UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the quarterly period ended June 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from __________ to ___________
Commission File Number: 0-22089
BRUNSWICK TECHNOLOGIES, INC.
----------------------------
Maine 01-402052
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
43 Bibber Parkway, Brunswick, ME 04011
- ---------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
207-729-7792
----------------------------------------------------
(Registrant's telephone number, including area code)
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. [x] Yes [ ] No
The registrant had 4,722,226 shares of Common Stock, $0.0001 par value,
outstanding as of July 31, 1997.
<TABLE>
<CAPTION>
BRUNSWICK TECHNOLOGIES, INC.
----------------------------
INDEX
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Page No.
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<S> <C>
Part I. Financial information.
Item 1. Financial Statements
Consolidated balance sheets as of December 31, 1996
and June 30, 1997. 3 - 4
Consolidated statements of income for the three months
ended June 30, 1996 and 1997. 5
Consolidated statements of income for the six months
ended June 30, 1996 and 1997. 6
Consolidated statements of cash flows for the six months
ended June 30, 1996 and 1997. 7
Notes to consolidated financial statements. 8-9
Report of Independent Accountants. 10
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations. 11
PART II. Other Information.
Item 4. Submission of Matters to a Vote of Security Holders. 12
Item 6. Exhibits and Reports on Form 8-K. 12
</TABLE>
-2-
PART 1
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
BRUNSWICK TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31, June 30,
ASSETS 1996 1997
--------------- -------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 355 $ 6,456
Marketable securities -- 506
Accounts receivable, net of allowance for doubtful accounts
of $38 in 1996 and $48 in 1997 2,619 2,216
Inventories 3,263 3,581
Refundable income taxes 21 --
Deferred income taxes 167 167
Other current assets 300 416
------------- -------------
Total current assets 6,725 13,342
------------- -------------
Property, plant and equipment:
Land and building 800 803
Furniture and fixtures 356 443
Leasehold improvements 74 80
Machinery and equipment 5,115 6,353
Vehicles 68 76
Machinery under construction 1,041 --
------------- -------------
7,454 7,755
Less accumulated depreciation (1,453) (1,726)
-------------- --------------
Net property, plant and equipment 6,001 6,029
------------- -------------
Deferred charges 513 --
Other assets, net 86 157
Goodwill, net 5,309 5,170
------------- -------------
$ 18,634 $ 24,698
============= =============
</TABLE>
The accompanying notes are an integral
part of the financial statements
-3-
<TABLE>
<CAPTION>
BRUNSWICK TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
December 31, June 30,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1996 1997
--------------- -------------
(UNAUDITED)
<S> <C> <C>
Current Liabilities:
Bank Overdraft $ 301 $ --
Note payable to bank 1,180 --
Current installments of long-term debt 298 100
Due to stockholder 1,045 235
Accounts payable - trade 1,785 604
Accrued expenses 705 467
Income taxes payable -- 376
------------- -------------
Total current liabilities 5,314 1,782
------------- -------------
Long-term debt, excluding current installments 8,853 3,968
Deferred income taxes 122 122
Commitments
Convertible preferred stock (liquidation preferences of
$6,641 in 1996) 6,589 --
Stockholders' equity (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 4,558,175 outstanding in 1997 -- --
Additional paid in capital 464 20,849
Treasury stock, 3,300 shares at cost (5) (5)
Accumulated deficit (2,703) (2,018)
-------------- --------------
Total stockholders' equity (deficit) (2,244) 18,826
-------------- -------------
$ 18,634 $ 24,698
============= =============
</TABLE>
The accompanying notes are an integral
part of the financial statements
-4-
<TABLE>
<CAPTION>
BRUNSWICK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three months ended
June 30,
----------------------------------------
1996 1997
---------------- ------------
(unaudited)
<S> <C> <C>
Net Sales $ 4,433 $ 8,073
Cost of goods sold (raw material purchased from a stockholder
amounted to $2,091 and $2,226 in 1996 and 1997, respectively) 3,353 5,872
--------------- -------------
Gross profit 1,080 2,201
Selling, general and administrative expenses 689 1,368
Research and development expenses 157 159
Moving costs (48) --
---------------- -------------
Operating income 282 674
Other income (expense):
Interest income -- 77
Interest expense (30) (98)
Miscellaneous, net 49 50
--------------- -------------
19 29
--------------- -------------
Income before income tax 301 703
Income tax expense 109 257
--------------- -------------
Net income 192 446
Preferred stock dividend (113) --
Accretion of preferred stock redemption value (17) --
---------------- -------------
Net income attributable to common stock $ 62 $ 446
=============== =============
Earnings per common share (pro forma in 1996) $ .06 $ .09
=============== =============
Weighted average common shares outstanding (pro forma in 1996) 3,492 5,195
=============== =============
</TABLE>
The accompanying notes are an integral
part of the financial statements
-5-
<TABLE>
<CAPTION>
BRUNSWICK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Six months ended
June 30,
---------------------------------------
1996 1997
--------------- -------------
(unaudited)
<S> <C> <C>
Net Sales $ 9,177 $ 15,405
Cost of goods sold (raw material purchased from a stockholder
amounted to $5,033 and $4,217 in 1996 and 1997, respectively) 6,984 11,320
--------------- -------------
Gross profit 2,193 4,085
Selling, general and administrative expenses 1,324 2,600
Research and development expenses 300 266
Moving costs 95 --
--------------- -------------
Operating income 474 1,219
Other income (expense):
Interest income -- 132
Interest expense (56) (260)
Miscellaneous, net 93 82
--------------- -------------
37 (46)
--------------- --------------
Income before income tax 511 1,173
Income tax expense 184 441
--------------- -------------
Net income 327 732
Preferred stock dividend (113) (48)
Accretion of preferred stock redemption value (22) (8)
---------------- --------------
Net income attributable to common stock $ 192 $ 676
=============== =============
Earnings per common share (pro forma in 1996) $ .09 $ .16
=============== =============
Weighted average common shares outstanding (pro forma in 1996) 3,492 4,711
=============== =============
</TABLE>
The accompanying notes are an integral
part of the financial statements
-6-
<TABLE>
<CAPTION>
BRUNSWICK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(IN THOUSANDS)
Six months ended
June 30,
----------------------------------------
1996 1997
---------------- -------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 327 $ 732
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 202 385
Deferred taxes 134 --
Changes in assets and liabilities:
Decrease in accounts receivable 590 403
(Increase) in inventories (1,200) (318)
Decrease in refundable income taxes 16 21
Decrease in other current assets
and other assets (36) (187)
(Decrease) in due to stockholder (395) (810)
(Decrease) in other accounts payable and
accrued expenses (355) (1,419)
Increase in income taxes payable (9) 376
---------------- -------------
Net cash (used in) provided by operating activities (726) (817)
---------------- --------------
Cash flow from investing activities:
Purchases of property, plant and equipment (328) (274)
Marketable investments -- (506)
--------------- --------------
Net cash used in investing activities (328) (780)
---------------- --------------
Cash flows from financing activities:
Bank overdraft 226 (301)
Proceeds from (net repayments) under line of credit 387 (1,180)
Issuance of common stock, net of offering costs -- 14,262
Proceeds from (repayment) of long-term debt 288 (5,083)
Other 36 --
--------------- -------------
Net cash provided by financing activities 937 7,698
--------------- -------------
Net increase (decrease) in cash (117) 6,101
Cash at beginning of period 118 355
--------------- -------------
Cash at end of period $ 1 $ 6,456
=============== =============
</TABLE>
Non cash items:
In February 1997, convertible preferred stock and accrued dividends were
converted into common stock (see Note 2 of Notes to Financial Statements.
The accompanying notes are an integral part of the financial statements
-7-
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosure normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. In the
opinion of management, the amounts shown reflect all adjustments
necessary to present fairly the financial position and results of
operations for the periods presented. All such adjustments are of a
normal recurring nature. The year-end consolidated balance sheet was
derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles. It is
suggested that the financial statements be read in conjunction with the
financial statements and notes thereto included in the Company's latest
annual report.
The consolidated financial statements include the accounts of
Brunswick Technologies, Inc. (BTI) and Advanced Textiles, Inc. (ATI),
its wholly owned subsidiary. The accounts of ATI are included from
October 30, 1996, the date of acquisition. Therefore, the June 30, 1996
financial statements included herein exclude the accounts of ATI. All
intercompany transactions have been eliminated.
Earnings per share has been presented on a pro forma basis for
1996 after giving effect to the conversion of the preferred stock
outstanding prior to their conversion into common stock on February 10,
1997, as well as to the 33 for 1 stock split of common stock on
February 5, 1997, in connection with the Company's initial public
offering (see Note 2 to Notes to Financial Statements). The following
table represents information necessary to calculate earnings per share:
<TABLE>
<CAPTION>
3 months ended 6 months ended
June 30 June 30
------- -------
1996 1997 1996 1997
---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net income $ 192 $ 446 $ 327 $ 732
====== ======= ====== ======
Earnings per common share (pro forma in 1996) $ .06 $ .09 $ .09 $ .16
====== ======= ====== ======
Common shares outstanding:
Weighted average common shares 296 4,552 296 4,066
Common share equivalents 647 643 647 645
Conversion of preferred stock 2,337 -- 2,337 --
Preferred stock dividend 211 -- 211 --
Directors' stock grants 1 -- 1 --
------- ------ ------ ------
Weighted average shares outstanding (pro forma in 1996) 3,492 5,195 3,492 4,711
======= ====== ====== ======
</TABLE>
-8-
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. INITIAL PUBLIC OFFERING
On February 10, 1997, the Company completed its initial public
offering of common stock. The sale to the public totaled 2,675,000
shares, with 1,700,000 new shares being sold by the Company and 975,000
shares being sold from the holdings of an existing shareholder. The
offering price was $9.50 per share with proceeds to the Company, after
offering expenses, of approximately $13.7 million. From the proceeds,
the Company was obligated to pay $3,648,250 of the convertible
subordinated note plus accrued interest thereon. With the remaining
proceeds, the Company also paid off the balance of its bank debt of
approximately $2.9 million. Deferred charges of $512,679 at December
31, 1996, and other transactional expenses (together aggregating
approximately $1.3 million) were offset against stockholders' equity
upon completion of the offering.
Pursuant to the terms of the preferred stock, 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 offering. In addition, the Board approved the grant of
stock to new Directors totaling 1,000 shares, which were issued at the
closing of the offering.
3. INVENTORIES
Inventories consist of the following components:
<TABLE>
<CAPTION>
December 31, June 30,
1996 1977
(unaudited)
(in thousands)
<S> <C> <C>
Raw materials $ 576 $ 839
Work-in-process 653 716
Finished goods 2,034 2,026
----------- ----------
$ 3,263 $ 3,581
========== =========
</TABLE>
4. NEW ACCOUNTING PRONOUNCEMENTS
During February 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings per Share", which will require a change in how the
Company calculates earnings per share. This statement is effective for
financial statements issued for periods ending after December 15, 1997,
with earlier application not permitted. The statement requires dual
presentation of basic and diluted earnings per share on the
consolidated statements of income. Had the earnings per share
calculation been applied on a basis consistent with the provisions of
SFAS No. 128 and Securities and Exchange Commission regulations, basic
earnings per share would have been $.07 and $.10 per share for the
three months ended June 30, 1996 and 1997, respectively and $.11 and
$.18 per share for the six months then ended respectively. Diluted
earnings per share would have been equivalent to the amounts reported
in the statements of income.
In June 30, 1997, FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which will require separate reporting of changes
to stockholders equity, and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which revises existing
guidelines for financial reporting for the Company's operations. Both
statements are effective for financial statements issued after December
15, 1997, except interim reporting under SFAS No. 131 is not required
until the Company's first quarter of 1999. The Company has determined
that the requirements of these statements will not have a material
effect on the Company's existing financial reporting.
-9-
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Brunswick Technologies, Inc.
We have reviewed the accompanying consolidated balance sheet of
Brunswick Technologies, Inc. and subsidiary as of June 30, 1997, and the related
consolidated statements of income for the three month and six month periods
ended June 30, 1997 and the related consolidated statement of cash flows for the
six month period ended June 30, 1997. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion. We previously audited and
expressed an unqualified opinion on the Company's consolidated financial
statements for the year ended December 31, 1996 (not presented herein). In our
opinion, the information set forth in the accompanying balance sheet as of
December 31, 1996, is fairly stated in all material respects, in relation to the
statement of financial position from which it has been derived.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying consolidated financial statements for
them to be in conformity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Portland, Maine
July 18, 1997
-10-
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF SECOND QUARTER 1997 RESULTS.
GENERAL
As a result of the October 30, 1996, purchase of Advanced Textiles Inc.
(ATI) from Burlington Industries (see Note 1 of Notes to Financial Statements),
the operations of ATI for the 1997 period are included in the Consolidated
Statements of Income and Cash Flow for the 1997 periods, and ATI's net assets
are included in the June 30, 1997 and December 31, 1996 Consolidated Balance
Sheets.
RESULTS OF OPERATIONS
Second quarter 1997 versus second quarter 1996
----------------------------------------------
Net sales increased by $3,640,000 or 82% in 1997. Pounds sold
were 5,345,133 in the second quarter of 1997 versus 3,156,667 in the
corresponding 1996 period.
Gross margin was 27.3% of net sales in the second quarter of
1997 versus 24.4% for the 1996 period. The increase is due primarily to
the addition of the operations of ATI whose products, in general, have
higher gross margins.
Operating expenses increased $729,000 in the second quarter of
1997, primarily as a result of $537,000 of operating expense
attributable to ATI (including goodwill amortization of $67,000). Also
contributing to the increases in operating expense is a $47,842 credit
in the 1996 period as a result of a June 1996 reversal of a reserve for
facility repair costs created in December 1995 in connection with the
Company's move to its new facility. Non-operating income amounted to
$29,000 in the second quarter of 1997. This amount was composed of
$77,000 of interest income, $38,000 of cash discounts, $25,000 from
reimbursement under the Company's federal grant reduced by $98,000 of
interest expense ($95,000 on amounts owed to Burlington Industries,
Inc. from the purchase of ATI), and $13,000 of miscellaneous expense.
In the 1996 quarter, non-operating income amounted to $19,000 as a
result of $53,000 from reimbursement under the Company's federal grant
reduced by $30,000 of interest expense on bank borrowings and $4,000 of
miscellaneous expense.
Six months 1997 versus six months 1996
--------------------------------------
Net sales increased by $6,227,000 or 68% in 1997. Pounds sold
were 10,156,085 in 1997 versus 6,516,734 in the corresponding 1996
period.
Gross margin was 26.5% of net sales in 1997 versus 23.9% for
the 1996 period. The increase is due primarily to the addition of the
operations of ATI whose products, in general, have higher gross
margins.
Operating expenses increased $1,146,000 in 1997, primarily as
a result of $1,104,000 of operating expense attributable to ATI
(including goodwill amortization of $139,000). Offsetting this increase
was $95,757 of moving expense incurred in 1996 but not 1997.
Non-operating expense amounted to $46,000 in 1997. This amount was
composed of $132,000 of interest income, $51,000 of cash discounts,
$47,000 from reimbursement under the Company's federal grant offset by
$260,000 of interest expense ($231,000 on amounts owed to Burlington
Industries, Inc. from the purchase of ATI), and $16,000 of
miscellaneous expense. In the 1996 period, operating income amounted to
$38,000 as a result of $98,000 from reimbursement under the Company's
federal grant reduced by $57,000 of interest expense on bank borrowings
and $3,000 of miscellaneous expense.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow activities for the six month period ended June
30, 1997 are reflected in the consolidated Statements of Cash Flows. The
Company's liquidity and capital resources were favorably impacted by its initial
public offering in February 1997, when it sold 1,700,000 newly issued shares at
$9.50 per share to the public. After selling commissions and other expenses net
proceeds to the Company amounted to $13.7 million. With a portion of this
amount, the Company paid $3,648,250 of the principal note amount due Burlington
Industries, Inc. plus interest of $94,954, as well as bank debt amounting to
$2,892,960. The Company's funds in excess of that required for normal operating
activities are invested in short-term, high-grade governmental and corporate
obligations.
-11-
PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Company held an annual meeting of shareholders on April 29,
1997.
(b) Not required.
(c) Set forth below is a brief description of each matter voted upon at
the meeting, including the number of votes cast for, against or withheld, as
well as the number of abstentions and broker non-votes as to each such matter
and including a separate tabulation with respect to each nominee for office:
Number of Shares
----------------
1. Election of Directors. For Withheld Authority
--- ------------------
Martin S. Grimnes 2,961,678 5,000
William M. Dubay 2,961,678 5,000
David M. Coit 2,961,678 5,000
Donald R. Hughes 2,961,678 5,000
Max G. Pitcher 2,961,678 5,000
David E. Sharpe 2,961,678 5,000
Peter N. Walmsley 2,961,678 5,000
2. To Ratify the appointment of Coopers & Lybrand L.L.P. as independent
auditors of the Company:
Number of Shares
----------------
For: 2,956,978
Against: 4,600
Abstain: 5,100
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27. Financial data schedule.
(b) No reports on Form 8-K were filed during the quarter ended June 30,
1997.
-12-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned thereunto duly authorized.
Brunswick Technologies, Inc.
By: /s/John P. O'Sullivan
-----------------------------------
Chief (Principal) Financial Officer
and Treasurer
Date: August 13, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Brunswick Technologies, Inc.'s consolidated financial statements as of and for
the six months ended June 30, 1997 and is qualified in its entirety by reference
to such financial statements. Amounts rounded to thousands (except for per share
amounts).
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-Mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Jun-30-1997
<CASH> 6,456
<SECURITIES> 506
<RECEIVABLES> 2,264
<ALLOWANCES> 48
<INVENTORY> 3,581
<CURRENT-ASSETS> 13,342
<PP&E> 7,755
<DEPRECIATION> 1,726
<TOTAL-ASSETS> 24,698
<CURRENT-LIABILITIES> 1,782
<BONDS> 0
0
0
<COMMON> 20,850
<OTHER-SE> (5)
<TOTAL-LIABILITY-AND-EQUITY> 24,698
<SALES> 15,405
<TOTAL-REVENUES> 15,405
<CGS> 11,320
<TOTAL-COSTS> 2,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 260
<INCOME-PRETAX> 1,173
<INCOME-TAX> 441
<INCOME-CONTINUING> 732
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 732
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
