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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[_X_] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1999.
[___] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from _______ To _______.
Commission File Number 0-22089
BRUNSWICK TECHNOLOGIES, INC.
----------------------------
(Exact Name of Registrant As Specified In Its Charter)
Maine 01-0405052
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
43 Bibber Pkwy., Brunswick, ME 04011
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(207) 729-7792
--------------
Registrant's telephone number including area code:
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [_X_] No [___]
The registrant had 5,209,077 shares of Common Stock, $.0001 par value,
outstanding as of November 8, 1999.
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<PAGE>
BRUNSWICK TECHNOLOGIES, INC.
INDEX
-----
PART I. FINANCIAL INFORMATION. PAGE NO.
--------
Item 1. Financial Statements
Report of Independent Accountants 3
Consolidated balance sheets as of September 30, 1999
and December 31, 1998. 4
Consolidated statements of income for the three months
and nine months ended September 30, 1999 and 1998. 5
Consolidated statements of cash flows for the nine months
ended June 30, 1999 and 1998. 6
Consolidated statements of comprehensive income for the three
and nine months ended September 30, 1999 and 1998. 7
Notes to consolidated financial statements. 8-10
Item 2. Management's Discussion and Analysis of Financial
Condition And Results of Operations. 11-14
Item 3. Quantitative and Qualitative Disclosures about
Market Risk. 14
PART II. OTHER INFORMATION.
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K. 15
2
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Brunswick Technologies, Inc.
We have reviewed the accompanying consolidated balance sheet of Brunswick
Technologies, Inc. and Subsidiaries as of September 30, 1999, and the related
consolidated statements of income and comprehensive income for the three month
and nine month periods ended September 30, 1999 and 1998, and the consolidated
statements of cash flows for the nine month periods then ended. These financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards
the consolidated balance sheet as of December 31, 1998, and the related
consolidated statements of income, shareholders' equity (deficit) and
comprehensive income, and of cash flows for the year then ended (not presented
herein), and in our report dated February 12, 1999 we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying consolidated balance sheet as of
December 31, 1998 is fairly stated in all material respects in relation to the
consolidated balance sheet from which it has been derived.
PricewaterhouseCoopers
October 22, 1999
3
<PAGE>
BRUNSWICK TECHNOLOGIES, INC,
CONSOLIDATED BALANCE SHEETS
(in thousands except share information)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------- --------
(Unaudited)
ASSETS
------
<S> <C> <C>
Current assets:
Cash $ 1,020 $ 796
Accounts receivable, net of allowance for doubtful
accounts of $149 in 1999 and $130 in 1998 6,074 6,056
Inventories 5,704 4,807
Refundable income taxes -- 27
Deferred income taxes 274 274
Other current assets 346 531
-------- --------
Total current assets 13,418 12,491
Property, plant and equipment:
Land and building 1,107 974
Furniture and fixtures 617 535
Leasehold improvements 126 117
Machinery and equipment 12,324 10,284
Machine under construction 239 280
Vehicles 92 92
Management information system 508 394
-------- --------
15,013 12,676
Less accumulated depreciation and amortization (3,722) (2,877)
-------- --------
Net property, plant and equipment 11,291 9,799
Due from shareholder 112 111
Other assets, including investment in Euro-Technology (net of
accumulated amortization of $248 in 1999 and $128 in 1998) 2,067 2,182
Goodwill, net of accumulated amortization of $794 in 1999
and $581 in 1998 4,843 5,056
-------- --------
Total assets $ 31,731 $ 29,639
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Bank overdraft $ -- $ 474
Note payable to bank -- 261
Current installments of long-term debt 107 111
Accounts payable shareholder 332 226
Accounts payable 2,335 1,876
Accrued expenses 1,161 580
Income taxes payable 311 --
-------- --------
Total current liabilities 4,246 3,528
Long-term debt, excluding current installments 135 139
Deferred income taxes 1,024 1,034
Shareholders' equity:
Common stock, $0.0001 par value; 20,000,000 shares authorized,
5,209,077 outstanding in 1999 and 5,186,889 outstanding in 1998 1 1
Additional paid in capital 24,923 24,837
Treasury stock at cost; 3,300 shares in 1999 and 1998 (5) (5)
Cumulative translation adjustment 11 41
Retained earnings 1,396 64
-------- --------
Total shareholders' equity 26,326 24,938
-------- --------
Total liabilities and shareholders' equity $ 31,731 $ 29,639
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
4
<PAGE>
BRUNSWICK TECHNOLOGIES, INC,
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share information)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales $ 10,636 $ 10,309 $ 34,222 $ 30,325
Cost of goods sold (raw material purchased from
a stockholder amounted to $1,568 in 1999 and
$2,561 in 1998 for the three months ended
September 30, and $5,568 in 1999 and $6,386 in
1998 for the nine months ended September 30) 8,201 8,158 26,414 23,458
-------- -------- -------- --------
Gross profit 2,435 2,151 7,808 6,867
Selling, general and administrative expenses 1,708 1,714 5,312 4,882
Research and development expenses 190 138 585 437
-------- -------- -------- --------
Operating income 537 299 1,911 1,548
-------- -------- -------- --------
Other income (expense):
Interest income 21 14 51 77
Interest expense (6) -- (21) --
Miscellaneous, net 110 99 140 238
-------- -------- -------- --------
125 113 170 315
-------- -------- -------- --------
Income before income taxes 662 412 2,081 1,863
Income tax expense 241 152 749 667
-------- -------- -------- --------
Net income $ 421 $ 260 $ 1,332 $ 1,196
======== ======== ======== ========
Basic:
Earnings per share $ 0.08 $ 0.05 $ 0.26 $ 0.23
Weighted average common shares outstanding 5,204 5,161 5,195 5,157
Diluted:
Earnings per share $ 0.08 $ 0.05 $ 0.25 $ 0.22
Weighted average common shares outstanding 5,425 5,423 5,425 5,447
</TABLE>
The accompanying notes are an integral part of the financial statements
5
<PAGE>
BRUNSWICK TECHNOLOGIES, INC,
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands except share information)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------- --------
1999 1998
-------- --------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,332 $ 1,196
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 1,175 919
Deferred taxes (11) --
Changes in assets and liabilities:
Increase in accounts receivable (14) (960)
Increase in inventories (895) (659)
Decrease in refundable income taxes 27 --
Decrease in other current assets 185 213
Increase in due from shareholder (1) (5)
Increase in accounts payable shareholder 106 450
Increase in accounts payable and accrued expenses 1,069 488
Increase in income taxes payable 311 29
-------- --------
Net cash provided by operating activities 3,284 1,671
-------- --------
Cash flows from investing activities:
Acquisition of Tech Textiles, net of cash acquired,
including technology -- (5,993)
Sale of marketable securities -- 6,607
Purchases of property, plant and equipment (2,330) (1,443)
Decrease in other assets -- 47
-------- --------
Net cash used in investing activities (2,330) (782)
-------- --------
Cash flows from financing activities:
Decrease in bank overdraft (474) --
Net repayment of line of credit (261) --
Issuance of common stock, net of issuance cost -- 11
Repayment of long-term debt (8) --
Proceeds from exercise of common stock options and warrants 54 --
-------- --------
Net cash (used in) provided by financing activities (689) 11
-------- --------
Effect of currency exchange rate changes on cash (41) 14
-------- --------
Net increase in cash 224 914
Cash at beginning of period 796 353
-------- --------
Cash at end of period $ 1,020 $ 1,267
======== ========
Preliminary allocation of purchase price of acquisition
of Tech Textiles International Ltd., net of cash acquired:
Working capital, other than cash $ 1,097
Machinery and equipment 2,552
Goodwill/technology 2,524
Deferred taxes (180)
--------
Net cash used to acquire Tech Textiles International Ltd. $ 5,993
========
</TABLE>
The accompanying notes are an integral part of the financial statements
6
<PAGE>
BRUNSWICK TECHNOLOGIES, INC,
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands except share information)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net income $ 421 $ 260 $ 1,332 $ 1,196
Foreign currency translation adjustment 194 93 (30) 140
------- ------- ------- -------
Comprehensive income $ 615 $ 353 $ 1,302 $ 1,336
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements
7
<PAGE>
BRUNSWICK TECHNOLOGIES, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. CONSOLIDATED FINANCIAL STATEMENTS:
The consolidated financial statements included herein have been prepared by
the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to such
rules and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. In the opinion of
management, the amounts shown reflect all adjustments necessary to present
fairly the financial position and results of operations for the periods
presented. All such adjustments are of a normal recurring nature. The year-end
consolidated balance sheet was derived from audited financial statements, but
does not include all disclosures required by generally accepted accounting
principles. It is suggested that the financial statements be read in conjunction
with the financial statements and notes thereto included in the Company's latest
annual report.
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of foreign operations are translated into U.S.
dollars at period end exchange rates. Income and expense items are translated at
average exchange rates during the period. Foreign exchange gains and losses
arising from transactions are reflected in net income.
B. 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. ("BTI-Europe") and is being accounted for
using the purchase method of accounting. The results of BTI-Europe have been
included in the consolidated financial statements of the Company since March 2,
1998.
C. INVENTORIES:
Inventories consist of the following components:
SEPTEMBER 30, DECEMBER 31,
1999 1998
--------- ---------
(in thousands)
(Unaudited)
Raw materials $ 1,298 $ 1,394
Work-in-process 840 957
Finished goods 3,566 2,456
--------- ---------
$ 5,704 $ 4,807
========= =========
8
<PAGE>
BRUNSWICK TECHNOLOGIES, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
D. NEW ACCOUNTING PRONOUNCEMENTS:
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivatives embedded in
other contracts, and for hedging activities. SFAS 133 requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those financial instruments at fair value. The
accounting for changes in the fair value of a derivative under SFAS 133 depends
on the intended use of the derivative and its hedging destination. SFAS 133 is
required to be adopted for the Company's year ending December 31, 2001 and the
Company has not yet determined the impact SFAS 133 will have on its results of
operations, liquidity or financial position.
E. EARNINGS PER SHARE:
The following is a reconciliation of the numerators and denominators of the
basic and diluted earnings per share calculations:
Three months ending September 30:
<TABLE>
<CAPTION>
(in thousands except per share information)
1999 1998
--------------------------------------------------------------
NET PER NET PER
INCOME SHARES SHARE INCOME SHARES SHARE
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $ 421 5,204 $ 0.08 $ 260 5,161 $ 0.05
Effect of dilutive securities:
Conversion of Stock Options -- 221 -- 262
------- ------- ------- -------
</TABLE>
Nine months ending September 30:
<TABLE>
<CAPTION>
(in thousands except per share information)
1999 1998
--------------------------------------------------------------
NET PER NET PER
INCOME SHARES SHARE INCOME SHARES SHARE
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $ 1,332 5,195 $ 0.26 $ 1,196 5,157 $ 0.23
Effect of dilutive securities:
Conversion of Stock Options -- 230 -- 290
------- ------- ------- -------
Diluted EPS $ 1,332 5,425 $ 0.25 $ 1,196 5,447 $ 0.22
======= ======= ======= =======
</TABLE>
9
<PAGE>
BRUNSWICK TECHNOLOGIES, INC,
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F. SEGMENT INFORMATION:
The Company has two reportable segments - (1) Domestic and (2)
International. Revenue and asset information is based on the country in which
the legal entities are located. Segment data includes intersegment revenues, as
well as a royalty charge pursuant to an intersegment technology licensing
agreement.
The international segment was acquired on March 2, 1998. Income statement
amounts reported in 1998 for the international segment are for the period from
March 2, 1998 to September 30, 1998.
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
------- ------- ------- -------
(in thousands) (in thousands)
(Unaudited) (Unaudited)
DOMESTIC
Net sales $ 8,823 $ 8,819 $28,299 $26,730
Operating income 352 125 1,117 1,012
Intercompany income 90 183 296 183
Pretax income 506 398 1,567 1,484
Net income 321 251 995 935
INTERNATIONAL
Net sales 1,813 1,491 5,923 3,595
Operating income 185 174 794 536
Intercompany expense 90 183 296 183
Pretax income 156 15 514 379
Net income 100 9 337 261
EBITDA
Domestic $ 812 $ 667 $ 2,504 $ 2,257
International 277 86 773 525
------- ------- ------- -------
Total EBITDA $ 1,089 $ 753 $ 3,277 $ 2,782
======= ======= ======= =======
SEPTEMBER 30, DECEMBER 31,
1999 1998
------- -------
(in thousands)
(Unaudited)
ASSETS
Domestic $29,369 $28,060
International 6,151 3,481
Intercompany elimination (3,789) (1,902)
------- -------
Total assets $31,731 $29,639
======= =======
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Matters discussed in this report with respect to expected financial results
and future events, including any discussion, expressed or implied, of the
Company's anticipated revenue growth, operating results and future earnings per
share are forward-looking statements (identified by the words "expect",
"estimate", "project", "plans", "believe", and similar expressions) that involve
known and unknown risks and uncertainties. For these statements the Company
claims the protection of the safe harbor of the Private Securities Litigation
Reform Act of 1995. The Company's future operating results are dependent on its
ability to achieve increased sales and to control expenses. Factors such as
lower than expected inflation, product cost fluctuations, changes in product
mix, continued or increased competitive pressures from existing competitors and
new entrants (both fiberglass and non-fiberglass), including price cutting
strategies and deterioration in general of 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 and
uncertainties associated with the merger of three of the Company's large
distributors, (ii) fluctuations in valuation of the pound Sterling versus other
European currencies and the US Dollar, (iii) the failure to obtain necessary
capital for the expansion of facilities and acquisitions, (iv) unforeseen
results of the Y2K problem, (v) the inability to continue to improve production
capacity and scheduling and (vi) failure of implementation of legislative
incentives regarding wind energy industry. These and other risks are detailed
from time to time in the Company's SEC reports, including Form 10K for the year
ended December 31, 1998.
Results of Operations
- ---------------------
Third Quarter ended September 30, 1999.
Net Sales increased 3.2% in the third quarter of 1999 over the same period
last year and net income rose 61.9%. The gross profit margin was 22.9%, up from
20.9% in the third quarter of 1998 but down from 23.9% in the second quarter of
1999. Net income totaled $421,000, or $.08 per fully diluted share of common
stock.
Domestically, demand was relatively flat during the third quarter. The
third quarter is traditionally slow in the composite industry as many North
American marine manufacturers schedule seasonal plant shutdowns to facilitate
tooling conversions for new models. Two other factors impacted the flow of
Domestic orders as follows:
1) The ongoing consolidation of distribution locations by a major
distributor squeezed inventory levels in the distribution
system.
2) Hurricane Floyd forced production delays by some marine
manufacturers in the southeast.
Internationally, there was a 53% increase in pounds shipped in the third
quarter in 1999 compared to the same quarter in 1998. Compared to the second
quarter in 1999, there was a 3.1% decline in pounds shipped in the third quarter
as manufacturing activities in Europe typically slow down significantly due to
summer holiday plant shutdowns.
The improved gross margin in the third quarter of 1999, when compared to
the third quarter of 1998 was driven largely by the improved production
efficiencies experienced primarily in the Brunswick, Maine plant during the
quarter. The margin also benefited from improved raw stock pricing, obtained at
the beginning of the year. The gross margin decline from the second quarter in
1999 was primarily a result of a higher percentage of lower margin, base volume
products being sold during the quarter.
Selling, general and administrative expenses were 16.1% of net sales in the
third quarter of 1999, down from 16.6% as the third quarter of 1998. Actual
expenses were $156,000 less than the second quarter due primarily to reduced
shipping and selling expenses.
11
<PAGE>
Interest income was up compared to last year's, reflecting monies earned on
the Company's increased cash balances. Interest expense was up slightly due to
reduced level of interest capitalization associated with fewer machines being
under construction in 1999. The majority of "Miscellaneous, Net" income is made
up of cash discounts the company takes with its vendors. These fluctuate based
on the level and timing of raw-stock purchases. Foreign exchange ("FX") gains
incurred during the quarter totaled approximately $43,000 on a pre-tax basis.
This is also reflected in the "Miscellaneous, Net" which increased from $99,000
in the third quarter of 1998 to $110,000 in the third quarter 1999.
The gains were caused by the British Pound Sterling strengthening against
the Dollar during the quarter which increased Sterling denominated inter-company
obligations during the period.
Financial Condition
- -------------------
The consolidated balance sheet at September 30, 1999 reflected continued
strong liquidity due to strong cash flow during the first nine months of the
year. Net cash from operations totaled $3,284,000 which was used to fund
$2,330,000 in capital expenditures and to pay down the company's line of credit.
Net increase in cash for the nine months was $224,000. The Company believes cash
flow from ongoing operations and funds available under the Company's credit
facility will be adequate to meet the Company's needs for the remainder of 1999.
Year 2000 Disclosure
- --------------------
The year 2000 (Y2K) issue is best defined as the ability of systems to
accurately process all date related information before, during and after
midnight on 12/31/99, including other `magic' or `null-set' dates such as
9/9/99.
The Company has undertaken an initiative (begun in the second quarter of
1998) to assess the readiness of its internal systems in regards to compliance
with the pending millennium change. The Company has assigned direct
responsibility for the Y2K project to the corporate controller, in conjunction
with the chief financial officer.
The Company has identified three broad categories of internal Y2K risk:
network hardware and software, manufacturing systems and processes, and
financial, manufacturing and time and attendance software. Our network hardware
and software, and manufacturing systems and processes have been in compliance
since the beginning of the second quarter of 1999.
o All network hardware has been inventoried, reviewed for
compliance and tested where necessary and appropriate. Upon
completion of the testing it was determined that some hardware
was not in compliance, replacement hardware has been purchased
and installation is complete in all areas identified as critical.
o The manufacturing equipment on which the Company places primary
reliance for production of saleable goods has been inventoried
for date sensitive components. Components identified with the
potential for containing date sensitive processors were
researched through the original manufacturer to determine
compliance and upgraded or replaced as necessary.
12
<PAGE>
o Domestically all systems software has been upgraded to a fully
integrated third party ERP application, which is Y2K compliant.
Internationally, as of November 1999 the Company has implemented
the financial module of the third party ERP application. The
implementation of the financial module of the ERP application at
the UK site will complete all system updates to Y2K compliant
software releases.
The impetus for installing the new ERP system was the need for an enhanced,
fully integrated, management information system to support continued growth, not
specifically due to Y2K exposure. The Company has capitalized the costs of the
ERP and included them in Management Information Systems on the balance sheet,
which totaled $508,000 as of September 30,1999. The implementation of this ERP
system substantially addresses Y2K compliance issues related to our financial
and manufacturing data collection and reporting systems.
In addition to assessing internal systems, the Company is reviewing
suppliers, service providers and customers whose systems failures as a result of
Y2K non-compliance could have a significant impact on the Company's continued
business operations. The Company is principally dependent on a small number of
suppliers for the majority of its raw material. The Company has initiated
communications to directly address these suppliers' Y2K preparedness, however
the Company has limited or no control over the actions of these third party
suppliers to address and resolve their Y2K issues. Any failure of these
principal third party suppliers to resolve their Y2K issues could have a
materially adverse effect on continued uninterrupted business operations.
Based on the results of the internal compliance initiative and the
assessment of third parties preparedness for the millennium change, management
is developing appropriate contingency plans. The contingency plans are being
developed to address the following, but not limited solely to those, areas
listed: adequate stock of materials on-hand to mitigate any short-term
disruptions of supply that may occur; adequate stock of finished product to
mitigate any disruptions due to lack of customer forecasts; adequate alternative
means of communication for transfer of voice and data. Specific steps have
already been taken to execute portions of the contingency plans that are in
place. Part of the Company's contingency plan is to maintain additional buffer
stocks of critical raw material, finished goods and other supplies either
on-hand or immediately available. This will result in higher than normal
inventory levels, which could have an unforeseeable negative impact on the
company's financial performance and/or financial condition. In addition, should
it become necessary, utilization of alternative means of communication for voice
and data transmission could result in higher than normal operating expenses for
an unforeseeable period of time.
It is management's opinion that the Company's overall internal, as opposed
to supplier, risks associated with the Y2K problem are low. The implementation
costs associated with the ERP project are the only material costs incurred to
date in system software that would be reviewed as part of our Y2K project. The
Company has not incurred any other material costs related to the Y2K project,
and it is anticipated that total future costs associated with ensuring
compliance will not exceed $40,000 and will be funded by cash flows generated
from ongoing business operations. However, these expectations are subject to
uncertainties. Although the Company expects that its internal systems will be
Y2K compliant by the end of 1999, there can be no assurances that system
failures will not occur, or that such failures will not have a materially
adverse effect on continued uninterrupted business operations.
13
<PAGE>
The following table provides a synopsis of the status, timetable, costs and
contingency plans for the internal computer and network systems BTI has
identified as sensitive to Y2K.
<TABLE>
<CAPTION>
==========================================================================================================================
System/Process Phase Status Timetable Estimated Contingency Estimated
Cost Plan/Risks Contingency
Cost
- ------------------------- --------------------- ---------------- ------------ ------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Financial, Implementation of $550,000 All mission $0
Manufacturing, and Time Integrated ERP critical
& Attendance Software System Complete This cost software
Financial Complete - is not a domestically/
Purchasing Complete - direct Internationally
Manufacturing ME Complete - result of has been
Customer Service ME the Y2K upgraded to
Complete - initiative, alleviate
Complete - but was Y2K risk.
Manufacturing TX incurred to
Customer Service TX Complete - support
continued
ERP Financial Module business
growth
Implementation in UK Complete -
Implementation of
new time and
attendance system
- ------------------------- --------------------- ---------------- ------------ ------------- -------------- ---------------
- ------------------------- --------------------- ---------------- ------------ ------------- -------------- ---------------
Network Hardware and Inventory System Complete - $15,000 Greatest $20,000
Software Equipment Risk is over
WAN, disruption
Test Complete - would
Hardware/Software necessitate
Complete - local
Upgrade/Replace installation of
ERP software in
TX
- ------------------------- --------------------- ---------------- ------------ ------------- -------------- ---------------
- ------------------------- --------------------- ---------------- ------------ ------------- -------------- ---------------
Manufacturing Equipment Inventory System Complete - $0 Manufacturing $0
and Systems Equipment process does
not rely on
Test as appropriate Complete - date sensitive
processing
Remediate Complete - equipment
==========================================================================================================================
</TABLE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Management feels that the Market Risk profile of the Company is low. The
Company has a wholly owned subsidiary, BTI-Europe, located in Andover, UK. The
value of the Company's interest in, and inter-Company obligations to and from,
BTI-Europe may fluctuate from time to time in response to changes in the
relative exchange rates between the US Dollar ($) and British Pound Sterling
((pound)). The financial statements of BTI-Europe are consolidated into the
financial statements of the Company for financial reporting purposes in
accordance with Generally Accepted Accounting Principals ("GAAP") and, as such,
are translated into US currency at the exchange rates prescribed by GAAP. The
Company also sells product throughout the world and, from time to time, may
agree to sell based on the local currencies. The Company may, from time to time,
enter into foreign exchange forward contracts in order to hedge against currency
fluctuations associated with these foreign sales or anticipated sales.
Accordingly, the Company's accounts receivable may be subject to realized and
unrealized foreign exchange gains or losses and are reported in accordance with
GAAP. At September 30, 1999, the Company had no foreign exchange forward
contracts outstanding.
14
<PAGE>
PART II. OTHER INFORMATION.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
A limited review was made of the results of the three months and nine
months ended September 30, 1999 by PricewaterhouseCoopers LLP, whose report is
included in Part 1. Such report is not within the meaning of "report" in Section
7 and 11 of the Securities Act and the independent accountants liability under
Section 11 does not extend to it.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27 - Financial Data Schedule
15
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
Brunswick Technologies, Inc.
November 11, 1999 By: /s/ Alan M. Chesney
--------------------------------------------
Alan M. Chesney
Chief Financial Officer and Treasurer
(Principal financial and accounting officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 1,020 1,020
<SECURITIES> 0 0
<RECEIVABLES> 6,074 6,074
<ALLOWANCES> 149 149
<INVENTORY> 5,704 5,704
<CURRENT-ASSETS> 13,418 13,418
<PP&E> 15,013 15,013
<DEPRECIATION> 3,722 3,722
<TOTAL-ASSETS> 31,731 31,731
<CURRENT-LIABILITIES> 4,296 4,296
<BONDS> 0 0
0 0
0 0
<COMMON> 24,919 24,919
<OTHER-SE> 1,407 1,407
<TOTAL-LIABILITY-AND-EQUITY> 31,731 31,731
<SALES> 10,636 34,222
<TOTAL-REVENUES> 10,636 34,222
<CGS> 8,201 26,414
<TOTAL-COSTS> 10,099 32,311
<OTHER-EXPENSES> 131 191
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 6 21
<INCOME-PRETAX> 662 2,081
<INCOME-TAX> 241 749
<INCOME-CONTINUING> 421 1,332
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 421 1,332
<EPS-BASIC> 0.08 0.26
<EPS-DILUTED> 0.08 0.25
</TABLE>
