<PAGE> 1
================================================================================
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, 1997.
[ ] Annual report under section 13 or 15(d) of the Securities Exchange Act of
1934 for the transition
period to .
Commission File Number 0-22089
BRUNSWICK TECHNOLOGIES, INC.
(Exact Name of Registrant As Specified In Its Charter)
<TABLE>
<S> <C>
MAINE 01-0405052
(State or other jurisdiction of Incorporation (I.R.S. Employer Identification No.)
or organization)
43 BIBBER PARKWAY, BRUNSWICK, MAINE 04011
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number including area code: (207) 729-7792
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock $0.0001 par value
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 [X] No [ ]
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
incorporation by reference in Part III of this Form 10-K or any amendment to
this Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates as of March 26, 1998 was approximately $70,978,200 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 26, 1998: 5,162,054 shares of Common Stock,
$0.0001 par value.
The registrant's definitive proxy statement for its Annual Meeting of
Stockholders, to be held on May 13, 1998, which will be filed with the
Commission on or before April 30, 1998, is incorporated by reference in response
to Part III, Items 10, 11, 12 and 13; and certain exhibits to the registrant's
Form S-1 Registration Statement (File No. 333-10721) and Form 8-K dated March 2,
1998, are incorporated by reference in response to Part IV, Item 14.
================================================================================
<PAGE> 2
BRUNSWICK TECHNOLOGIES, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECURITIES AND EXCHANGE COMMISSION
ITEM NUMBERS AND DESCRIPTION PAGE
---------------------------------- ----
<S> <C> <C>
PART I
Item 1. Business.................................................... 2
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 10
Item 4. Submission of Matters to a Vote of Security Holders......... 10
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 10
Item 6. Selected Financial Data..................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 12
Item 7A. Quantitative and Qualitative Disclosures About Market
Risk........................................................ 16
Item 8. Financial Statements and Supplementary Data................. 16
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 32
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 32
Item 11. Executive Compensation...................................... 32
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 32
Item 13. Certain Relationships and Related Transactions.............. 32
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K......................................................... 33
</TABLE>
1
<PAGE> 3
Information contained in this report with respect to expected financial
results and future events and trends is forward-looking based on Management's
estimates and assumptions and is subject to risks and uncertainties. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Cautionary Statement Concerning Forward-Looking Statements."
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. 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.
The Company's strategy is to increase revenues and net income by 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. Key elements of this strategy include: (i) increasing
market share for Company's products; (ii) continuing to build the customer and
project base for White Steel(R) (see "Joint Projects"); (iii) aggressively
moving further into the carbon fiber fabric market; and (iv) expanding further
into the European market.
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. During 1997, ATI was fully integrated into the operations of the
Company, including sales, distribution and manufacturing.
In order to accelerate the Company's penetration of the European market,
the Company acquired the business and assets of Tech Textiles International Ltd.
("TTI"), located in Andover, UK on March 2, 1998. The acquisition will serve as
a platform for the transfer of the Company's proprietary process technology and
production of White Steel(R) while providing access to European suppliers and
other sales distribution channels.
2
<PAGE> 4
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 industrial
applications, including cars, trucks, ballistic armor applications and
industrial tanks & 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 fibers
performance defines the amount of such fibers needed to achieve specific
performance specifications. In contrast to weaving, weft insertion or
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 weft insertion process, while optimizing the fibers
mechanical properties, is typically a multi-step, relatively slow process used
for select niche markets. In 1990, the Company introduced a revolutionary new
product line, BiTex(TM), 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.
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 with high production throughputs, all without crimping
the fiber and thereby avoiding degradation of the fibers strength. While the
Company does offer some weft inserted multi-step products, these are generally
offered in traditional lightweight markets. Certain of the Company's competitors
also can offer weft-inserted or stitchbonded reinforcement fabrics, though 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.
COMPANY STRATEGY
The Company's strategy to continue its current growth includes the
following elements:
- Continue to build market share in existing markets by: (i)
accelerating the pace of marine conversions through the development of new
fabrics and production techniques; (ii) aligning itself with high volume
end users by expanding the Company's knowledge of their production needs
and end market requirements; and (iii) realigning North American
distribution to optimize market impact;
- Grow White Steel(R) business by: (i) seeking out and developing high
volume applications for White Steel(R) as a replacement for wood, steel and
concrete; (ii) developing partnerships to accelerate the conversion of
traditional materials to composites; and (iii) investing in the Company's
core manufacturing process technology to drive the cost competitiveness of
White Steel(R);
- Develop European market presence by: (i) using the 1998 acquisition
of TTI as a base to introduce the Company technology to the European
marketplace; (ii) increasing penetration of White Steel(R) into key markets
and projects; and (iii) expanding TTI's base growth rate by increasing
product offerings;
- Increase market presence in the developing carbon fiber market by:
(i) developing carbon fiber based processing techniques and reinforcement
fabrics to highlight carbon fibers inherent advantages; and (ii) fostering
joint development teams to increase the market for carbon reinforcing
fabrics;
3
<PAGE> 5
- Continued expansion of its leadership position in the composite
reinforcement fabrics industry through the 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 of the Company's position as the
only supplier of composite reinforcement fabrics to develop and manufacture
its own production equipment; and
- Pursuit of additional acquisitions to further broaden the Company's
product line as well as manufacturing capacity, product market coverage,
and distribution channels.
ACQUISITION OF ADVANCED TEXTILES, INC. AND TECH TEXTILES INTERNATIONAL LTD.
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 is better positioned to be the
principal provider of these fabrics to its expanded customer base. The Company
believes it is capturing additional market share by cross-marketing its existing
products to ATI's customers and vice versa. The Company is applying its
specialized know-how and technical skills to ATI's manufacturing capabilities
and achieving cost-savings through economies of scale. Additionally, the
acquisition offers integrated distribution channels and higher manufacturing
efficiencies at ATI's production facility.
On March 2, 1998 the Company acquired the business and assets of TTI based
in Andover, UK from T&N plc for approximately $5.9 million in cash. The
acquisition was made through a wholly owned subsidiary in the UK, Brunswick
Technologies Europe Ltd. The acquired business will be the Company's base of
operations for the Company's continued expansion into Europe.
TTI, is a composite reinforcement materials company which manufactures
glass, carbon and other high modulus reinforcements, many of which are used in
high margin applications in aerospace, automotive and wind generation. TTI is
based in a 25,000 square foot manufacturing facility which currently employs 24
people with annual sales exceeding $6 million. Management expects this
acquisition to make a positive contribution to the company's consolidated
revenues and earnings in 1998.
The Company expects the acquisition will strengthen its leading market
share position in the reinforcement market and help advance its key growth
strategy to serve a worldwide market in the composite industry. Management
believes that the acquisition is a platform for the transfer of the Company's
proprietary process technology and production of White Steel(R) and provides
access to European suppliers and other sales distribution channels. The Company
also anticipates greater opportunities with current industry partnerships, many
of which are European-based and are subject to Common Market product origin
requirements. Other financial and competitive advantages include significant
savings on duty, shipping costs and material delivery time. TTI's current
management team will continue to manage the day to day operations.
PRODUCTS
The Company currently manufactures composite reinforcement fabrics, also
referred to as stitchbonded or weft inserted non-crimped fabrics, primarily from
glass, carbon and aramid fibers, and is distributing them under the BiTex,
Cofil(TM) and White Steel(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, which the Company purchased in 1996, 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.
The ATI operation, which was integrated into the Company during 1997, offers a
product range that focuses on high-margin, high-quality, specialty products
required by a wide range of end users. In
4
<PAGE> 6
general, the weft-inserted light-weight and super-light-weight fabrics produced
are not sold as commodities. TTI, located in Andover, UK and acquired in March,
1998, manufactures products similar to those manufactured by ATI using weft
insertion stitchbonding technology.
The Company's composite reinforcement fabrics permit 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 stitchbonding 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-absorption 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.
- 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 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.
- 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 also diminish the
amount of chemicals released in the environment. For example, marine
pilings and telephone poles constructed of composite materials would
5
<PAGE> 7
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 per 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(TM) and
White Steel(R) product lines, 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;
- First 100+inch-wide single-step fabrics commercialized in 1993;
- First capability to produce, in a single-step, 150 inch 0-90 degree
binderless mat product, and commercialization of same in 1994; and
- Introduction of a second generation White Steel(R) machine capable
of producing fabrics in excess of 100 oz. per square yard in 1997.
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 $408,247, $498,038 and $677,192 on both Company-sponsored and
customer-sponsored research and development in the fiscal years ended December
31, 1995 1996 and 1997, respectively. A certain amount of the Company's R&D
activities are dedicated to the building of new production equipment.
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.
6
<PAGE> 8
Although 78% and 76% of the Company's gross sales were made through four
distributors in 1995 and 1996, respectively and 68% through five distributors in
1997 (FRP Supply, GLS Corporation, M.A. Hanna Resin Distribution, Plastic Sales,
Inc. and RP Associates) each distributor is comprised of a subset of multiple
regional distributors. In 1995, 1996 and 1997 the Company made 9.8%, 12.0%, and
23%, 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's competitive position in the European market has been greatly enhanced
through the March, 1998, acquisition of TTI in Andover, UK. TTI's sales managers
have been utilizing a similar team approach to that of the Company's and now
have a broader product line with which to compete in the market. Management
believes that further expansion of the use of heavy and super-heavy weight
fabrics throughout the composite industry will uniquely benefit sales of the
Company's White Steel(R) product line.
SUPPLY
There are three significant suppliers of E-Glass raw material utilized by
the Company. Vetrotex CertainTeed Corp ("Vetrotex"), a shareholder of the
Company, is the primary supplier which supplies approximately 55% of the
requirements. PPG Industries is the second largest supplier accounting for
approximately 30% of the supply. Owens Corning accounts for about 7% of the
requirements. Additional suppliers include GAF and Jushi Fiberglass of China.
The Company's ability to grow is dependent upon its ability to obtain an
adequate supply of fiberglass at a competitive cost. The Company had a supply
agreement with Vetrotex to supply 90% of its requirement which expired in August
1996. Since then the Company has developed stronger relationships with the other
suppliers to insure adequate supply and cost effective pricing to support the
anticipated growth in the years ahead. The acquisition of ATI increased the
demand significantly and also improved the Company's position to negotiate with
the vendors for more favorable terms.
BACKLOG
The Company's backlog as of December 31, 1997 was approximately $3,079,000,
or approximately 4.9 weeks of sales. Backlog as of December 31, 1996 was
approximately $957,200, or approximately 2.6 weeks of sales. The increased
backlog is due, in part, to the somewhat higher mix of sales directly to end
users who place extended purchase orders with the company. In addition, the
Company has worked hard to ensure its distributors place repetitive orders in a
timely fashion.
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 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 began in May of
1996 and runs through May of 1999 and 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 project has enabled the
Company to independently develop its newest White Steel(R) machine which had its
first trials in early 1997. This development is considered enabling technology
which has enhanced the speed, quality and cost-effectiveness of composite
reinforcement production.
The entire budget of the program contemplated by the Collaborative
Agreement is approximately $1,547,000, which is to be spent over three years.
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 $143,274 was included as a benefit to the 1997 statement of income.
Cost of goods sold was credited for $24,166 of this amount while $119,108
credited to other income. The Company is responsible for adherence to applicable
federal laws and regulations covering both federal funds, including allowability
of costs. The Company expects to spend approximately $100,000 to complete the
last year of the project with one half of that amount coming from a NIST grant
in 1998.
7
<PAGE> 9
The parties to the Collaborative Agreement have a 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. The successful prototypes have
permitted a consortium comprised of Hardcore DuPont, Burlington Northern and
Trinity Industries to initiate a project for the industrial manufacture of
railroad cars using the Company's fabric. The project is currently producing a
rail car body every 3.5 working days.
The Department of Defense has awarded funding through the 1995 Defense
Experimental Program to Stimulate Competitive Research (DEPSCoR) to the
University of Maine (Orono) 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 University of Maine 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.
Additionally, the Company has agreed to partially fund a University of
Maine graduate student through to his doctoral dissertation concerning wood
composite highbred materials for use in civil infrastructure. A significant by
product of this agreement has been the development of a composite laminate
design program owned by the company for use in assisting customers in optimizing
their laminates. The cost of this sponsorship is approximately $12,500 per year
through 1999.
The Company has recently agreed with ABB Offshore Technology, a division of
ASEA Brown Boveri S.A., to contribute up to $5,000 of in kind services in a
joint effort to design and develop new applications for offshore oil exploration
and production. This agreement is an outgrowth of other co-operative projects
concerned with the 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 feet by 90 feet by 90 feet and would replace
corrosion-prone heavy steel structures.
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 North American market. These are Johnston Composite
Industries, a subsidiary of Johnston Industries Inc., and Knytex, a division of
Owens Corning. The Company believes that it has one of the largest shares of the
North American market for weft-inserted or stitchbonded (non-crimped) composite
reinforcement fabrics.
The Company also competes in the European market, which is highly
fragmented with up to 17 small competitors addressing many niche markets. The
Company has established itself as a significant competitor in this market with
its 1998 acquisition of Tech Textiles International Ltd. and its growing White
Steel(R) business in northern Europe.
8
<PAGE> 10
EMPLOYEES
As of December 31, 1997, the Company had 125 full time employees, of whom
98 were employed in engineering and manufacturing, 12 in sales and marketing and
15 in administrative and management functions. No employees are represented by
unions. The Company believes its relations with employees are good.
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 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 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.
YEAR 2000
The Company is in the process of installing a new management information
system which will integrate the Sales, Manufacturing, and Financial areas of the
Company. The Company has hired an outside consulting firm to assist in the
implementation and the primary software being used is manufactured by a third
party vendor, Symix Corporation. The software is Year 2000 compliant and is
expected to be fully implemented throughout the Company no later than June 1999.
Total cost is estimated to be up to $500,000, most of which will be capitalized
and amortized over a 5-year period.
The Company is in the process of reviewing non-financial and non-production
related systems to assess the potential impact of Year 2000 selected issues. The
review is expected to be completed by December 31, 1998 and any remediation
completed by June 1999. The Company is also in the process of reviewing Year
2000 compliance issues with its major vendors and customers. The review is
expected to be completed by December 31, 1998 and the Company plans to work
proactively with its vendors and customers to minimize any potential disruption
caused by the Year 2000 issue.
ITEM 2: PROPERTIES
The Company's executive offices and major manufacturing/warehouse facility
is located in a facility in Brunswick, Maine, of approximately 52,400 square
feet which was substantially completed in March 1996. The Company leases the
property from 2 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 to 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
$190,212 annually through the year 2000; the lease provides for periodic
scheduled rent increases, with a final annual rent of $216,412 for the last year
(2005) of the current lease. The Maine operation currently leases an additional
10,000 square feet at $43,200 per year for storage of finished goods to maximize
the effectiveness of material movements and traffic operations.
With the acquisition of ATI, the Company acquired approximately 42,000
square feet of manufacturing, office and warehouse space in Seguin, Texas,
including underlying real estate. In 1997, an additional 10,000 square feet was
constructed bringing the total to approximately 52,000 square feet. The Seguin
9
<PAGE> 11
operation also rents approximately 6,000 square feet at $6,900 per year for
storage of spare machine parts and miscellaneous equipment.
The Company, through its recently formed subsidiary Brunswick Technologies
Europe, Ltd., leases a total of approximately 25,000 square feet of modern
manufacturing, offices and warehouse space in Andover, UK. Annual rent of
L71,000 is paid in quarterly installments. The two triple-net leases run through
June, 2005, with the rental payments subject to adjustment in July, 2000.
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 STOCKHOLDERS 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:
<TABLE>
<CAPTION>
1997 HIGH LOW
---- ----- -----
<S> <C> <C>
First Quarter(1).................................. $10 7/8 $9 1/2
Second Quarter.................................... $9 3/8 $8 5/8
Third Quarter..................................... $19 1/2 $9 1/8
Fourth Quarter.................................... $20 3/16 $14
</TABLE>
- ---------------
(1) For the period from February 5 (initial public trading day) through March
31, 1997. The approximate number of stockholders of record of the Company's
Common Stock as of March 24, 1998 is 250.
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.
Item 701 Disclosure:
Pursuant to outstanding common stock purchase warrants, the Company sold
shares of its common stock to the parties listed below at $1.51 per share in the
amounts and on the dates indicated. The sales were made pursuant to Section 4(2)
of the Securities Act of 1933, as amended (the "Act") in private transactions.
<TABLE>
<CAPTION>
NUMBER OF SHARES PURCHASER DATE OF PURCHASE
---------------- --------- ----------------
<S> <C> <C>
6,898................ Daniel A. Zilkha June 24, 1997
164,051.............. North Atlantic Venture Fund July 15, 1997
7,139................ Dodge D. Morgan August 11, 1997
</TABLE>
On November 7, 1997 the Company called for prepayment of the $3,648,250,
9.5% convertible promissory noted held by Burlington Industries, Inc. The note
was issued in partial payment of the October 30, 1996 purchase of Advanced
Textiles, Inc. Also on November 7, 1997, Burlington Industries, under the terms
of the note, elected to convert into common stock $1,500,000 of the note at an
exercise price of $9.50 per share which is the equivalent of 157,894 common
shares. The remaining $2,148,250 was converted on November 17, 1997 into an
additional 226,131 shares of Common Stock at the same exercise price of $9.50
per share. The sale pursuant to such conversion was made pursuant to Rule 506 of
Regulation D under the Act. The sale involved one accredited investor and did
not involve general solicitation or advertising.
10
<PAGE> 12
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 held by Burlington Industries, plus accrued
interest thereon of $94,954. From the proceeds, the Company also paid off the
balance of its bank debt, approximately $2,892,960 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. For the year ended December 31, 1997, the
Company expended $855,900 of the proceeds in purchases of property, plant and
equipment and $4,394,000 of the proceeds for working capital. The balance of the
proceeds of the initial public offering that had not been expended as of
December 31, 1997 was invested in high-grade governmental and corporate
obligations.
ITEM 6: SELECTED FINANCIAL DATA
The selected financial data set forth below for the Company's fiscal year
ended December 31, 1994 and at December 31, 1994 are derived from the financial
statements of the Company audited by KPMG Peat Marwick LLP, independent public
accountants. The selected financial data set forth below for the Company's
fiscal years ended December 31, 1995, 1996, and 1997 and at December 31, 1995,
1996 and 1997 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 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.
BRUNSWICK TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1993 1994 1995 1996(1) 1997
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales................................... $ 6,376 $ 9,596 $15,476 $19,816 $30,510
Cost of goods sold.......................... 4,996 7,382 11,979 15,318 22,807
------- ------- ------- ------- -------
Gross profit................................ 1,380 2,214 3,497 4,498 7,702
Other operating expenses.................... 1,258 1,874 2,492 3,521 5,921
Moving costs................................ -- -- 9 248 --
Facility repair costs....................... -- -- 150 (148) --
------- ------- ------- ------- -------
Operating income............................ 122 340 846 877 1,781
Other income, net........................... (11) (26) (61) 51 202
------- ------- ------- ------- -------
Income before income taxes.................. 111 314 785 928 1,983
Income tax (benefit) expense................ -- -- (122) 335 707
------- ------- ------- ------- -------
Net income.................................. 111 314 907 593 1,275
------- ------- ------- ------- -------
Preferred stock dividend.................... (332) (450) (450) (450) (51)
Accretion of preferred stock Redemption
value..................................... (71) (76) (82) (69) (5)
------- ------- ------- ------- -------
Net income (loss) attributable to Common
stock..................................... $ (292) $ (212) $ 375 $ 74 $ 1,219
------- ------- ------- ------- -------
Basic earnings per share.................... $ 1.33 $ 0.25 $ 0.29
------- ------- -------
Diluted earnings per share.................. $ 0.26 $ 0.17 $ 0.26
------- ------- -------
</TABLE>
11
<PAGE> 13
<TABLE>
<CAPTION>
AT DECEMBER 31,
-----------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................. $ 548 $ 631 $ 905 $ 1,412 $12,414
Total assets................................ 4,338 5,665 7,867 18,634 25,216
Long-term liabilities....................... 337 1,177 1,069 8,975 623
Total liabilities........................... 1,873 2,886 4,168 14,289 1,989
Preferred stock............................. 5,012 5,538 6,070 6,589 --
Stockholder's equity (deficit).............. $(2,547) $(2,759) $(2,371) $(2,244) $23,227
------- ------- ------- ------- -------
</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 Consolidated Financial Statements
of the Company.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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 was 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 is
being 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
stockholder's 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, which reduced interest expense by $28,882 a month.
On November 7, 1997 the Company called the remaining $3,648,250 outstanding
under the convertible subordinated note and Burlington chose to convert the note
into Common Stock in a two stage conversion: $1,500,000 was converted on
November 7, 1997 into 157,894 shares of Common Stock at the exercise price of
$9.50 per share. The remaining $2,148,250 was converted on November 17, 1997
into an additional 226,131 Common Shares at the same exercise price of $9.50 per
share. This completed the financing of the ATI acquisition and eliminated the
remaining monthly interest expense of $28,882.
12
<PAGE> 14
The following table sets forth certain financial data as a percentage of
net sales:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Net Sales................................................. 100.0% 100.0% 100.0%
Cost of goods sold........................................ 77.4 77.3 74.8
----- ----- -----
Gross Profit.............................................. 22.6 22.7 25.2
Selling, general and administrative expenses.............. 13.5 15.2 17.2%
Research and development expenses......................... 2.6 2.5 2.2
Moving costs.............................................. 0.0 1.3 --
Facility repair cost...................................... 1.0 (0.7) --
----- ----- -----
Operating income.......................................... 5.5 4.4 5.8
Other income (expense):
Interest expense........................................ (0.8) (1.3) (1.1)
Miscellaneous, net...................................... 0.4 1.6 1.7
----- ----- -----
(0.4) (0.3) 0.7
----- ----- -----
Income before income tax.................................. 5.1 4.7 6.5
Income tax (benefit) expense.............................. (0.8) 1.7 2.3
----- ----- -----
Net income................................................ 5.9% 3.0% 4.2%
===== ===== =====
</TABLE>
1997 Compared to 1996
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
between 1995 and 1996 are shown below both exclusive and inclusive of ATI's
results. The percentage increases for 1997 when compared to 1996, also shown
below include ATI.
<TABLE>
<CAPTION>
EXCLUSIVE OF ATI INCLUSIVE OF ATI
---------------------- ----------------------
% %
1995-1996 1995 INCREASE 1996 INCREASE 1996
--------- ----------- -------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
Pounds sold.............................. 11,892,012 9.0% 12,962,646 16.8% 13,893,086
Net Sales................................ $15,476,424 16.9% $18,092,138 28.1% $19,815,711
Average price per pound.................. $ 1.301 7.2% $ 1.369 9.6% $ 1.426
Cost of goods sold....................... $11,978,978 16.7% $13,974,208 28.9% $15,317,619
Average cost per pound................... $ 1.007 7.0% $ 1.078 9.5% $ 1.103
Gross profit............................. $ 3,497,446 17.7% $ 4,117,930 28.6% $ 4,498,092
Gross profit per pound................... $ 0.294 8.0% $ 0.318 10.2% $ 0.324
</TABLE>
<TABLE>
<CAPTION>
INCLUSIVE OF ATI
--------------------------------------
%
1996-1997 1996 INCREASE 1997
--------- ----------- -------- -----------
<S> <C> <C> <C>
Pounds sold........................................... 13,893,086 49.1% 20,721,483
Net Sales............................................. $19,815,711 54.0% $30,509,675
Average price per pound............................... $ 1.426 3.2% $ 1.472
Cost of goods sold.................................... $15,317,619 48.9% $22,807,179
Average cost per pound................................ $ 1.103 -0.2% $ 1.101
Gross profit.......................................... $ 4,498,092 71.2% $ 7,702,496
Gross profit per pound................................ $ 0.324 14.8% $ 0.372
</TABLE>
NET SALES. Net sales increases reflect the positive impact of a full 12 months
of ATI's activity as well as the successful cross-selling of the integrated
product lines during the year. Revenues have also 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, oil and gas,
recreational and industrial. Most notably, sales of the Company's White Steel(R)
product line increased over 45% to over $1.0 million in gross sales.
Sales within periods have historically 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
13
<PAGE> 15
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. Supplies within the industry remained
readily available throughout 1997.
GROSS PROFIT MARGIN. Gross profit margin continued to improve in 1997 as the
Company was able to enjoy a $.046 per pound increase in the average selling
price while pushing cost of goods sold down .2% to $1.101 per pound. These
numbers reflect the positive impact of ATI's higher margin business as well as
favorable special pricing on raw stock that the Company was able to achieve in
the first half of the year. Pricing of raw stock returned to more normal levels
in the second half of the year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for 1997 were impacted by the inclusion of a full 12
months of ATI's activities plus increased administrative costs associated with
being a publicly traded company. Selling, general and administrative expenses
for 1997 increased 74%, or $2,221,776. Within that category, selling expense
increased by 89.7%, or $977,481 and as a percentage of net sales, selling
expense rose from 5.5% to 6.8%, due primarily to increases in salaries
associated with the acquisition of ATI. General and administrative expenses
(G&A) increased $695,337, or 67.3%. As a percentage of net sales, G&A expenses
increased from 5.2% in 1996 to 5.7% in 1997 with the increase caused by an
increase in salaries and bonuses associated primarily with the acquisitions of
ATI plus the higher legal, accounting and insurance fees associated with the
Company's Common Stock being traded in the public markets. Directors and
Officers insurance (D&O) increased from $10,000 annually to $75,895 annually as
a result of the Company's IPO in February, 1997, while outside legal and
accounting expenses (net of those directly supporting the IPO) increased by
approximately $58,000 in 1997. Also in G&A, goodwill amortization increased by
$224,361 resulting from a full 12 months amortization associated with the ATI
acquisition in 1997 versus only two months in 1996.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
by $179,154, or 36% in 1997. Most of the increase is due to costs associated
with the start-up of the Company's new White Steel(R) production machine, which
was brought on line during the later part of the third quarter.
MOVING COSTS. Moving costs in 1996 reflect the cost of moving to the new,
Brunswick, Maine 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 as recognized as an addition to operating income in June 1996
which offset, to some extent, other increases in operating expenses.
INTEREST INCOME. Interest income of $319,071 was earned in 1997 and resulted
from the investment of some of the net proceeds from the Company's IPO.
INTEREST EXPENSE. Interest expense increased as a result of the debt due to
Burlington, which was incurred in November 1996 and partially retired in
February 1997, in conjunction with the IPO. The remaining balance was converted
into Common Stock in November 1997. Also, the Company had capitalized interest
associated with the construction phase of new machines totaling $72,084 in 1997,
up from only $14,022 in 1996.
MISCELLANEOUS INCOME. Miscellaneous income includes some of the impact of
reimbursement of expenses related to expenditures on new technologies from a
grant from the NIST in 1997 when the amount of $143,274 was included as a
benefit to the 1997 statement of income. Cost of goods sold was credited for
$24,166 of this amount while $119,108 was credited to other income. The
reimbursement of certain expenditures from this grant resulted in a credit of
$93,638 and $34,266 to cost of goods sold and recognition of $332,432 and
$66,742 as other income in the 1996 and 1995 periods, respectively. Cash
discounts, which are also included in miscellaneous income, earned through the
early payment of trade debt, totaled $131,469 in 1997 and was achieved by
utilization of some of the net proceeds of the Company's IPO.
INCOME TAXES. In 1997, the Company recorded income tax expense of $707,400, for
an effective rate of 35.7%. In 1996, the Company recorded income tax expense at
an effective rate of 36.1%.
1996 compared to 1995
Refer to the table in the section above comparing 1997 to 1996 for a summary of
the changes in the net revenue and cost of goods sold accounts for 1996 compared
to 1995.
14
<PAGE> 16
NET SALES. The increase in net sales was attributable to increases in market
share and existing end use applications as well as the acquisition of ATI in
1996. 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. Moving costs in 1996 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. 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 expenses 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.
INCOME TAXES. 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.
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.
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, (one year from the date of the acquisition of ATI), the
outstanding balance of the convertible note to Burlington became convertible
into Common Stock at a rate of $9.50 per share. On October 30, the Company
called the remaining $3,648,250 outstanding under the convertible subordinated
note and Burlington chose to convert the note into Common Stock in a two stage
conversion: $1,500,000 was converted on November 7, 1997 into 157,894 shares of
Common Stock at the exercise price of $9.50 per share. The remaining $2,148,250
was converted on November 17, 1997 into an additional 226,131 shares of Common
Stock at the same exercise price of $9.50 per share. This completed the
financing of the ATI acquisition and eliminated the remaining monthly interest
expense of $28,882.
15
<PAGE> 17
The Company used approximately $2.2 million of the net proceeds from the IPO to
accelerate the payment of trade debt in order to take advantage of early payment
discount incentives being offered by major suppliers.
OTHER CONSIDERATIONS. The TTI acquisition substantially reduced the liquidity of
the Company. The Company continues to have an unused $2,500,000 revolving credit
facility with its bank. The bank has committed to an increase in the credit
facility of $1,500,000 to $4,000,000. Details of the arrangement are given in
Note 4 of Notes to the Consolidated Financial Statements of the Company.
Acquisition of Tech Textiles International Ltd.
On March 2, 1998 the Company acquired the business and assets of Tech Textiles
International Ltd. (TTI) based in Andover, UK from T&N plc for approximately
$5.9 million in cash. The acquisition was made through The Company's recently
formed wholly owned subsidiary in the UK, Brunswick Technologies Europe Ltd. The
acquired business will be the Company's base of operations for the Company's
continued expansion into Europe. TTI, is a composite reinforcement materials
manufacturer of proprietary glass, carbon and other high modulus reinforcements
which are used in applications in aerospace, automotive and wind generation.
Located in a 25,000 square foot manufacturing facility, TTI employs 24 people
with annual sales exceeding $6 million.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Information contained in this report with respect to expected financial
results and future events and trends is forward-looking, based on Management's
estimates and assumptions and is subject to risks and uncertainties. For those
statements, the Company claims the protection of the safe harbor for
forward-looking statements contained 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 that
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 for regional
economic conditions are all factors which could adversely affect sales
projections. Additionally, the Company's operating results may be negatively
affected by (i) difficulties in and unanticipated expenses of assimilating the
operations of BTI Europe, including difficulties in cross-marketing products,
(ii) fluctuations in valuation of the pound Sterling versus other European
currencies and (iii) the failure to obtain necessary capital for the expansion
of facilities and acquisitions. 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.
ITEM 7A: QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following described consolidated financial statements of the Company
are included in response to this item:
<TABLE>
<S> <C>
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and
1997.
Consolidated Statements of Income for the years ended
December 31, 1995, 1996, and 1997.
Consolidated Statements of Stockholder's Deficit for the
years ended December 31, 1995, 1996 and 1997.
Consolidated Statements of Cash Flow for the years ended
December 31, 1995, 1996 and 1997.
Notes to Consolidated Financial Statements
</TABLE>
16
<PAGE> 18
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, 1997 and 1996 and the
related consolidated statements of income, shareholders equity (deficit), and
cash flows for each of the three years in the period ended December 31, 1997.
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.
We conducted our audits 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 1997 and 1996 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, 1997 and 1996,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
---------------------------------------------
Coopers & Lybrand L.L.P.
Portland, Maine
February 20, 1998, except for Note 14,
as to which the date is March 2, 1998
17
<PAGE> 19
BRUNSWICK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales......................................... $15,476,424 $19,815,711 $30,509,675
Cost of goods sold (raw material purchased from a
stockholder amounted to $7,809,567 in 1995,
$8,548,754 in 1996, and $8,933,450 in 1997...... 11,978,978 15,317,619 22,807,179
----------- ----------- -----------
Gross Profit............................ 3,497,446 4,498,092 7,702,496
Selling, general and administrative expenses...... 2,084,712 3,022,240 5,244,016
Research and development expenses................. 408,247 498,038 677,192
Moving costs...................................... 8,560 248,314 --
Facility repair costs............................. 150,000 (147,545) --
----------- ----------- -----------
Operating income........................ 845,927 877,045 1,781,288
----------- ----------- -----------
Other Income (expense):
Interest income................................. 4,732 4,102 319,071
Interest expense................................ (128,854) (255,931) (328,415)
Miscellaneous, net.............................. 62,800 303,181 210,845
----------- ----------- -----------
(61,322) 51,352 201,501
----------- ----------- -----------
Income before income tax................ 784,605 928,397 1,982,789
----------- ----------- -----------
Income tax (benefit) expense...................... (121,900) 335,000 707,400
----------- ----------- -----------
Net income.............................. 906,505 593,397 1,275,389
----------- ----------- -----------
Preferred stock dividend.......................... (450,120) (450,120) (50,561)
Accretion of preferred stock redemption value..... (81,693) (69,559) (5,439)
----------- ----------- -----------
Net income attributable to common stock........... $ 374,692 $ 73,718 $ 1,219,389
=========== =========== ===========
Basic:
Earnings per share.............................. $ 1.33 $ 0.25 $ 0.29
Weighted average common shares outstanding...... 280,830 297,140 4,215,827
Diluted
Earnings per share.............................. $ 0.26 $ 0.17 $ 0.26
Weighted average common shares outstanding...... 3,460,445 3,498,302 4,936,033
</TABLE>
The accompanying notes are an integral part of the financial statements
18
<PAGE> 20
BRUNSWICK TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1997
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 355,106 $ 352,839
Marketable securities available for sale.................. -- 6,607,344
Accounts receivable, net of allowance for doubtful
accounts of $38,603 in 1996 and $46,087 in 1997........ 2,619,399 2,978,229
Inventories............................................... 3,262,850 3,308,031
Refundable income taxes................................... 21,061 --
Deferred income taxes..................................... 167,000 179,600
Other current assets...................................... 300,190 353,704
----------- -----------
Total current assets................................... 6,725,606 13,779,747
Property, plant & equipment
Land and building......................................... 800,000 937,317
Furniture and fixtures.................................... 355,963 458,043
Leasehold Improvements.................................... 73,952 80,731
Machinery and equipment................................... 5,114,646 6,477,110
Vehicles.................................................. 68,039 92,318
Machine under construction................................ 1,040,922 231,354
----------- -----------
7,453,522 8,276,873
Less accumulated depreciation and amortization............ (1,453,090) (2,003,050)
----------- -----------
Net property, plant and equipment...................... 6,000,432 6,273,823
----------- -----------
Deferred charges............................................ 512,679 --
Due from shareholder........................................ -- 69,581
Other assets (net of accumulated amortization for patents of
$799 and $1,185 in 1996 and 1997, respectively)........... 85,783 54,097
Goodwill (net of accumulated amortization of $51,327 and
$321,898 in 1996 and 1997, respectively).................. 5,309,673 5,039,102
----------- -----------
Total assets......................................... $18,634,173 $25,216,350
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities
Bank overdraft............................................ $ 300,809 $ --
Note payable to bank...................................... 1,179,968 --
Current installments of long-term debt.................... 297,758 100,000
Due to stockholder........................................ 1,044,559 83,854
Accounts payable-trade.................................... 1,785,384 538,601
Accrued expenses.......................................... 705,223 513,744
Income taxes payable...................................... -- 130,000
----------- -----------
Total current liabilities.............................. 5,313,701 1,366,199
Long-term debt, excluding current installments.............. 8,853,304 253,244
Deferred income taxes....................................... 121,900 370,000
Commitments Convertible preferred stock (liquidation
preference of $6,641,317 in 1996)......................... 6,589,209 --
Shareholders' 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 5,146,606
outstanding in 1997.................................... 30 515
Additional paid in capital................................ 463,989 24,714,963
Treasury stock at cost: 3,300 shares in 1996 and 1997..... (5,000) (5,000)
Accumulated deficit....................................... (2,702,960) (1,483,571)
----------- -----------
Total shareholders' equity (deficit)................... (2,243,941) 23,226,907
----------- -----------
Total liabilities and shareholders' equity
(deficit)........................................... $18,634,173 $25,216,350
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
19
<PAGE> 21
BRUNSWICK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK TOTAL
------------------ PAID-IN ---------------- ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT EQUITY (DEFICIT)
--------- ------ ----------- ------ ------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Repurchase of common stock...... -- -- -- (3,300) (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 (3,300) (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 (3,300) (5,000) (2,702,960) (2,243,941)
Accrual of preferred stock
dividend...................... -- -- -- -- -- (50,561) (50,561)
Accretion of preferred stock
redemption value.............. -- -- -- -- -- (5,439) (5,439)
Conversion of preferred shares
to common stock............... 2,548,280 255 6,644,954 -- -- -- 6,645,209
Issuance of common stock to
public........................ 1,700,000 170 13,741,499 -- -- -- 13,741,669
Exercise of warrants to purchase
common stock.................. 178,089 18 (18) -- -- -- --
Issuance of stock upon
conversion of debt............ 384,026 38 3,648,212 -- -- -- 3,648,250
Exercise of common stock options
under employee compensation
plans including tax benefit of
$215,000...................... 34,587 4 216,327 -- -- -- 216,331
Net income...................... -- -- -- -- 1,275,389 1,275,389
--------- ---- ----------- ------ ------- ----------- -----------
BALANCE AT DECEMBER 31, 1997.... 5,146,606 $515 $24,714,963 (3,300) $(5,000) $(1,483,571) $23,226,907
========= ==== =========== ====== ======= =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements
20
<PAGE> 22
BRUNSWICK TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1996 1997
----------- ----------- ------------
<S> <C> <C> <C>
Cash Flows from operating activities:
Net income................................................ $ 906,505 $ 593,397 $ 1,275,389
Adjustments to reconcile net income to net provided by
(used in) operating activities:
Depreciation and amortization........................... 396,595 479,669 846,974
Deferred taxes.......................................... (274,100) 229,000 235,500
Loss (gain) on sale of property, plant and equipment.... (4,164) -- 4,500
Changes in assets and liabilities:
(Increase) decrease in accounts receivable............ (1,071,253) 172,493 (358,830)
(Increase) in inventories............................. (104,060) (725,564) (45,181)
(Increase) decrease in refundable income taxes........ (16,000) (5,061) 21,061
(Increase) in other current assets.................... (51,684) (176,721) (53,514)
(Increase) in due from stockholder.................... -- -- (69,581)
Increase (decrease) in due to stockholder............. 622,888 (587,619) (960,705)
Increase (decrease) in accounts payable and accrued
expenses............................................ 597,585 721,129 (1,438,262)
Increase (decrease) in income taxes payable........... 32,000 (32,000) 344,942
----------- ----------- ------------
Net cash provided by (used in) operating
activities........................................ 1,034,312 668,723 (197,707)
----------- ----------- ------------
Cash flows from investing activities:
Acquisition of Advanced Textiles, Inc., net of cash
required................................................ -- (294,512) --
Loss on sales of marketable securities.................... -- -- 6,948
Purchases of marketable securities........................ (96,947,023)
Sale of marketable securities............................. 90,332,731
Purchases of property, plant and equipment................ (899,271) (1,132,236) (855,908)
Proceeds from sale of property, plant and equipment....... 12,126 -- 2,000
(Increase) decrease in other assets....................... (36,140) 17,687 31,300
----------- ----------- ------------
Net cash used in investing activities............... (923,285) (1,409,061) (7,429,952)
----------- ----------- ------------
Cash flows from financing activities:
Increase (decrease) in bank overdraft..................... 97,406 84,187 (300,809)
Net proceeds (repayments) under line of credit............ (80,000) 1,179,968 (1,179,968)
Proceeds from long-term debt borrowings................... -- 321,375 --
Repayment of long-term debt............................... (20,662) (92,946) (5,149,568)
Net principal repayments under capital lease
obligations............................................. (5,293) (2,620) --
Net proceeds received from issuance of common stock to
public.................................................. -- -- 14,682,689
Proceeds from exercise of common stock options and
warrants................................................ 17,675 200 1,389
Transactional expenses associated with issuance of
stock................................................... -- (512,679) (428,341)
Repurchase of common stock................................ (5,000) --
----------- ----------- ------------
Net cash provided by financing activities........... 4,126 977,485 7,625,392
----------- ----------- ------------
Net increase (decrease) in cash..................... 115,153 237,147 (2,267)
Cash at beginning of period................................. 2,806 117,959 355,106
----------- ----------- ------------
Cash at end of period....................................... $ 117,959 $ 355,106 $ 352,839
=========== =========== ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest (including interest capitalized of $14,022 in
1996 and $72,064 in 1997)............................. $ 128,276 $ 141,886 $ 528,889
Income taxes............................................ $ 136,200 $ 168,626 $ 100,300
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
===========
Noncash financing activities:
Conversion of preferred stock into common stock in
February 1997......................................... $ 6,645,209
Conversion of debt into common stock in November 1997... $ 3,648,250
</TABLE>
The accompanying notes are an integral part of the financial statements
21
<PAGE> 23
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 worldwide in a diverse range of
products, including those used in the marine, automotive, oil & gas,
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 estimated useful lives as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings................................................... 30
Furniture and fixtures...................................... 2-7
Machinery and equipment..................................... 4-15
Vehicles.................................................... 5
</TABLE>
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
<PAGE> 24
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Grants
Revenues from government agencies research grants are recognized when
reimbursable expenses are incurred.
Revenue Recognition
Revenues are recognized when finished goods are shipped to customers or
services rendered, with appropriate provision for uncollectible accounts.
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 10, 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.
Computation of Earnings per Share
Statement of Financial Accounting Standard no. 128, "Earnings Per Share"
provides reporting standards for basic and diluted earnings per share and is
effective for financial statement periods ending after December 15, 1997. Basic
earnings per share is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding for the
period, which during 1995, 1996 and 1997 were 280,830, 297,140 and 4,215,827
respectively. Diluted earnings per share is computed using income available to
common shareholders and weighted average common shares outstanding during the
period after considering the potential dilutive effect of common stock
equivalents based on the treasury stock method. The diluted weighted average
number of common shares outstanding for 1995, 1996 and 1997 were 3,460,445,
3,498,302 and 4,936,033, respectively. All prior period earnings per share data
has been restated to conform to the provisions of this statement.
Marketable Securities
Marketable securities classified as available for sale are reported at fair
value, with unrealized gains and losses excluded from earnings and reported as a
separate component of stockholders equity. Marketable securities held to
maturity are stated at cost adjusted for amortization of bond premiums and
accretion of bond discounts. At December 31, 1997 the cost of marketable
securities approximated fair value. Contractual maturities for debt securities
classified as available for sale were between one and six months, except for one
security which matures in 2015.
Fair Value of Financial Instruments
At December 31, 1997, 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, 1997, based upon the borrowing rates currently available to the
Company for loans with similar terms and maturities.
Foreign Exchange
Forward foreign exchange contracts are used to hedge committed foreign
currency sales. Realized and unrealized gains and losses on these contracts are
recorded in net income in the same period in which the hedged transactions
affect earnings. The Company had $326,000 of forward foreign currency exchange
contracts outstanding at December 31, 1997. The unrealized gain on the open
contracts at December 31, 1997 was approximately $13,000.
23
<PAGE> 25
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 the acquisition, is being
amortized over 20 years.
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 Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 130, Reporting
Comprehensive Income. SFAS No. 130 will require that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. The requirements of the pronouncement
are effective for the Company's fiscal year beginning after December 15, 1997
and are not expected to have a material effect on the Company's financial
statements.
In June 1997, FASB issued SFAS No. 131 Financial Reporting for Segments of
a Business Enterprise. SFAS No. 131 will require that a public business
enterprise report financial and descriptive information about its reportable
operating segments. The requirements of this pronouncement are effective for
financial statements for the periods beginning after December 15, 1997. The
Company has not determined what, if any, effect this will have on its financial
statements.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
presentation used in the 1997 financial statements.
1. 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 $8,359,000, 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 was 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 is being amortized over 20 years.
24
<PAGE> 26
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pro forma unaudited results of operations of the Company, assuming the
acquisition had occurred on January 1, 1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
---------------------
1996 1995
------- -------
<S> <C> <C>
Net sales................................................. $26,444 $28,475
======= =======
Net income................................................ $ 2.804 $ 686
======= =======
Diluted earnings per share................................ $ 0.81 $ 0.20
======= =======
</TABLE>
2. INVENTORIES
Inventories consist of the following components:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Raw materials............................................. $ 576,275 $ 752,428
Work in progress.......................................... 653,026 706,353
Finished goods............................................ 2,033,549 1,849,250
---------- ----------
$3,262,850 $3,308,031
========== ==========
</TABLE>
3. DEBT
Long term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ---------
<S> <C> <C>
5.75% note payable to a financial institution, paid in
full in January 1997.................................... $ 9,095 $ --
Equipment term loan payable to a bank, paid in full in
February 1997........................................... 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%............................. 420,053 353,244
---------- ---------
9,151,062 353,244
Less current installments................................. (297,758) (100,000)
---------- ---------
Long term debt, excluding current installments............ $8,853,304 $ 253,244
========== =========
</TABLE>
The schedule of maturities of long-term debt at December 31, 1997, are as
follows:
<TABLE>
<S> <C>
1998.................................................... $100,000
1999.................................................... 100,000
2000.................................................... 100,000
2001.................................................... 53,244
Thereafter.............................................. 0
--------
$353,244
========
</TABLE>
In June 1997, the Company renegotiated its existing debt facility with a
bank. The new agreements allows unsecured borrowings up to $2.5 million. 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 an unused line fee
of 1/8 of 1% of the unused portion and there were no borrowings outstanding at
December 31, 1997. The line of credit expires on June 1, 1998. At December 31,
1996, $1,179,968 was outstanding under its debt facility at a weighted average
rate of 8.25%.
25
<PAGE> 27
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under the equipment term loan 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 equaled 8% including the 2.25% mark up. This loan was paid in
full on February 10, 1997.
The terms of the convertible subordinated note required payment of
$3,648,250 of 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 was converted
into 384,027 shares of common stock in November 1997. The non-interest bearing
obligation is payable in annual installments of $100,000 on December 15 of each
year until the entire obligation is paid. In addition, the annual payment may be
increased by an amount up to $100,000 based on certain income tax effects
experienced by the holder of the note. The obligation has been discounted at
8.25% and no increase in the annual payment had been required through December
31, 1997.
4. 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 lease. In July 1997 the Company agreed to an increase
in the lease in exchange for the fit-out of additional space. 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 recorded a separate operating expense for the cost of the move,
which included 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 $176,558, $288,454
and $346,400 for the years ended December 31, 1995, 1996 and 1997 respectively.
At December 31, 1997, future minimum lease payments under all
non-cancelable leases are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
----------------
<S> <C>
1998................................................ $ 221,799
1999................................................ 218,430
2000................................................ 207,196
2001................................................ 198,062
2002................................................ 201,188
Thereafter.......................................... 633,516
----------
$1,680,191
==========
</TABLE>
26
<PAGE> 28
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. CONVERTIBLE PREFERRED STOCK
The Company's convertible preferred stock, no par value consists of four
series whose activity is shown in the following table:
<TABLE>
<CAPTION>
SERIES AA SERIES BB SERIES C SERIES D
------------------ --------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------ --------- ------- ----------- ------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994... 3,657 $ 316,920 33,167 $ 2,111,196 18,000 $ 1,153,063 16,000 $ 1,956,538
Accrual of preferred stock
dividend...................... -- 18,285 -- 165,835 -- 90,000 -- 176,000
Accretion of preferred stock
redemption value.............. -- 39,818 -- 18,650 -- 7,089 -- 16,136
------ --------- ------- ----------- ------- ----------- ------- -----------
BALANCE AT DECEMBER 31, 1995... 3,657 375,023 33,167 2,295,681 18,000 1,250,152 16,000 2,148,674
Accrual of preferred stock
dividend...................... -- 18,285 -- 165,835 -- 90,000 -- 176,000
Accretion of preferred stock
redemption value.............. -- 35,869 -- 15,080 -- 5,715 -- 12,895
------ --------- ------- ----------- ------- ----------- ------- -----------
BALANCE AT DECEMBER 31, 1996... 3,657 429,177 33,167 2,476,596 18,000 1,345,867 16,000 2,337,569
Accrual of preferred stock
dividend...................... -- 2,054 -- 18,828 -- 10,110 -- 19,770
Accretion of preferred stock
redemption value.............. -- 2,805 -- 1,179 -- 447 -- 1,008
Conversion of preferred
stock......................... (3,657) (434,036) (33,167) (2,496,403) (18,000) (1,356,423) (16,000) (2,358,347)
------ --------- ------- ----------- ------- ----------- ------- -----------
BALANCE AT DECEMBER 31, 1997... 0 $ 0 0 $ 0 0 $ 0 0 $ 0
====== ========= ======= =========== ======= =========== ======= ===========
<CAPTION>
TOTAL CONVERTIBLE
PREFERRED SHARES
---------------------
SHARES AMOUNT
------- -----------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1994... 70,824 $ 5,537,717
Accrual of preferred stock
dividend...................... -- 450,120
Accretion of preferred stock
redemption value.............. -- 81,693
------- -----------
BALANCE AT DECEMBER 31, 1995... 70,824 6,069,530
Accrual of preferred stock
dividend...................... -- 450,120
Accretion of preferred stock
redemption value.............. -- 69,559
------- -----------
BALANCE AT DECEMBER 31, 1996... 70,824 6,589,209
Accrual of preferred stock
dividend...................... -- 50,561
Accretion of preferred stock
redemption value.............. -- 5,439
Conversion of preferred
stock......................... (70,824) (6,645,209)
------- -----------
BALANCE AT DECEMBER 31, 1997... 0 $ 0
======= ===========
</TABLE>
Shares of all series of preferred stock are entitled to cumulative
dividends at the rate of 10% per annum of the original 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 2,337,192
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.
6. 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. At December 31, 1997, 374,240 shares remained
available to be granted.
27
<PAGE> 29
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of changes in common stock options during 1995, 1996, and 1997
is:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------- ----------------
<S> <C> <C>
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
Granted................................................... 48,000 $9.50
Exercised................................................. (34,587) $0.15
Canceled.................................................. (1,500) $9.50
------- -----
Outstanding grants at December 31, 1997..................... 532,752 $1.66
======= =====
Options exercisable at December 31, 1995.................... 363,429 $0.36
======= =====
Options exercisable at December 31, 1996.................... 408,969 $0.47
======= =====
Options exercisable at December 31, 1997.................... 374,217 $0.59
</TABLE>
The weighted average grant date fair values of options granted during 1995,
1996 and 1997 were $0.42, $2.64 and $4.85, respectively.
OPTIONS OUTSTANDING AT DECEMBER 31, 1997
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
----------------------
REMAINING WEIGHTED
NUMBER EXERCISE CONTRACTUAL NUMBER AVERAGE
RANGE OF EXERCISE PRICE OUTSTANDING PRICE LIFE EXERCISABLE EXERCISE PRICE
----------------------- ----------- -------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.03-0.16................................ 232,977 $0.04 3.5 years.. 232,977 $0.04
$1.50-1.60................................ 241,725 $1.52 6.5 years.. 141.240 $1.52
$9.50..................................... 58,050 $9.50 9.1 years.. -- --
</TABLE>
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:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net income:
As reported.............................. $906,505 $593,397 $1,275,389
======== ======== ========
Pro Forma................................ $904,962 $585,920 $1,237,985
======== ======== ========
Diluted earnings per share:
As reported.............................. $ 0.26 $ 0.17 $ 0.26
======== ======== ========
Pro Forma............................. $ 0.26 $ 0.17 $ 0.25
======== ======== ========
</TABLE>
28
<PAGE> 30
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of stock options in the pro forma accounts for fiscal 1995,
1996 and 1997 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 1995, 1996 and 1997: risk-free interest rates of
6.2 -- 6.5%, expected life of five years and no dividend yield and 50%
volatility in 1997 only.
In conjunction with the issuance of the preferred stock, the Company issued
warrants for the purchase of its common stock. Each warrant was exercisable for
one share of common stock. In 1995, warrants were exercised to purchase 4,653
common shares at $3.03 per share. In 1997, 211,200 warrants were exercised on a
"cashless" basis by non-employee shareholders which resulted in 178,089 shares
of common stock being issued.
Also in conjunction with the IPO, the Company granted the Underwriter
Warrants to purchase 125,000 shares of common stock at a price 20% higher than
the initial offering price of $9.50. The warrants became exercisable 1 year
following the IPO.
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 78% and 76% of the Company's 1995 and 1996 revenues, respectively.
In 1997, five individual distributors accounted for approximately 68% of the
Company's revenues in 1997. The same distributors represented 38% of the
Company's account receivable balances at December 31, 1997.
9. INCOME TAXES
Income tax (benefit) expense consists of the following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------
1995 1996 1997
--------- -------- --------
<S> <C> <C> <C>
Current:
Federal................................. $ 120,200 $103,000 $441,400
State................................... 32,000 3,000 30,500
--------- -------- --------
152,200 106,000 471,900
--------- -------- --------
Deferred
Federal................................. (214,600) 36,000 242,500
State................................... (59,500) 193,000 (7,000)
--------- -------- --------
(274,100) 229,000 235,500
--------- -------- --------
Total tax (benefit) expense............... $(121,900) $335,000 $707,400
========= ======== ========
</TABLE>
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:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------------
1995 1996 1997
---------- --------- ---------
<S> <C> <C> <C>
Computed expected income tax........... $ 267,000 $ 315,000 $ 674,000
State income taxes..................... 47,000 54,000 78,500
Change in valuation allowance.......... (439,100) -- --
Other.................................. 3,200 (34,000) (45,100)
---------- --------- ---------
Total tax (benefit) expense............ $ (121,900) $ 335,000 $ 707,400
========== ========= =========
</TABLE>
29
<PAGE> 31
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1997
---------- ----------
<S> <C> <C>
Deferred Tax assets (liabilities):
Reserve.......................................... $ 23,000 $ 65,800
Net operating loss carryforward.................. 264,000 186,500
Alternative minimum tax credit carryforward...... 283,000 238,000
Compensation..................................... 29,000 39,000
Other............................................ 4,100 78,300
Depreciation and amortization.................... (558,000) (798,000)
---------- ----------
Net deferred tax assets.................. $ 45,100 $ (190,400)
========== ==========
Current deferred tax assets...................... $ 167,000 $ 179,600
========== ==========
Non-current deferred tax liabilities............. $ (121,900) $ (370,000)
========== ==========
</TABLE>
As of December 31, 1997, the Company had net operating loss carryforwards
for federal and state income tax purposes of approximately $504,000, 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 $238,000 which have no expiration
date. The company has not established a valuation allowance against the deferred
tax assets at December 31, 1996 and 1997.
10. RELATED PARTY
The Company purchases a significant portion of its raw materials inventory
from a stockholder. For the years ended December 31, 1995, 1996 and 1997,
purchases of raw materials were $7,809,567, $8,548,754 and $8,933,450
respectively. At December 31, 1996, and 1997, the Company had due this
stockholder, $1,044,559 and $83,854, 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, 1996 were
$32,500 The note was paid off in April 1997.
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 $332,432 and reduced cost of goods sold by $93,638. In
1997, the Company incurred eligible costs and applied for reimbursement for
$143,274 for which the Company has recorded miscellaneous income of $119,108 and
reduced cost of goods sold by $24,166.
12. INITIAL PUBLIC OFFERING
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 share with
proceeds to the Company, after all 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 (see
30
<PAGE> 32
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Note 3). 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 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 (subsequently
increased to 2,000 shares), to be issued at the closing of the offering.
13. EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share calculations:
<TABLE>
<CAPTION>
1995 1996 1997
---------------------------- ----------------------------- -------------------------------
NET PER NET PER NET PER
INCOME SHARES SHARE INCOME SHARES SHARE INCOME SHARES SHARE
-------- -------- ------ -------- --------- ------ ---------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS............... $374,692 280,830 $1.33 $ 73,718 297,140 $0.25 $1,219,389 4,215,827 $0.29
Effect of dilutive
securities:
Conversion of
Preferred............. 531,813 2,548,280 519,679 2,548,280 56,000 283,142
Conversion of Stock
Options............... 631,335 652,882 437,064
-------- -------- -------- --------- ---------- ---------
Diluted EPS............. $906,505 3,460,445 $0.26 $593,397 3,498,302 $0.17 $1,275,389 4,936,033 $.026
======== ======== ======== ========= ========== =========
</TABLE>
The conversion of the Company's convertible subordinated note was
anti-dilutive and has been excluded from Diluted EPS in 1995, 1996 and 1997. The
note was converted in November 1997.
14. SUBSEQUENT EVENT
Acquisition of Tech Textiles International LTD.
On March 2, 1998 the Company acquired the business and assets of Tech
Textiles International Ltd. (TTI) based in Andover, UK from T&N plc for
approximately $5.9 million in cash. The acquisition was made by the Company and
through the Company's recently formed wholly owned subsidiary in the UK,
Brunswick Technologies Europe Ltd. and will be accounted for using the purchase
method of accounting. TTI, is a composite reinforcement materials manufacturer
of proprietary glass, carbon and other high modulus reinforcements which are
used in applications such as aerospace, automotive and wind generation. Located
in a 25,000 square foot manufacturing facility, TTI currently employs 24 people
with annual sales exceeding $6,000,000.
31
<PAGE> 33
BRUNSWICK TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. UNAUDITED QUARTERLY FINANCIAL INFORMATION
Unaudited financial results by quarter for the fiscal year ended December
31, 1997 and 1996 are summarized below and should be read in conjunction with
Management's Discussion and Analysis of Results of Operations and Financial
Condition.
<TABLE>
<CAPTION>
MARCH JUNE SEPTEMBER DECEMBER
------- ------- ---------- ---------
(IN THOUSANDS EXCEPT PER SHARE INFORMATION)
<S> <C> <C> <C> <C>
1997
Net sales............................................ $7,332 $8,073 $7,603 $7,502
Cost of sales........................................ 5,448 5,872 5,682 5,805
Net income........................................... 287 446 446 97
Income applicable to common shares................... 231 446 446 97
Diluted EPS.......................................... $ 0.07 $ 0.09 $ 0.09 $ 0.02
1996
Net sales............................................ $4,744 $4,433 $4,246 $6,392
Cost of sales........................................ 3,631 3,353 3,381 4,953
Net income........................................... 135 192 66 200
Income applicable to common shares................... 5 62 (74) 81
Proforma Diluted EPS................................. $ 0.04 $ 0.06 $ 0.02 $ 0.06
</TABLE>
16. 401K PLAN
The Company sponsors a 401K retirement savings plan. Under the plan, the
Company will make matching contributions of at least 25% of a participant's
contribution up to 6% of the participant 's eligible compensation, subject to
limitations required by governmental laws or regulations. No contributions were
made to the plan in 1995 or 1996. Company contributions to the plan in 1997 were
$6,906.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEMS 10, 11, 12 AND 13.
Information required by Part III (Items 10 through 13) is incorporated by
reference to the Company's definitive proxy statement, for its annual meeting of
stockholders to be held on May 13, 1998, which will be filed with the Securities
and Exchange Commission pursuant to Regulation 14A under the Securities Exchange
Act of 1934, on or before April 30, 1998. If for any reason such a statement is
not filed within such a period, this Report will be appropriately amended.
32
<PAGE> 34
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K
(a) Financial Statements
The following described consolidated financial statements of the Company
are included in this report:
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1996 and 1997.
Consolidated Statements of Income for the years ended December 31, 1995,
1996 and 1997.
Consolidated Statements of Stockholder's Deficit for the years ended
December 31, 1995, 1996 and 1997.
Consolidated Statements of Cash Flow for the years ended December 31, 1995,
1996 and 1997.
Notes to Consolidated Financial Statements
Financial Statement Schedules: Schedules are omitted because not applicable
or the information is
included elsewhere herein.
(b) Reports on Form 8-K
None.
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
2 Agreement by and among the Registrant, Brunswick
Technologies Europe Limited, T&N PLC and Tech Textiles
International Limited, dated as of March 2, 1998.
Incorporated by reference to Exhibit 2 to the Registrant's
Report on Form 8-K dated March 2, 1998.
*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
portion 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.
</TABLE>
33
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<C> <S>
*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 Purchase Warrant.
10.28 Agreement regarding lending arrangements dated June 6, 1997.
21 Registrant's subsidiaries.
23 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule.
27.2 Financial Data Schedule (Restated).
27.3 Financial Data Schedule (Restated).
</TABLE>
- ---------------
* Previously filed and incorporated by reference to the Registrant's
Registration Statement on Form S-1 (File No. 333-10721).
34
<PAGE> 36
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 2nd day of
April, 1998.
BRUNSWICK TECHNOLOGIES, INC.
/s/ MARTIN S. GRIMNES
By:
--------------------------------------
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
--------- ----- ----
<C> <S> <C>
/s/ MARTIN S. GRIMNES Principal Executive Officer and Director April 2, 1998
- ---------------------------------------------
Martin S. Grimnes
/s/ DAVID M. COIT Director April 2, 1998
- ---------------------------------------------
David M. Coit
/s/ WILLIAM M. DUBAY President, Principal Operating Officer April 2, 1998
- --------------------------------------------- and Director
William M. Dubay
/s/ DONALD R. HUGHES Director April 2, 1998
- ---------------------------------------------
Donald R. Hughes
/s/ MAX G. PITCHER Director April 2, 1998
- ---------------------------------------------
Max G. Pitcher
/s/ DAVID E. SHARPE Director April 2, 1998
- ---------------------------------------------
David E. Sharpe
/s/ PETER N. WALMSLEY Director April 2, 1998
- ---------------------------------------------
Peter N. Walmsley
/s/ ALAN CHESNEY Treasurer and Principal Financial and April 2, 1998
- --------------------------------------------- Accounting Officer
Alan Chesney
</TABLE>
35
<PAGE> 37
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
- ------- ----------------------
<S> <C>
2 Agreement by and among the Registrant, Brunswick
Technologies Europe Limited, T&N PLC and Tech Textiles
International Limited, dated as of March 2, 1998.
Incorporated by reference to Exhibit 2 to the Registrant's
Report on Form 8-K dated March 2, 1998.
10.28 Agreement regarding lending arrangements dated June 6, 1997.
21 Registrant's subsidiaries.
23 Consent of Coopers & Lybrand L.L.P.
27.1 Financial Data Schedule.
27.2 Financial Data Schedule (Restated).
27.3 Financial Data Schedule (Restated).
</TABLE>
36
<PAGE> 1
EXHIBIT 10.28
June 6, 1997
Mr. William M. Dubay
President & Chief Operating Officer
Brunswick Technologies, Inc.
P.O. Box 516
Brunswick, ME 04011
Dear Bill:
Fleet Bank of Maine is pleased to renew a $2,500,000 working capital line of
credit to Brunswick Technologies, Inc. with Advanced Textiles, Inc. as
Guarantor. This letter, when properly signed and accepted, will constitute an
agreement between Fleet Bank of Maine of Portland, Maine (hereinafter referred
to as "Bank"), which agrees to lend, and Brunswick Technologies, Inc. of
Brunswick Maine and Advanced Textiles, Inc. of Seguin, Texas, (hereinafter
referred to as "Co-Borrowers") which agree to borrow, in accordance with the
following terms and conditions, in addition to those as outlined in the loan
documents:
BORROWER: Brunswick Technologies, Inc.
GUARANTOR: Advanced Textiles, Inc.
PURPOSE: Short term working capital
MAXIMUM AMOUNT: $2,500,000
INTEREST RATE: At the Borrower's option, either Fleet Bank of Maine's Prime
Lending Rate (presently 8.50%) or the London Interbank Offered Rate plus
1.75% for amounts of $100,000 or more for periods of 30 to 360 days,
payable monthly and based on actual days outstanding over a 360 day year.
FEES: 1/8 of 1% on the unused portion, charged quarterly in arrears.
TERM: On demand, with interest payable monthly. Subject to your continued
favorable financial condition (in the sole judgment of the Bank) this line
of credit is available for your use through May 31, 1998 and is subject to
review prior to renewal.
Payments not made within 10 days of the due date will be assessed a late fee
equal to 5% of the payment amount.
PREPAYMENTS/YIELD MAINTENANCE FEE ASSESSMENT: At any time that (i) the interest
rate on the loan is a fixed rate and (ii) the Bank in its sole discretion
should
<PAGE> 2
determine that current market conditions can accommodate a prepayment
request, the Borrower shall have the right at any time and from time to
time to prepay the loan in whole (but not in part), and the Borrower shall
pay to the Bank a yield maintenance fee in an amount computed as follows.
The current rate for United States Treasury securities (Bills on a
discounted basis shall be converted to a bond equivalent) with a maturity
date closest to the maturity date of the term chosen pursuant to the Fixed
Rate Election as to which the prepayment is made shall be subtracted from
the "Cost of Funds" component of the fixed rate in effect at the time of
prepayment. If the result is zero or a negative number, there shall be no
yield maintenance fee. If the result is a positive number, then the
resulting percentage shall be multiplied by the amount of the principal
balance being prepaid. The resulting amount shall be divided by 360 and
multiplied by the number of days remaining in the term chosen pursuant to
the Fixed Rate Election as to which the prepayment is made. Said amount
shall be reduced to present value calculated by using the number of days
remaining in the designated term and using the above referenced United
States Treasury security rate and the number of days remaining in the term
chosen pursuant to the Fixed Rate Election as to which the prepayment is
made. The resulting amount shall be the yield maintenance fee due to the
Bank upon prepayment of the fixed rate loan. Each reference in the
paragraph to "Fixed Rate Election" shall mean the election by the Borrower
pursuant to the paragraph labeled "Interest Rate" in this Agreement.
MINIMUM ADVANCES: Advances under the Line will be subject to a minimum advance
of $5,000 per request.
REPORTING: The Borrower shall submit to the Bank the following reports and such
other as the Bank may request without limitation:
(a) Borrower's quarterly 10Q reports submitted within 45 days of the
end of each quarter.
(b) Borrower's annual audited and consolidated financial statement
(with consolidating schedules) to include its 10K report within 120
days of year-end prepared by a certified public accountant acceptable
to the Bank.
(c) Quarterly covenant compliance certificates, within 45 days of
quarter-end.
FINANCIAL DISCLOSURE: Bank shall be satisfied that the financial information
previously delivered to it fairly presents the business and financial
condition of the Borrower and Guarantor and the results of operations for
the periods covered by such information, and that there have been no
material adverse change in the business, assets or financial condition of
the Borrower and Guarantor since the date of the most recent financial
information delivered to us.
DEPOSITORY RELATIONSHIP: The rate and terms of this credit facility are in
express reliance on Brunswick Technologies maintaining its deposit and
commercial banking
<PAGE> 3
relationships with the Bank. The Bank shall have the right to charge any of
the borrower's accounts for any amounts due in connection with the credit
facility.
NON-ASSIGNABILITY OF COMMITMENT: This commitment is expressly offered only to
the Co-borrowers and only for the purposes described herein. This
commitment may not be assigned without the written permission of Fleet Bank
of Maine.
FINANCIAL AND BUSINESS COVENANTS:
- Borrower and Guarantor shall maintain a combined maximum leverage
ratio of 1.0:1 (tested quarterly). For covenant purposes the leverage
ratio will be equal to total senior liabilities divided by the
Company's tangible net worth plus subordinated debt.
- Borrower and Guarantor shall maintain a combined cash flow coverage
ratio of 1.2:1 (i.e., net income plus depreciation expense plus
interest expense / current maturities of long term debt plus interest
expense.) Terms are as defined by GAAP. (tested annually)
- Martin Grimnes and William Dubay shall remain actively involved with
the operation of Borrower.
MISCELLANEOUS REQUIREMENT AND CONDITION:
- All debt currently subordinated to the Bank will continue to be
subordinated including the notes due to Burlington Industries by
Brunswick Technologies.
- Execution and delivery of loan documentation, opinions and other
documentation in form and substance satisfactory to Bank.
WRITTEN MODIFICATIONS: The Co-borrowers may not maintain any action against the
Bank on any agreement to lend money, extend credit, forbear from collection
of a debt or make any other accommodation for repayment of a debt for more
than $250,000 unless the promise, contract or agreement is in writing and
signed by a duly authorized representative of Bank.
EXPENSES: All reasonable out-of-pocket expenses, including without limitation,
attorney's fees, searches, filing fees and appraisal costs, will be paid by
the Borrower regardless of whether or not a financing package in concluded.
The Bank reserves the right to participate out any portion of the Line.
Accordingly, you grant the Bank the right to provide prospective participants
with any information relative to the Line, including but not limited, to any
information supplied to the Bank by you.
The parities hereto agree that this commitment shall survive the loan closing
and that each of the obligations and undertakings of the Borrower and Guarantor
hereunder shall be
<PAGE> 4
continuing and shall not cease until the entire loan, together with interest and
fees, is paid in full.
If the foregoing terms are acceptable to you, please sign and return a copy of
this letter to me indicating your acceptance thereof. The commitment set forth
herein will expire without further action if I have not received your written
acceptance of this letter on or before June 15, 1997. The Bank reserves the
right to terminate this commitment at any time upon the occurrence of any
adverse change in the Borrower's or Guarantor's financial condition or business
as determined by the Bank in its sole discretion or the occurrence of any event
of default under the existing loan arrangements dated May 30, 1996 by and
between Brunswick Technologies and the Bank.
By signing below the undersigned also agrees and acknowledges that any dispute
arising out of or relating to this commitment letter or any actual or alleged
modification thereof, or any alleged breach thereof, shall be settled by
arbitration in Portland, Maine in accordance with the rules of the American
Arbitration Association governing commercial arbitration.
Sincerely,
\s\ Claude R. Carbonneau
Claude R. Carbonneau
Vice President
ACCEPTED AND ACKNOWLEDGED:
Brunswick Technologies, Inc.
Date: June 6, 1997 By: /s/ William M. Dubay
--------------------
William M. Dubay
Its President
Enclosure Advanced Textiles, Inc.
By:
--------------------
Its
<PAGE> 1
EX-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.
Brunswick Technologies Europe Limited ("BTE")
BTE is a wholly-owned subsidiary of the Registrant and is incorporated
under the laws of the United Kingdom.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Brunswick Technologies, Inc. on Forms S-8 (File Nos. 333-36921 and 333-47915) of
our report dated February 20, 1998, except for Note 14 as to which the date is
March 2, 1998, on our audits of the consolidated financial statements of
Brunswick Technologies, Inc. as of December 31, 1997 and 1996, and for the years
ended December 31, 1997, 1996 and 1995, which report is included in this Annual
Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
----------------------------
Portland, Maine
March 30, 1998
<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 YEAR
ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS. AMOUNTS ARE ROUNDED TO THOUSANDS (EXCEPT FOR PER SHARE
AMOUNTS).
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 352
<SECURITIES> 6,607
<RECEIVABLES> 3,024
<ALLOWANCES> 46
<INVENTORY> 3,308
<CURRENT-ASSETS> 13,780
<PP&E> 8,277
<DEPRECIATION> 2,003
<TOTAL-ASSETS> 25,216
<CURRENT-LIABILITIES> 1,366
<BONDS> 0
0
0
<COMMON> 24,715
<OTHER-SE> (5)
<TOTAL-LIABILITY-AND-EQUITY> 25,216
<SALES> 30,510
<TOTAL-REVENUES> 30,510
<CGS> 22,807
<TOTAL-COSTS> 5,901
<OTHER-EXPENSES> (530)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 328
<INCOME-PRETAX> 1,983
<INCOME-TAX> 707
<INCOME-CONTINUING> 1,275
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,275
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.26
</TABLE>
<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 THREE,
SIX AND NINE MONTHS ENDING MARCH 31, 1997, JUNE 30, 1997, AND SEPTEMBER 30,
1997, RESPECTIVELY, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS. AMOUNTS ARE ROUNDED TO THOUSANDS (EXCEPT FOR PER SHARE
AMOUNTS).
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 APR-01-1997 JUL-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997
<CASH> 6,581 6,456 7,364
<SECURITIES> 0 506 0
<RECEIVABLES> 3,087 2,264 2,913
<ALLOWANCES> 42 48 46
<INVENTORY> 3,479 3,581 3,258
<CURRENT-ASSETS> 13,470 13,342 14,178
<PP&E> 7,567 7,755 8,078
<DEPRECIATION> 1,590 1,726 1,868
<TOTAL-ASSETS> 24,955 24,698 25,607
<CURRENT-LIABILITIES> 2,443 1,782 1,868
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 20,900 20,850 20,850
<OTHER-SE> (5) (5) (5)
<TOTAL-LIABILITY-AND-EQUITY> 24,955 24,698 25,607
<SALES> 7,332 15,405 23,008
<TOTAL-REVENUES> 7,332 15,405 23,008
<CGS> 5,448 11,320 17,002
<TOTAL-COSTS> 1,339 2,866 4,237
<OTHER-EXPENSES> (87) (214) (405)
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 162 260 325
<INCOME-PRETAX> 470 1,173 1,849
<INCOME-TAX> 183 441 670
<INCOME-CONTINUING> 287 732 1,179
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 287 732 1,179
<EPS-PRIMARY> 0.09 0.10 0.10
<EPS-DILUTED> 0.07 0.09 0.09
</TABLE>
<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 YEAR
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS. AMOUNTS ARE ROUNDED TO THOUSANDS (EXCEPT FOR PER SHARE
AMOUNTS).
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 355
<SECURITIES> 0
<RECEIVABLES> 2,658
<ALLOWANCES> 39
<INVENTORY> 3,263
<CURRENT-ASSETS> 6,726
<PP&E> 7,454
<DEPRECIATION> 1,453
<TOTAL-ASSETS> 18,634
<CURRENT-LIABILITIES> 5,314
<BONDS> 0
0
6,589
<COMMON> 464
<OTHER-SE> (5)
<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> 0.29
<EPS-DILUTED> 0.26
</TABLE>
