10. RELATED PARTY
The Company purchases over half of its raw materials inventory from a
stockholder. For the years ended December 31, 1994, 1995 and 1996, purchases of
raw materials were $4,911,399, $7,809,567 and $8,548,954 respectively. At
December 31, 1995, and 1996, the Company had due this stockholder, $1,529,678
and $1,044,559, respectively, for purchases of raw materials. In addition, the
Company was obligated under a non-interest bearing note payable to the
stockholder, payable in quarterly installments of $17,500 through April 1997.
Amounts due under this note at December 31, 1995 and 1996 were $102,500 and
$32,500, respectively. The note is collateralized by certain equipment.
11. NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY (NIST) GRANT
The Company is a participant in a consortium to develop a manufacturing
competency to replace wood, steel, and concrete with high performance
composites. The project has been awarded a grant by NIST whereby 50% of the
project's costs will be reimbursed. In 1995, the Company incurred project
eligible costs of $201,936 and applied for reimbursement of $100,968, for which
the Company has recorded miscellaneous income of $66,742 and reduced cost of
goods sold by $34,226. In 1996 the Company incurred project eligible costs of,
and applied for reimbursement for, $426,070, for which the Company has recorded
miscellaneous income of $332,432 and reduced cost of goods sold by $93,638.
-30-
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1994, 1995 and 1996
12. SUBSEQUENT EVENT
On February 10, 1997, the Company completed its initial public offering
of common stock. The sale to the public totaled 2,500,000 shares, with 1,700,000
new shares being sold by the Company and 800,000 shares being sold from the
holdings of an existing shareholder. The offering price was $9.50 per shares
with proceeds to the Company, after offering expenses, of approximately $14
million. From the proceeds, the Company was obligated to pay $3,648,250 of the
convertible subordinated note plus accrued interest thereon (see Note 4). With
the remaining proceeds, the Company also paid off the balance of its bank debt,
approximately $2.6 million. Deferred charges of $512,679 at December 31, 1996,
and other transactional expenses (together aggregating approximately $1 million)
were offset against the stockholders' equity upon completion of the offering.
Pursuant to the terms of the preferred stock agreements, the
outstanding shares of preferred stock were automatically converted to common
stock, on the consummation of the Company's initial public offering. As a
result, 70,824 shares of preferred stock were converted to 2,337,192 shares of
common stock. In addition, on August 14, 1996, the Board of Directors approved
the issuance of common stock in lieu of cash payment of the cumulative preferred
dividend. This resulted in an additional 211,088 shares of common stock being
issued to holders of preferred stock as of the closing of the offering. In
addition, the Board approved the grant of stock to Directors totaling 1,000
shares, to be issued at the closing of the offering. The following pro forma
information has been included to reflect the conversion of the outstanding
preferred stock to common stock, the issuance of additional shares of common
stock in lieu of payment of a cumulative cash dividend, and directors' stock
grants.
<TABLE>
<CAPTION>
Actual at Pro Forma
December 31, Pro Forma December 31,
1996 Adjustments 1996
---------- ----------- -----------
<S> <C> <C> <C>
Convertible preferred stock.............................. $ 6,589,209 $(6,589,209) $ -
=========== =========== ============
Stockholders' (deficit) equity:
Preferred stock, $10, par value actual and pro forma;
1,000,000 shares authorized and none outstanding
actual and pro forma........................ - - -
Common stock, par value $0.0001 actual and pro forma;
20,000,000 shares authorized actual and pro forma;
301,624 shares outstanding, actual 2,850,904 shares
outstanding pro forma............................... 30 255 285
Additional paid-in-capital............................... 463,989 6,588,954 7,052,943
Treasury stock, 3,300 shares at cost..................... (5,000) - (5,000)
Accumulated deficit...................................... (2,702,960) - (2,702,960)
------------ ----------- -----------
$(2,243,941) $ 6,589,209 $ 4,345,268
============ =========== ============
</TABLE>
-31-
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In July 1995, the Company advised KPMG Peat Marwick LLP ("Peat
Marwick") that it would no longer retain the firm as independent accountants due
to the closing of Peat Marwick's office in Portland, Maine. The reports of Peat
Marwick for the previous years (1994 and 1993) did not contain any adverse
opinions or a disclaimer of opinions, nor were they qualified or modified as to
uncertainty, audit scope or accounting principles. The decision to change
accountants was recommended by the Company's Audit Committee and approved by the
full Board of Directors. During the periods reviewed by Peat Marwick there were
no disagreements with Peat Marwick on any matter of accounting principles or
practices, financial statement disclosure or auditing scope or procedure, which
disagreement(s) if not resolved to the satisfaction of Peat Marwick, would have
caused it to make reference to the subject matter of the disagreements in
connection with its report. Coopers & Lybrand L.L.P. was engaged by the Company
as its independent accountants in July 1995.
PART III
Items 10, 11, 12 and 13.
The Company incorporates by reference in response to these items its
1997 Proxy Statement for its Annual Meeting of Stockholders to be held on April
29, 1997, to be filed with the SEC.
PART IV
Item 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
(a) Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1995 and 1996.
Consolidated Statements of Income for the years ended December 31, 1994, 1995
and 1996.
Consolidated Statements of Stockholders' Deficit for the years ended December
31, 1994, 1995 and 1996.
Consolidated Statements of Cash Flow for the years ended December 31, 1994, 1995
and 1996.
Notes to Consolidated Financial Statements
Financial Statements Schedules: Schedules are omitted because not applicable or
not required by Regulation S-X.
(b) Reports on Form 8-K
None.
-32-
(c) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
*3.1 Amended and Restated Articles of Incorporation of the Registrant.
*3.2 Third Restated Bylaws of the Registrant.
*4.1 Amended and Restated Registration Rights Agreement dated August 25, 1993.
*4.2 Amendment No. 1 to the Registration Rights Agreement dated October 30, 1996.
*4.3 Amendment No. 2 to the Registration Rights Agreement dated October 30, 1996.
*4.4 Form of Josephthal Warrant.
*4.5 Specimen stock certificate for shares of Common Stock.
*4.6 Amendment No. 3 to Registration Rights Agreement dated February 3, 1997.
*10.1 Loan Agreement between the Registrant and Fleet Bank of Maine dated May 30, 1996.
*10.2 Security Agreement between the Registrant and Fleet Bank of Maine dated May 30, 1996.
*10.3 Demand Note in favor of Fleet Bank of Maine dated May 30, 1996.
*10.4 Supply Agreement between the Registrant and Vetrotex CertainTeed Corp. dated August 25, 1993
(confidential portions of which have been omitted and
filed separately with the Commission under a request
for confidential treatment pursuant to Rule 406 under
the Securities Act).
*10.5 Private Activity Bond Requirements Certificate of Brunswick Technologies, Inc. dated December
1, 1995.
*10.6 Lease Agreement between the Registrant and Brunswick Development Corporation dated August 1,
1995.
*10.7 Collaborative Agreement between the Registrant and E.I. du Pont de Nemours and Company, Inc.,
et al.
*10.8 Financial Advisory Agreement and Indemnification Agreement between the Registrant and
Josephthal Lyon & Ross Incorporated.
*10.9 Installment Promissory Note between the Registrant and Vetrotex CertainTeed Corp. dated March
31, 1992.
*10.10 Security Agreement between the Registrant and Vetrotex CertainTeed Corp. dated March 31, 1992.
*10.11 Stock Purchase Agreement among the Registrant, Burlington Industries, Inc. and Peter L. DeWalt
dated October 22, 1996 and First Amendment to Stock
Purchase Agreement dated October 29, 1996.
*10.12 Registration Rights Agreement among the Registrant, Burlington Industries, Inc., and Peter L.
DeWalt, dated October 30, 1996.
*10.13 Employment Agreement between Advanced Textiles, Inc., a subsidiary of the Registrant, and Peter
L. DeWalt, dated October 30, 1996.
*10.14 Convertible Subordinated Promissory Note made by the Registrant in favor of Burlington
Industries, Inc. dated October 30, 1996.
*10.15 Recapitalization Agreement among the Registrant and the holders of its common stock.
*10.16 Term Note in favor of Fleet Bank of Maine dated May 30, 1996.
*10.17 First Amendment to Term Note dated December, 1996.
*10.18 First Amendment to Loan Agreement dated December, 1996.
*10.19 First Amendment to Demand Note dated December, 1996.
*10.20 First Amendment to Security Agreement dated December, 1996.
*10.21 1991 Stock Option Plan.
*10.22 Amendment No. 1 to 1991 Stock Option Plan.
*10.23 1994 Employee Stock Option Plan.
*10.24 Amendment No. 1 to 1994 Employee Stock Option Plan.
*10.25 1997 Equity Incentive Plan.
*10.26 Form of Common Stock Purchase Warrant.
*10.27 Form of Amendment No. 1 to Common Stock Puchase Warrant.
*16 Letter of KPMG Peat Marwick LLP re change in certifying accountant.
21 Registrant's subsidiary
27 Financial Data Schedule.
- ----------
* Previously filed and incorporated by reference to the Registant's Registration Statement on Form S-1
(File No. 333-10721).
</TABLE>
-33-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 26th of March,
1997.
BRUNSWICK TECHNOLOGIES, INC.
By: /s/MARTIN S. GRIMNES
-------------------------------
Martin S. Grimnes
Principal Executive Officer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this report has been signed by the following persons in
the capacities and on the date indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/MARTIN S. GRIMNES Principal Executive Officer March 26, 1997
- ------------------------------------ and Director
Martin S. Grimnes
/s/DAVID M. COIT Director March 26, 1997
- ------------------------------------
David M. Coit
/s/WILLIAM M. DUBAY President, Principal March 26, 1997
- ------------------------------------ Operating Officer and Director
William M. Dubay
/s/DONALD R. HUGHES Director March 26, 1997
- ------------------------------------
Donald R. Hughes
/s/MAX G. PITCHER Director March 26, 1997
- ------------------------------------
Max G. Pitcher
/s/DAVID E. SHARPE Director March 26, 1997
- ------------------------------------
David E. Sharpe
/s/PETER N. WALMSLEY Director March 26, 1997
- ------------------------------------
Peter N. Walmsley
/s/JOHN P. O'SULLIVAN Treasurer and Principal March 26, 1997
- ------------------------------------ Financial and Accounting Officer
John P. O'Sullivan
</TABLE>
-34-
EXHIBIT 21
SUBSIDIARIES OF BRUNSWICK TECHNOLOGIES, INC.
Advanced Textiles, Inc. ("ATI").
ATI is a wholly-owned subsidiary of the Registrant, and is incorporated
in the State of Texas.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 335
<SECURITIES> 0
<RECEIVABLES> 2,658
<ALLOWANCES> 38
<INVENTORY> 3,263
<CURRENT-ASSETS> 6,726
<PP&E> 7,454
<DEPRECIATION> 1,453
<TOTAL-ASSETS> 18,634
<CURRENT-LIABILITIES> 5,314
<BONDS> 0
6,589
0
<COMMON> (2,244)
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 18,634
<SALES> 19,816
<TOTAL-REVENUES> 19,816
<CGS> 15,318
<TOTAL-COSTS> 3,621
<OTHER-EXPENSES> (303)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 252
<INCOME-PRETAX> 928
<INCOME-TAX> (335)
<INCOME-CONTINUING> 593
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 593
<EPS-PRIMARY> .17
<EPS-DILUTED> 0
</TABLE>
