SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                    FORM 10-K


 X      ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
---     EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1996

        ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
        EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD ___ TO ___

                        Commission File Number 333-10721
                                               ---------    

                          BRUNSWICK TECHNOLOGIES, INC.
             (Exact Name of Registrant As Specified In Its Charter)


            Maine                                         01-0402052
---------------------------------           ------------------------------------
  (State or other jurisdiction              (I.R.S. Employer Identification No.)
of Incorporation or organization)

           43 Bibber Pkwy., Brunswick, Maine                04011
         ---------------------------------------          ---------
        (Address of principal executive offices)          (Zip Code)

       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         No  X
                       ---

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [X]

         The  aggregate  market value of the  registrant's  Common Stock held by
nonaffiliates as of March 24, 1997 was  approximately  $26,355,119  based on the
closing price as reported on such date on the Nasdaq National Market.

         Indicate the number of shares  outstanding of each of the  registrant's
classes of Common Stock, as of March 24, 1997: 4,547,604 shares of Common Stock,
$0.0001 par value

         The following  document is hereby  incorporated  by reference into Part
III of this Form 10--K: The registrant's  Proxy Statement for its Annual Meeting
of  Stockholders  to be held on April 29, 1997, to be filed with the  Securities
and Exchange Commission.










                                     PART I
Item 1.

                                    BUSINESS

GENERAL

         Brunswick  Technologies,  Inc.  (the  "Company")  is a  technologically
advanced,  leading  developer and producer of engineered  reinforcement  fabrics
used in the fabrication of composite  materials.  The Company's  technologically
advanced  stitchbonding  equipment and processes prepare glass, carbon and other
fibers for combination with resin to produce  laminates used in the construction
of such diverse items as boats,  skis,  diving  boards,  protective  helmets and
ballistic  armor  applications,  car and truck parts,  and industrial  tanks and
pipes.  Since the  invention  of  composite  reinforcement  fabrics in the early
1940's,  these materials have developed broad  applicability  as substitutes for
wood, steel, and concrete.

         Composite   products  offer  substantial   benefits  over  conventional
materials,   including:  a  higher   strength-to-weight  ratio,  greater  design
flexibility while maintaining structural integrity,  chemically inert properties
and lower  maintenance  requirements.  As a result of their  superior  features,
composite reinforcement fabrics are increasingly demanded by a growing number of
industries   and   applications,   including   transportation,   infrastructure,
recreation,  petro-chemical  and  construction.  Management  believes the use of
engineered composite  reinforcement  fabrics will continue to grow as the market
is made more aware of the positive features of such materials and as the cost of
more advanced composite fibers such as carbon continues to decline.

         The  Company's  principal  strength lies in its  innovative  quadraxial
single-step  stitchbonding  fabrication process.  Through use of its proprietary
production  equipment,  the Company can  quickly  and cost  effectively  produce
engineered  composite  reinforcement  fabrics in sizes and shapes not  otherwise
generally   available.   Fabrics   created   from  the   Company's   proprietary
manufacturing  process  offer  characteristics  integral  to the  production  of
composite  materials in  infrastructure,  industrial and large scale  commercial
applications.

         The Company has introduced a number of manufacturing processes that not
only more efficiently create composite  reinforcement fabrics, but also optimize
the performance  characteristics of such fabrics.  In a proprietary  single-step
production  process,  the  Company  is able to  stitchbond  fibers in  different
directions without diminishing the composite fibers' inherent  properties,  thus
dramatically improving the structural strength of the reinforcement fabric. This
compares favorably, firstly, with traditional composite fabrics which are woven,
and  therefore  require  the use of more  resin to  achieve  the same  degree of
structural integrity, and secondly, with the more costly multi-step processes of
other  weft-insertion  or  stitchbonding   manufacturing  technologies  used  by
competitors.   In  addition,   the  Company's   proprietary,   high  through-put
manufacturing  processes  have the  ability  to produce  heavyweight  quadraxial
fabrics over 100 inches wide in a single-step,  which allows for  cost-effective
fabrication  of composite  parts of up to 10 inches thick.  The  combination  of
these  features   produces  fabrics  which  enable   composite   fabricators  to
manufacture  end-products  at competitive  costs while  maintaining  the maximum
structural integrity of these products.

         In a move to accelerate the  implementation  of its strategic  business
plan and expand its product line, the Company acquired Advanced  Textiles,  Inc.
("ATI"), a subsidiary of Burlington Industries,  Inc.  ("Burlington") on October
30, 1996.  ATI, which now operates as a wholly-owned  subsidiary of the Company,
produces first generation  light-weight composite reinforcement fabrics targeted
towards specialized niche markets. These light-weight fabrics typically sell for
a higher  margin  than  other  types of  composite  reinforcement  fabrics.  ATI
manufactures  these fabrics from fiberglass and other higher modulus fibers such
as carbon and aramid;  therefore,  ATI's  product line  complements  that of the
Company and, therefore,  provides it with an enhanced ability to offer a broader
spectrum of product types.  The Company believes that by offering a product line
which satisfies a broader range of composite  reinforcement fabric requirements,
it will be better  positioned to be the  principal  provider of these fabrics to
its expanded  customer  base.  The Company  believes it will capture  additional
market share by  cross-marketing  its existing  products to ATI's  customers and
vice versa.






         The Company's  strategy is to increase  revenues and net income through
increasing  its  domestic  and  international  market  share  in  the  composite
reinforcement   fabric   industry  as  well  as  making   additional   strategic
acquisitions  for product and market  presence,  and engaging in joint projects.
The key elements of this strategy include: (i) targeting additional applications
for   composite   reinforcement   fabrics   in  the   transportation,   offshore
petro-chemical  and  infrastructure  sectors;  (ii) increasing its international
presence;  (iii)  continuous  innovation of its  state-of-the-art  manufacturing
processes; (iv) extension of its product offerings further along the value-added
chain  towards net shape  products and (v)  acquiring  additional  businesses or
engaging  in joint  projects  with  companies  which  complement  the  Company's
strategy,  including  the  expansion  of  its  manufacturing  capacity  and  the
broadening of its geographic market presence.

INDUSTRY BACKGROUND

         Since  the  invention  of  composite  reinforcement  fabrics  made from
fiberglass in the early 1940's, various attempts have been made to commercialize
the potential of these  fabrics as  replacements  for wood,  steel and concrete.
These  diverse  pioneering  projects  include the 1953 Corvette and Wonder Bread
delivery  trays from the early 1950's.  While these efforts were  remarkable for
their day, the potential of these  materials did not start to be realized  until
the mid  1960's  when the  recreational  boat  industry  converted  from wood to
composite  reinforcement  fabrics. This development spurred the expansion of the
composite  fiber  industry  from  occasional to broad usage in a wide variety of
consumer  products such as skis,  diving boards and protective  helmets,  and in
industrial  applications,  including cars, trucks,  ballistic armor applications
and  industrial  tanks and pipes.  Over this period the processes used to create
fabrics composed of composite fibers have dramatically evolved.

         Traditionally,  reinforcement  fibers  were woven  together to create a
composite  reinforcement  fabric.  The weaving process aligns these fibers along
the  zero-to-ninety  degree  axis,  inserting  them over and under each other to
create the weave,  resulting in the bending of such fibers,  or crimping.  While
woven  fabrics are highly  suitable for certain  applications  such as ballistic
protection,  the  crimping  which  occurs in the weaving  process  reduces  each
individual  fiber's  strength and  reinforcement  properties.  As the mechanical
properties  of the composite  reinforcement  fabric is the key parameter for the
design of the underlying  product or  application,  the integrity of the fiber's
performance  defines  the  amount  of such  fibers  needed to  achieve  specific
performance  specifications.  In contrast to weaving,  stitchbonding a composite
fabric allows the  manufacturer to optimize the fibers'  mechanical  properties,
thus reducing the volume of fibers required as compared to the weaving  process.
The Company's innovative  stitchbonding production processes align the composite
reinforcement  fibers in a variety of axes.  All of this takes place in a single
production step and at high  production  throughputs,  all without  crimping the
fiber and thereby avoiding  diminishing the fiber's  strength.  While certain of
the  Company's   competitors  also  can  offer   weft-inserted  or  stitchbonded
reinforcement  fabrics,  they generally manufacture their products in multi-step
processes.  The competitors'  manufacturing processes are more costly due to the
greater number of steps in the process and the lower throughput rate as compared
to the Company's proprietary, high throughput, one-step process.

         The first  generation of knitted fabrics offered  significant  strength
advantages  compared  to woven  reinforcements,  and thus were  able to  produce
savings in material usage and weight. These fabrics,  however,  were priced at a
substantial  premium  over  traditional  woven  fabrics.  Today,  lighter-weight
knitted  specialty  fabrics,  such as those  manufactured  by ATI, have become a
higher-margin, niche product in the composite reinforcement market.

         In 1990,  the Company  introduced  a  revolutionary  new product  line,
BiTex(R), the first generation of price-competitive,  heavy-weight  stitchbonded
reinforcement  fabrics.  For  the  first  time,  weft-inserted  or  stitchbonded
composite  reinforcement  fabrics, whose market potential was previously limited
by their high cost, became competitive in numerous composite applications,  from
automobile  bumpers and  one-piece  molded  commercial  aircraft  structures  to
high-strength consumer products such as boat hulls and skis.


                                      -2-






COMPANY STRATEGY

         The  Company's  strategy to continue  its current  growth  includes the
following elements:

        *  Successful integration of ATI's operations,  products,  customer base
and capacity with the Company's existing  operations,  including the application
of  the  Company's   specialized   know-how  and   technical   skills  to  ATI's
manufacturing  capabilities,  from which the  Company  expects to  achieve:  (i)
cost-savings   through   economies   of   scale;   (ii)  the   opportunity   for
cross-marketing  to both ATI's and the Company's  existing customers with a more
complete  product line; (iii)  rationalization  of distribution  channels;  (iv)
higher manufacturing  efficiencies at ATI's production facility; and (v) overall
greater horizontal prevalence in the composite reinforcement fabrics market;

        *  Continued  expansion  of its  leadership  position  in the  composite
reinforcement  fabrics  industry,  development  of new products and processes to
answer  the  needs  of a wide  range  of  industries  including  the  continuing
integration  of fabric  design  elements  with the  specific  needs of composite
fabricators and capitalization  upon the Company's position as the only supplier
of composite reinforcement fabrics to develop and manufacture its own production
equipment;

        *  Pursuit of additional  acquisitions  to broaden further the Company's
product line as well as manufacturing  capacity,  product market  coverage,  and
distribution channels;

        *  Extension of activities  into  international  markets,  in particular
Europe and Latin  America,  and further  expansion  into specific  product niche
markets with ATI's specialty products;

        *  Fostering of more joint  projects with a wide range of  manufacturers
as well as  universities  and state  and  federal  governments  to  develop  new
composite products incorporating composite reinforcement fabrics; and

        *  Development of component products which will reduce the steps between
fabric  formation  and  end-user  products,  and the  manufacture  of  completed
components for certain end-user products.

ACQUISITION OF ADVANCED TEXTILES, INC.

         On October  30,  1996,  the  Company  acquired  all of the  outstanding
capital stock of ATI pursuant to a Stock Purchase  Agreement dated as of October
22, 1996 among the Company,  Burlington and Peter L. DeWalt,  the President (and
partial  owner) of ATI.  In  consideration  for the  capital  stock of ATI,  the
Company (i) agreed to pay to Burlington the sum of $600,000 in cash  (discounted
to $513,000  using an interest  rate of 8.25%) over a two to six year period and
issued to Burlington a convertible subordinated promissory note in the aggregate
principal amount of $7,296,500 (the "Convertible Note"), and (ii) issued to Mr.
DeWalt 5,350 shares of Common Stock.

         The  acquisition was the result of extensive  negotiations  between the
Company and Burlington.  The Company elected to pursue this acquisition  because
it believes  that by offering a product line which  satisfies a broader range of
composite reinforcement fabric requirements,  it will be better positioned to be
the  principal  provider of these  fabrics to its expanded  customer  base.  The
Company believes it will capture additional market share by cross-marketing  its
existing  products to ATI's customers and vice versa.  The Company also believes
that it can  apply  its  specialized  know-how  and  technical  skills  to ATI's
manufacturing  capabilities and achieve cost-savings through economies of scale.
Additionally, the acquisition offers integrated distribution channels and higher
manufacturing efficiencies at ATI's production facility.

         The  Company  intends  to  integrate  the  operations  of ATI  into its
existing  operations,  and has caused ATI to enter into an Employment  Agreement
with Mr.  DeWalt.  The Company  also  expects to upgrade  certain of the capital
equipment  of ATI  located  in its  Seguin,  Texas  manufacturing  facility  and
consolidate certain duplicative functions.


                                      -3-






PRODUCTS

         The Company currently  manufactures  composite  reinforcement  fabrics,
also referred to as  stitchbonded or non-crimped  fabrics,  primarily from glass
fibers,  and is  distributing  them under the BiTex(R) and Cofil(R) trade names.
The Company is continuously  researching new methods of producing other types of
composite  fabrics  and the use of new  fibers to  create  them.  The  Company's
introduction  of its  proprietary  stitchbonding  production  processes  in 1990
enabled  composite  reinforcement  fabrics to  compete  more  successfully  with
conventional  materials by reducing such  fabric's  manufacturing  costs,  which
previously had been prohibitively high.

         ATI  was  a  pioneer  in  the  industry's   transition  to  non-crimped
reinforcement  fabrics,  although  it still  produces  some  woven  fabrics  for
specific  applications,  such as ballistic  armor  applications.  ATI's  present
product range focuses on high-margin,  high-quality, specialty products required
by a wide range of end users. In general,  the  weft-inserted  light-weight  and
super-light-weight  fabrics  that  ATI  produces  are not  sold as  commodities;
rather,  composite  manufacturers  seek out  ATI's  products  for very  specific
applications.

         The Company's composite  reinforcement fabrics permitted a reduction in
the quantity of fibers used and the  consequential  reduction in the quantity of
resin  required,  leading  to  significant  reductions  in cost  for  equivalent
mechanical  performance.  The Company  believes  that it is  currently  the only
supplier of composite  reinforcement fabrics which develops and manufactures its
own production equipment.  The Company's proprietary  production processes allow
it to offer composite reinforcement fabrics of varying weights, widths and fiber
orientations,  and to produce  fabric at  unrivaled  efficiencies.  Furthermore,
these  fabrics  can  be   engineered   to  respond  to  a  customer's   specific
requirements.   The  Company's   experience  indicates  that  these  proprietary
processes  can be  successfully  applied to other base  materials,  allowing for
production  of  reinforcement  fabrics  from  various  carbon,  aramid and other
fibers.   The  Company's   current  output  is  presently  used  by  end-product
manufacturers to build a wide range of products, including boats, diving boards,
snowboards,  swimming pools,  truck bodies,  ballistic  protection  products and
corrosion sensitive vessels.

         Engineered composite reinforcement fabrics offer significant advantages
over other currently used materials:

        *  Strength-to-Weight    Ratio.    Composite    products    possess    a
strength-to-weight  ratio  much  higher  than that of steel,  wood or  concrete.
Composite  reinforcement  fabrics  are  uncommonly  strong for their  weight and
density.  Use of these  materials  in  transportation  industries  provides  for
substantial fuel savings and greater payload capacity.  The marine market is the
most mature of the industries currently using composite  reinforcement  fabrics.
Truck  and  railcar  manufacturers  are  developing  bodies  made  out of  these
materials.  Certain  light-weight  woven  fabrics  offer high  energy-absorbtion
characteristics and, therefore,  are ideal for ballistic shielding applications.
Furthermore,  due  to  their  inherent  strength-to-weight  ratio,  construction
materials  can be built  from  reinforcement  fabrics  in both load and  no-load
designs  and in shapes too  complex to be built from much  heavier  metals.  The
Company is  working in a joint  development  project  to  develop  products  for
infrastructure  applications  such as bridges and reinforced column wrapping for
earthquake protection.

        *  Longer  Life-Cycle.  Products  produced from composite  reinforcement
fabrics do not rust or rot, are chemically inert,  non-conductive  and generally
maintenance free, making their  life-cycles  significantly  longer than those of
steel,  concrete or wood.  These features  allow use of composite  reinforcement
fabrics in environmentally corrosive situations, such as salt water immersion or
highway  construction.  Accordingly,  these  products are  increasingly  used in
finished  products such as marine pilings,  telephone  poles,  one-piece  septic
tanks,  guardrails,  building columns,  bridge columns, and bridges. The housing
industry  is  using  these  materials  in  construction,  both  residential  and
commercial.

        *  Greater  Safety.   Products  produced  with  composite  reinforcement
fabrics do not suffer  from the  disintegration  failures  suffered by steel and
concrete.  Moreover, composite materials offer significantly greater high-energy
impact absorption, and their one-piece fabrication means that no weak seams need
to be  introduced  into the part.  The Company is working with its  customers to
develop  products  made from  composite  reinforcement  fabrics which will offer
non-varying  mechanical  strength and stiffness through the entire life-cycle of
the product,  and to lower the risk of continuous  deterioration and degradation
of  strength,  which can be caused by metal  fatigue  in steel


                                      -4-




or environmental erosion in concrete. These tougher products are being developed
for  use  in  automotive  and  highway  safety  applications,   bullet-resistant
applications,  structural  support,  and as  components of deep-sea oil drilling
platforms.

        *  Design and Process  Freedom and Efficiency.  Composite  reinforcement
fabrics can be molded in  tremendously  flexible ways,  allowing the creation of
complex parts. Manufacturers assembling final products using these materials are
able to use one part, formed in a complex shape, instead of having to use two or
more simpler parts formed from metals.  This  obviously  results in  significant
cost savings, in both material and labor costs.  Architecturally,  designers can
create  shapes  that  would  not  otherwise  be  buildable   from   conventional
construction  materials.   Furthermore,  many  final  products,  through  weight
savings,  can be installed in one piece,  such as septic  tanks.  Other  ongoing
projects  include  the  development  of on-site  fabrication  of parts using new
injection molding and bonding techniques.

        *  Environmental  Benefits.  Use of the Company's  stitchbonded products
reduces the amount of resin required to manufacture the  end-product,  resulting
in  the  decreased   release  of  volatile  organic   compounds  by  end-product
fabricators.  The use of  composite  reinforcement  fabrics  in  products  which
substitute  for wood,  steel or concrete  can  diminish  the amount of chemicals
released in the  environment.  For example,  marine pilings and telephone  poles
constructed  of composite  materials  would not be treated with arsenic or other
toxic  substances  presently  required to provide adequate product cycle life to
wood  products.  Due  to  their  high   strength-to-weight   ratios,   composite
reinforcement fabrics offer the transportation industry substantial fuel savings
and permit the transport of greater  payloads due to increased  truck  capacity.
The  construction  industry is  starting  to use these  fabrics as a shield from
noise, heat, weather, and electro-magnetic  interference.  These products can be
highly insulating,  in addition to their chemically  non-reactive nature, making
them  ideal  for use as  pipes,  tanks  and  ducting,  especially  in  corrosive
situations.  The paper and  petrochemical  industries  are starting to use these
types of products in hostile environments.

PRODUCT ENGINEERING, MANUFACTURING AND DEVELOPMENT

         The Company  believes that its strongest  competitive  advantage is its
technical and developmental  know-how. The principal reasons for its progress in
technical  development  thus far are the quality of its  product  design and its
engineering  and  manufacturing  capabilities.  These  capabilities  enable  the
Company  to  design  and  engineer  products  that  meet or  exceed  end-product
manufacturers' performance and reliability specifications.  The Company believes
that it has  created and will  continue to create  know-how  and  technology  to
manufacture  products  at lower  costs  than its  competitors  by  pursuing  its
engineering  and  manufacturing   development  in-house.   The  quality  of  the
technology and know-how of a business or product line is an important  factor in
the Company's evaluation of potential acquisition candidates.

         The Company's  operations utilize  current-generation  computer systems
for product design and documentation as well as for performance  testing.  A key
to the Company's ability to reduce  manufacturing cost has been the reduction of
direct labor through the introduction of its proprietary single-step,  automated
or semi-automated manufacturing processes.

         The Company  believes  that its  ability to produce  fabric in a single
step at 20  feet/minute  is the fastest in the composite  reinforcement  fabrics
industry. It also believes that it has the unique capacity to produce quadraxial
reinforcements over 100 inches wide in a single step. The Company's  proprietary
capabilities   allow   composite   reinforcement   fabrics  to  be  produced  by
continuously  placing  reinforcement  fibers  in  layers  at  different  angular
orientations and concurrently stitching them together to achieve certain desired
properties,  depending upon the application, such as greater carrying capability
and  corresponding  strength.  The  Company's  machines are capable of producing
reinforcements  in five  different  directions/orientations  and  planes  or any
combination thereof.

         The  Company  has  continued  to build on the  success of its  BiTex(R)
product line, and has introduced the following product and process innovations:

        * First commercial binderless mat production process introduced in 1990;

        * First single-step quadraxial products introduced in 1992;


                                      -5-





        * First 100+ inch-wide single-step quadraxial fabrics commercialized in
          1993; and

        * First capability to produce,  in a single-step,  150 inch 0-90 degree
          binderless mat product, and commercialization of same in 1994.

         The Company believes that it can apply its technical and  developmental
expertise to ATI's  operations.  Management  expects that the application of the
Company's  engineering  and  design  ability  to  ATI's  current  weft-insertion
equipment  and  manufacturing  process  should  result  in a  greater  range  of
light-weight  and   super-light-weight   specialty  products,   which  would  be
manufactured with greater  efficiencies.  The Company intends to upgrade certain
of  ATI's  machinery  at the  earliest  appropriate  time  and to  increase  the
throughput of ATI's manufacturing facility.

         With the acquisition of ATI, the Company expects that its manufacturing
operations,  which include 22  production  machines and  facilities  aggregating
approximately  90,000 square feet will be sufficient for  approximately the next
30 months,  supplemented  by a certain amount of capital  expenditures to update
certain of ATI's equipment and to purchase additional equipment. The Company has
not experienced any material shutdowns in its history.

         The  Company  invests in  product  development  to meet and  anticipate
customer    requirements.    The    Company    also    undertakes    end-product
manufacturer-sponsored   or  joint  sponsored  product  development   contracts.
Accordingly,  the Company's  development  activities  are  generally  product or
program  specific.  The Company  spent  $373,955,  $408,247 and $498,038 on both
Company-sponsored and customer-sponsored  research and development in the fiscal
years ended December 31, 1994, 1995 and 1996, respectively.

         Certain of the Company's  current  research and development  activities
are directed toward producing new processing  equipment which can manufacture in
a single  step  composite  reinforcement  fabrics  double  the  weight  of those
currently produced by the Company.

         Certain other of the Company's research and development  activities are
focused upon  manufacturing  processes  and  equipment so that the Company might
produce  certain  end-user  products.  Such  equipment  may mold or  "net-shape"
composite  fabrics into specific  shapes or  continuous  forms such as piping or
tubular structures on-site.

MARKETING AND SALES

         The Company's competitive position in the marketplace is dependent upon
its continuing  ability to design innovative  processes to generate products for
specific composite fabricator  applications.  The Company's marketing philosophy
is to have a team  of  employees  work  directly  with  prospective  and  active
composite  fabricators.  The Company markets its products  primarily through its
own  marketing  and  sales  force  directly  to  composite   fabricators  either
individually or at trade shows.

         Although  89%,  78% and 76.3% of the  Company's  gross  sales were made
through four  distributors  (GLS  Corporation,  M.A.  Hanna Resin  Distribution,
Plastic Sales,  Inc. and RP  Associates)  in 1994,  1995 and 1996 (not including
sales made by ATI),  respectively,  each distributor is comprised of a subset of
multiple regional distributors. As to GLS Corporation, the Company made sales of
$4,934,489,  $7,357,071 and $9,506,427 in 1994, 1995 and 1996, respectively.  As
to M.A.  Hanna  Resin  Distribution,  the  Company  made  sales  of  $1,738,229,
$2,499,410 and $2,157,908 in 1994,  1995 and 1996,  respectively.  As to Plastic
Sales,  Inc.,  the Company made sales of $850,598,  $914,399 and  $1,053,091  in
1994, 1995 and 1996, respectively.  As to RP Associates,  the Company made sales
of $1,422,262,  $1,985,714 and $2,262,759 in 1994, 1995 and 1996,  respectively.
In 1994, 1995 and 1996 the Company made 4.3%, 9.8% and 12.0% respectively of its
sales directly to composite fabricators.

         The  four  largest  purchasers  of  ATI's  products  accounted  in  the
aggregate  for 76%,  75% and 80% of ATI's net sales for the fiscal  years  ended
October 1, 1994,  September 30, 1995 and September 28, 1996,  respectively.  FRP
Supply,  Inc., ATI's largest customer,  accounted for approximately 53% of ATI's
net sales, or $5,559,289, $5,876,330, $5,286,161,  respectively, for each of the
last three  fiscal  years.  S-2 Yachts  accounted  for net sales of  $1,215,889,
$961,000,  and  $905,071  for each of ATI's last  three  fiscal  years.  General
Fiberglass accounted for net sales of $891,249, 


                                      -6-





$731,982,  and  $651,087 for each of ATI's last three  fiscal  years.  Fibercast
accounted  for net sales of $694,903,  $668,207,  and $698,222 for each of ATI's
last three fiscal years. In ATI's 1994, 1995 and 1996 fiscal years, it made 34%,
37% and 36%, respectively of its sales directly to composite fabricators.

         Management  believes that the key to the Company's  sales and marketing
strategy  is  the  development  of  long-term   relationships  with  end-product
manufacturers  through its team approach of combining  product  development  and
sales. The Company's  production and sales managers work with sales staff in all
markets  to develop  products  for  particular  end-product  manufacturers.  The
Company  believes that its recent  acquisition of ATI will enable it to market a
greater  spectrum of products to a wider group of  distributors  and end-product
manufacturers,  including ATI's distributors and customers. In addition, certain
of the products  currently  being sold by the Company will be available for sale
to the former customers of ATI.

SUPPLY

         There are only three  significant  suppliers from which the Company may
purchase  its  fiberglass  requirements:  PPG  Industries,  Inc.,  Owens-Corning
Fiberglass, Inc. and Vetrotex. The Company was party to a contract with Vetrotex
which expired in August 1996 pursuant to which  Vetrotex was required to supply,
and the Company was required to purchase,  90% of its  fiberglass  requirements.
Even though the supply  contract has expired,  the Company  currently  purchases
over half of its fiberglass requirements from Vetrotex under terms substantially
the same as those of the expired supply  contract.  The Company believes that it
is a significant  purchaser of fiberglass  strands from Vetrotex and the Company
and Vetrotex  have  mutually  expressed an interest in  negotiating a new supply
contract.  The Company is  negotiating  with, and  purchasing  from,  additional
vendors to ensure a continued supply of fiberglass for its production needs. The
Company  believes  that  the  acquisition  of ATI may  improve  its  ability  to
negotiate more favorable terms with its suppliers  because it will be purchasing
larger gross amounts of raw materials.  The Company's  ability to operate and to
grow is dependent upon its ability to obtain an adequate supply of fiberglass.

BACKLOG

         The  Company's  backlog as of  December  31,  1996,  was  $957,214,  or
approximately  2.6  weeks  of  sales.  Backlog  as of  December  31,  1995,  was
approximately $2,919,400, or approximately 8.2 weeks of sales. In December 1995,
over $1,216,000 of the backlog consisted of orders that were past their shipping
date as a result of capacity and raw material  constraints present in the market
at the time.  This caused  distributors  and customers to hedge  against  future
shortages  and place  additional  orders,  which  drove the backlog to very high
levels. In the second quarter of 1996,  backlog returned to more historic levels
as fiberglass supplies became more plentiful.

         Due to the capacity and raw material  constraints present in the market
in the first  quarter of 1996,  the  Company's  net sales were  increased as its
distributors  built their inventory levels to cushion against the  industry-wide
supply shortage that existed throughout 1995. In the second quarter of 1996, the
Company's  distributors  reduced  their  inventory  in  response  to the general
availability of fiberglass, thereby contributing to a reduction in the Company's
net sales to $4.4  million  from $4.7  million in the first  quarter of 1996.  A
decrease  in net sales to $4.25  million  occurred  for the same  reasons in the
third quarter of 1996.  Management  estimates  that during the remainder of 1996
its  distributors  maintained  an  approximate  three-week  supply of  composite
reinforcement  fabrics as opposed to an  approximate  twelve-week  supply in the
second quarter of 1996.  Management  expects this trend of returning to historic
distribution  supply  levels to continue as long as fiberglass  supplies  remain
plentiful.

         The  industry-wide  shortage  of  fiberglass  was caused by  increasing
demand and insufficient  capacity to meet the demand. The demand increase caused
fiberglass  suppliers to take action to increase their production  capabilities.
To increase such capabilities, however, fiberglass suppliers needed to reduce or
stop their output temporarily, in order to modify their production equipment and
furnaces. Such shut-downs or slow-downs exacerbated the supply shortage.

JOINT PROJECTS

         In February 1995, the Company  entered into a  Collaborative  Agreement
with E.I. du Pont de Nemours and Company,  Inc. ("DuPont"),  Hardcore Composites
Ltd.  ("Hardcore"),  The Dow Chemical Company and Johns


                                       -7-






Hopkins  University  under the Federal  Advanced  Technology  Program to develop
agile heavyweight composites for large civil bridge infrastructure applications.
For its part in the cooperative  project, the Company was awarded up to $750,000
in  matching  funds over three years as part of a $13.5  million  grant from the
U.S.  Department  of  Commerce  and the  National  Institute  of  Standards  and
Technology.  The  project  is  directed  toward  the study of the  manufacturing
competency of composites  produced with Seeman  Composite Resin Infusion Molding
Process (SCRIMP)  technology (a process of layering dry fabric and drawing resin
through the layered fabric with the use of vacuum pressure) and their ability to
increase  the life of large  structures  such as bridges,  while  reducing  such
structures'  cost and weight.  The Company  believes  that the project will also
assist  in  the   development  of   cost-effective   design  and   manufacturing
technologies  for  composite  materials  that can be used to build  other  large
structures which are strong, lightweight, and resistant to corrosion and seismic
shock.  In addition  to being the sole  supplier  of  composite  fabrics for the
project,  the Company has undertaken to try to develop enabling technology which
would   enhance  the  speed,   quality  and   cost-effectiveness   of  composite
reinforcement fabric production. To accomplish this goal, the Company is working
towards  developing  machinery,  procedures and  alternative  methods of bonding
together  reinforcement  fabrics.  The  project  participants  are also  working
towards  the  development  of a prototype  system  which would allow rapid style
changes and the production of fabrics with variable widths.

         The entire  budget of the  program  contemplated  by the  Collaborative
Agreement is  approximately  $1,547,000,  which is to be spent over three years.
The  Company  has  estimated  that  the  cost to  complete  this  program  to be
approximately  $772,000,  with the Company  being  responsible  for half of that
amount.  The  remaining  $386,000  cost  will be  supplied  by a grant  from the
National  Institute of Standards and Technology.  The Company is responsible for
adherence to applicable federal laws and regulations covering both federal funds
and non-federal funds, including allowability of costs.

         The parties to the  Collaborative  Agreement  have  mutually  agreed to
protect each other's  proprietary  information  for a period of five years.  Any
technology  jointly developed in the performance of the Collaborative  Agreement
("Program Technology") is to be owned jointly by the project participants,  with
the right to use the same on an unrestricted  basis. The Program  Technology may
also be  subject to a  non-exclusive,  non-transferable  paid-up  license to the
United  States  government  which  may not  publicly  disclose  any  proprietary
information relative to the Program Technology.

         The Company is also involved in a  collaboration  with Hardcore  DuPont
Composites LLC ("Hardcore DuPont"), a joint venture between Hardcore and DuPont,
wherein the Company provided the engineered composite fabric for the manufacture
of two railroad cars using the SCRIMP process.  These successful prototypes have
permitted the consortium  comprised of Hardcore DuPont,  Burlington Northern and
Trinity  Industries  to  propose a project  for the  industrial  manufacture  of
railroad cars using the Company's composite fabric.

         In October 1995,  the Company  began a joint  venture  project with the
University of Maine ("UM") to develop a composite plywood alternative  utilizing
waste wood fibers from the paper industry (the "Composite Panel  Project").  The
project is funded in part by the  Center  for  Technology  Transfer  ("CTT"),  a
non-profit  partnership among the Maine Science and Technology  Foundation,  UM,
the  University of Southern  Maine,  the Maine  Technical  College  System,  and
certain  companies in Maine operating in the metals and electronics  industries.
Funding for CTT is provided by a grant from the U.S.  Department of Energy under
its Experimental Program to Stimulate Competitive Research (EPSCoR). The project
was  undertaken  as part of a proposal to develop  hybrid (wood and  fiberglass)
composite   structural   panels  which  have  commercial   application  for  the
construction  industry.  The  goal  is to  develop  products  that  will be cost
competitive with traditional wood products. The Company and UM will individually
own the intellectual property rights to any technology developed separately, and
will own  jointly any  intellectual  property  rights  arising  from  technology
developed together. Furthermore, UM agreed to license to the Company any and all
of its intellectual  property rights arising from the project,  on an exclusive,
world-wide, and reasonable basis.

         Together  with UM, the Company is  required  to furnish all  personnel,
facilities,  materials and services to complete the Composite Panel Project. The
cost sharing obligation of the Company for the project is $29,376 cash match and
$14,663 in-kind match. UM and the Company are required to pay back $113,587 as a
contribution to CTT out of profits generated from the activities of the project,
payable from  revenues to the Company  from net sales of


                                      -8-






new products  developed  under the project or revenues UM or the Company  derive
from license fees or royalties  on the use of  intellectual  property  developed
thereunder.

         The Department of Defense has awarded  funding through the 1995 Defense
Experimental Program to Stimulate  Competitive Research (DEPSCoR) to UM relative
to a study of the dynamics of thick composite structures. The Company has agreed
to  provide  the  project  with   industrial   composite   expertise,   laminate
engineering,    reinforcement    materials,    composite   fabrication   through
subcontracts,   and  participation   through   analytical  reviews  and  program
management  reviews.  The  Company  will also  provide  up to $45,000 of in-kind
support to UM for this  project.  While the Company  does not expect to generate
material  profits from this  project,  it will provide the Company with valuable
experience  and modeling  techniques  for the use of the  Company's  heavyweight
fabrics in the Naval,  off-shore oil,  sub-marine and waterfront  infrastructure
materials markets.

         The Company is currently working with ABB Offshore  Technology ("AOT"),
a division of ASEA Brown  Boveri S.A.  in AOT's  development  of a full range of
composite well head covers and pipe  protection  structures for the offshore oil
and gas industry  constructed from advanced engineered  composite  reinforcement
fabrics.  These lightweight structures range in size up to 90' by 90' by 90' and
would replace corrosion-prone heavy steel structures.

         In December,  1996 the Company  entered  into an  agreement  with Norsk
Hydro A.S.,  one of the largest  North Sea oil  operators  pursuant to which the
parties  will  identify  opportunities  for  the  application  of the  Company's
technology  to new markets,  including  the use of composite  structures  in the
off-shore  oil industry,  with the aim of developing  strategies to address such
opportunities.

         Funding for each of these  projects is part of the  Company's  regular,
on-going  research  and  development  expense.  Except for  Hardcore  DuPont,  a
participant in the NIST project,  and North End Composites,  a subcontractor  in
the DEPSCoR project,  the Company does not have any supply arrangements with the
entities involved in these projects.

COMPETITION

         The   Company's   principal   competitors   are   producers   of  woven
reinforcement   fabrics  and  other  producers  of  stitched  or   weft-inserted
reinforcement  products.  Competition is based on price, product performance and
customer  support.  The Company's  continued  success will depend in part on its
ability to continue to develop and introduce cost  competitive  quality products
that meet or exceed end-product manufacturer requirements.

         There  is  no   competitor   that   manufactures   products   that  are
substantially  similar to or  competitive  with all of the  Company's  products.
However,  there  are  competitors  for each of the  Company's  products  and the
Company  believes  that  there  are  only  two  companies  remaining  after  its
acquisition of ATI that have significant shares of the stitched or weft-inserted
reinforcement markets. These are Johnston Composite Industries,  a subsidiary of
Johnston Industries Inc., and Knytex, a subsidiary of Owens-Corning  Fiberglass.
The Company  believes that it has one of the largest shares of the United States
market for weft-inserted or stitchbonded  (non-crimped)  composite reinforcement
fabrics.

EMPLOYEES

         As of December 31, 1996,  the Company had 127 full time  employees,  of
whom 103  were  employed  in  engineering  and  manufacturing,  10 in sales  and
marketing and 14 in administrative  and management  functions.  No employees are
represented by unions.

INTELLECTUAL PROPERTY

         Although  the  Company  has three  registered  trademarks  and owns two
patents  relating  to its  product,  the Company  relies  almost  entirely  upon
unpatented  technology in its production  processes.  The Company relies in part
upon state and federal trade secrets and unfair  competition laws to protect its
intellectual property. Management's philosophy is to patent only those processes
as to which the process may be determined  when analyzing the product 


                                      -9-




produced. There can be no assurances that the Company can adequately protect its
rights  in such  unpatented  proprietary  technology  or that  others  will  not
independently develop substantially equivalent or better proprietary information
or techniques,  or otherwise gain access to the Company's proprietary technology
or disclose such  technology.  The Company will seek  additional  protection for
newly developed  intellectual property as deemed appropriate.  One patent, which
expires  in  September  2011,  relates  to a bound and  structurally  reinforced
thermoplastic  multi-layer  composite  fabric  which  is  moldable.  No  product
relating to this patent has yet been commercialized.  Although the other patent,
which   expires  in  December   2009,   relates  to  a   manufacturing   process
commercialized  by the  Company,  management  believes  that  it  would  be very
difficult  to assess  whether a  competitive  product was  produced by a process
which infringes the process covered by such patent.

         Hexcel Corporation,  formerly named Knytex, Inc. ("Hexcel") sued ATI in
1988 in the United States District Court for the Western District of Texas ("the
Court").  The suit  concerned  certain  obligations of ATI's then president (the
"Employee"),  who had been  previously  employed  by the  parent of Hexcel  (the
"Employer").  The Employee,  while working for the Employer,  had  co-invented a
structural  reinforcement  fabric  in the  form of a  double-bias  fabric  and a
continuous   double-bias   process  for  making  such  double-bias  fabric.  The
co-inventors  filed a patent with  respect to the bias  process  invention  (the
"Patent").  The  co-inventors  assigned the Patent  application  to Hexcel.  The
Employee also signed  agreements with the Employer relative to the nondisclosure
of inventions  made by him while in the employ of Employer to others outside the
Company.  Following  Employee's  separation from Employer in 1983, the Employee,
Peter L. DeWalt and Burlington  formed ATI, and the lawsuit concerned certain of
ATI's production processes.

         The  judgment and order  resulting  from the lawsuit  concluded  that a
manufacturing  process  used by ATI  infringed  the  Patent and that ATI and the
Employee were liable for  misappropriation  of trade secrets due to ATI's use of
double- and triple-bias fabric processes.  The court awarded Hexcel lost profits
adjudged to be  approximately  $2.24 million plus interest and attorneys'  fees.
ATI ultimately paid Hexcel  approximately $3.1 million in May, 1992, upon losing
its appeal of the  judgment.  The Court also  found  that when ATI  changed  its
process  in  1988,  it  discontinued  the use of the  processes  at  issue,  and
therefore, the Court issued no injunction.

Item 2.

                                   PROPERTIES

         The  Company's  executive  offices  and  major  manufacturing/warehouse
facility is located in a facility in Brunswick,  Maine, of approximately  50,000
square feet which was completed in March 1996.  The Company  leases the property
from Brunswick Development Corporation ("BDC"), a Maine corporation wholly owned
by the town of  Brunswick.  The  Company's  lease is for a term of 10 years  and
commenced  on  January  1,  1996,  with an  option  to  extend  the term for one
additional  five-year  period.  The Company  also has an option to purchase  the
facility  at any time  between the  conclusion  of the fifth year of the current
lease and the end of the lease,  at an option price equal to the greater of fair
market value of the  facility or the  residual  debt payable by BDC on the bonds
issued to finance the  construction of the facility.  The Company may,  however,
consider the purchase of the property  prior to the option date,  which purchase
would  require the  consent of the bond  holders.  The rent for the  facility is
$181,500  annually for the first five years of the lease; the lease provides for
periodic scheduled rent increases,  with a final annual rent of $206,000 for the
last year of the current lease.

         With the acquisition of ATI, the Company acquired  approximately 40,000
square  feet of  manufacturing,  office and  warehouse  space in Seguin,  Texas,
including the underlying real estate.  ATI is currently using this space for its
operations.

         The Company also  maintains  10,400  square feet of warehouse  space at
another location in Brunswick, Maine, for which it pays rent of $44,495 per year
and 6,000 square feet of  warehouse  space in Seguin,  Texas,  for which it pays
rent of $6,900 per year.


                                      -10-






Item 3.


                                LEGAL PROCEEDINGS

         The Company is involved from time to time in  litigation  incidental to
its  business.   The  Company  is  not  party  to  any  material  pending  legal
proceedings.


Item 4.


               SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None.



                                     PART II


Item 5.


      MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

         The Company's shares of Common Stock (trading  symbol:  BTIC) have been
quoted and traded on the Nasdaq  National Market tier of the Nasdaq Stock Market
since February 5, 1997.  The initial public  offering price for the Common Stock
was $9.50 per share. The following table sets forth the high and low sale prices
as reported by Nasdaq for the fiscal period indicated:

                           1997               High             Low
                  ------------------        --------          -----
                  First Quarter(1)           $10 7/8          $9 1/2

(1)  For the period from February 5 (initial public trading day) through
     March 24, 1997.

         The  approximate  number of  stockholders  of  record of the  Company's
Common Stock as of March 24, 1997 is 86.

         To date,  the Company has not paid any  dividends on its Common  Stock.
The Company  currently  intends to retain future  earnings to finance the growth
and  development of the Company's  business and does not  anticipate  paying any
dividends  in the  foreseeable  future.  The payment of  dividends is within the
discretion  of the  Board of  Directors  and  will  depend  upon  the  Company's
earnings,  its capital  requirements,  financial  condition  and other  relevant
factors.  Under the terms of its existing bank loan agreements,  the Company may
not pay dividends without the consent of the lender.



                                      -11-





Item 6.
                             SELECTED FINANCIAL DATA

         The selected  financial  data set forth below for each of the Company's
fiscal  years ended  December  31,  1993 and 1994 and at  December  31, 1994 are
derived  from the  financial  statements  of the  Company  audited  by KPMG Peat
Marwick LLP,  independent  public  accountants,  which are included elsewhere in
this  Report.  The  selected  financial  data set forth below for the  Company's
fiscal years ended  December 31, 1995 and 1996 and at December 31, 1995 and 1996
are derived from the financial  statements  of the Company  audited by Coopers &
Lybrand L.L.P.,  independent  accountants,  which are included elsewhere in this
Report. The selected financial data set forth below for ATI's fiscal years ended
September 30, 1994,  1995 and 1996 are derived from the financial  statements of
ATI  audited  by  Ernst &  Young  LLP,  independent  accountants,  which  appear
elsewhere in this  Prospectus.  The selected  financial data set forth below for
ATI for the fiscal  years  ended 1992 and 1993 are  derived  from the  unaudited
financial  statements  of ATI,  and in the  opinion of  management,  include all
adjustments,  consisting only of normal recurring  adjustments,  necessary for a
fair  presentation  of  financial  position and the results of  operations.  The
selected  financial data set forth below should be read in conjunction  with the
Financial  Statements  and Notes thereto and with  MANAGEMENT'S  DISCUSSION  AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS appearing elsewhere in
this Report.
<TABLE>
<CAPTION>

                                                    BRUNSWICK TECHNOLOGIES, INC.

                                                              Years Ended
                                                              December 31,
                                              --------------------------------------------
                                              1992      1993      1994      1995      1996
                                              ----      ----      ----      ----      ----
                      (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                         <C>       <C>        <C>      <C>       <C>

Net sales .......................           $ 4,701    $6,376    $9,596   $15,476   $19,816
Cost of goods sold ..............             3,700     4,996     7,382    11,979    15,318
Gross profit ....................             1,001     1,380     2,214     3,497     4,498
Other operating expenses ........               971     1,258     1,874     2,492     3,521
Moving costs ....................               -         -         -           9       248
Facility repair costs ...........               -         -         -         150      (148)
                                              -----     -----     -----     -----     -----
Operating income (loss) .........                30       122       340       846       877
Other income (expense), net .....               (27)      (11)      (26)      (61)       51
                                              -----     -----     -----     -----     -----
Income (loss) before income taxes                 3       111       314       785       928
Income tax benefit (expense) ....               -         -         -         122      (335)
                                              -----     -----     -----     -----     -----
Net income (loss) ...............                 3       111       314       907       593
                                              -----     -----     -----     -----     -----
Preferred stock dividend ........              (269)     (332)     (450)     (450)     (450)
Accretion of preferred stock
  redemption value ..............               (51)      (71)      (76)      (82)      (69)
                                              -----     -----     -----     -----     -----
Net income (loss) attributable to
  common stock ..................           $  (317)   $ (292)   $ (212)   $  375    $   74
                                              =====     =====     =====     =====     =====
Pro forma earnings per common share                                        $ 0.26    $ 0.17
                                                                            =====     =====
Pro forma weighted average common
  shares outstanding ............                                           3,460     3,498(2)
                                                                            =====     =====

                                                              At December 31,
                                              --------------------------------------------
                                              1992      1993      1994      1995      1996
                                              ----      ----      ----      ----      ----
                                                              (in thousands)
BALANCE SHEET DATA:

Working capital .................           $  (252)  $   548   $   631   $   905    $ 1,412
Total assets ....................             2,472     4,338     5,665     7,867     18,634
Long-term liabilities ...........               460       337     1,177     1,069      8,975
Total liabilities ...............             1,810     1,873     2,886     4,168     14,289
Preferred stock .................             2,918     5,012     5,538     6,070      6,589
Stockholders' equity (deficit) ..           $(2,256)  $(2,547)  $(2,759)  $(2,371)   $(2,244)
                                              =====     =====     =====     =====      =====
------------------
</TABLE>

(1) Reflects the consolidation of the operations and financial  condition of ATI
    with those of the Company for the last two months of 1996.

(2) Calculation is shown in Note 1 of Notes to Financial Statements of the
    Company.


                                      -12-






Item 7.

          MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
                             AND FINANCIAL CONDITION

GENERAL

         The  Company  is  a  leading   developer  and  producer  of  engineered
reinforcement fabrics used in the fabrication of composite materials.  Since the
invention  of  composite  reinforcement  fabrics  in  the  early  1940's,  these
materials have developed broad applicability as substitutes for wood, steel, and
concrete.  The Company's  principal  strength lies in its innovative  quadraxial
single-step stitchbonding fabrication process.

ACQUISITION OF ADVANCED TEXTILES, INC.

         On October 30,  1996,  the Company  acquired  Advanced  Textiles,  Inc.
("ATI"), a subsidiary of Burlington Industries,  Inc. ("Burlington") for a total
acquisition  cost  of  $8,539,000,  payable  through  the  issuance  of  a  note
($7,296,500) convertible into the Company's common stock, $0.0001 par value (the
"Common Stock") at the initial public offering ("IPO") price of $9.50 per share;
deferred  cash  payments  discounted  to $513,000;  the issuance of Common Stock
valued at $53,500 to a minority  shareholder  in ATI; cash payments of $351,000;
and acquisition costs of $325,000.  The acquisition is being accounted for under
the purchase method of accounting.  The fair market value of the assets acquired
is estimated at  $3,178,000,  resulting in goodwill of  $5,361,000  which amount
will be amortized over 20 years.

         The  operations  of ATI for November and December  1996 are included in
the 1996 consolidated  statements of income and cash flow while ATI's net assets
are included in the December 31, 1996  consolidated  balance sheet and statement
of stockholders' deficit. All intercompany  transactions have been eliminated in
the consolidated financial statements.  Except where noted, the discussion below
is directed at 1996  operations so  consolidated.  ATI  contributed  $1,723,573,
$380,162,  $105,527, and ($9,890) of net revenue, gross margin, operating income
and net (loss)  respectively to the 1996 consolidated  statement of income.  The
ATI operations for the two months  (November and December of 1996) resulted in a
net loss due to the amortization of goodwill  ($51,137) and the interest expense
on the debt to Burlington ($122,582).  On February 10, 1997, upon the closing of
the Company's IPO, one half of the convertible  subordinated  note to Burlington
($3,648,250) was paid. This will reduce interest expense by $28,882 a month.

RESULTS OF OPERATIONS

         The following  table sets forth certain  financial data as a percentage
of net sales:
<TABLE>
<CAPTION>

                                                           Years Ended
                                                           December 31,
                                                   ---------------------------
                                                   1994       1995        1996
                                                   ----       ----        ----
<S>                                               <C>         <C>         <C>

Net Sales.......................................   100.0%     100.0%      100.0%
Cost of goods sold..............................    76.9       77.4        77.3
                                                   -----      -----       -----
Gross Profit....................................    23.1       22.6        22.7
Selling, general and administrative expenses        15.6       13.5        15.2
Research and development expenses...............     3.9        2.6         2.5
Moving costs....................................     0.0        0.0         1.3
Facility repair cost............................     0.0        1.0        (0.7)
                                                   -----      -----       -----
Operating income................................     3.6        5.5         4.4
Other income (expense):
     Interest expense...........................    (0.2)      (0.8)       (1.3)
Miscellaneous, net..............................    (0.1)       0.4         1.6
                                                   -----      -----       -----
                                                    (0.3)      (0.4)        0.3
                                                   -----      -----       -----
Income before income tax........................     3.3        5.1        4.7
Income tax benefit (expense)....................     0.0        0.8        (1.7)
                                                   -----      -----       -----
Net income......................................     3.3%       5.9%        3.0%
                                                   =====      =====       =====                               
</TABLE>

                                      -13-



         1996 COMPARED TO 1995

         Net  Sales,  Cost of Goods  Sold,  and  Gross  Profit.  The  percentage
increases  and per pound  values in the net sales,  cost of goods sold and gross
profit accounts (all excluding ATI) between 1994 and 1996 are shown below.
<TABLE>
<CAPTION>

                                    1994          % Increase          1995          % Increase           1996
                                    ----          ----------          ----          ----------           ----
<S>                               <C>                <C>           <C>                  <C>            <C>


Pounds sold                        7,718,727         54.1%         11,892,012            9.0%         12,962,646
Net sales                         $9,596,578         61.3%        $15,476,424           16.9%        $18,092,138
Average price per pound               $1.243          4.7%             $1.301            7.3%             $1.396
Cost of goods sold                $7,382,285         62.3%        $11,978,978           16.7%        $13,974,208
Average cost per pound                $0.956          5.3%             $1.007            8.0%             $1.078
Gross profit                      $2,214,293         57.9%         $3,497,446           17.7%         $4,117,930
Gross profit per pound                $0.287          2.5%             $0.294            8.2%             $0.318
</TABLE>

         Revenues have increased  during the periods  presented due to continued
increases  in the  number  of end  uses  of the  Company's  products  as well as
increases in market share for existing  end use  applications.  Sales  increases
have been  experienced in all of the major industry  sectors using the Company's
products: marine, transportation, infrastructure, recreational and industrial.

         Sales  within the periods  have been  affected by  fluctuations  in the
general  availability  of the raw  material of  fiberglass  strands  used by the
Company in its  manufacturing  process.  With ample supply of fiberglass  (which
occurred in 1996), the Company's  customers tend to reduce their  inventories on
the basis that  supplies are readily  available.  This resulted in Company sales
for 1996 being adversely effected as customer inventories were reduced to two to
three weeks of use compared to significantly higher customer inventory levels in
1995.

         The  increases  in cost of goods sold and gross profit for 1996 were in
line with the increases in net sales for the year.

         Operating  Expenses.  Operating  expenses for 1996 were affected by the
inclusion of two months of ATI's operations. Selling, general and administrative
expenses for 1996 increased by $937,528 or 45%.  Within this  category,  selling
expense increased  $216,404 or 34.9%.  Salaries and travel accounted for $62,230
and $80,045 of the selling  expense  increase  respectively.  Marketing  expense
increased $43,594 or 58.3% primarily as a result of special marketing  programs.
General and  administrative  expense (G&A) increased  $385,054 or 55.8%.  Within
G&A,  salaries  increased  by  $106,843  or 39.4%  due to  increased  number  of
employees as well as wage rate increases.  Also in G&A, property taxes increased
by $32,370  due to the  relocation  to the new  building  in  Brunswick  and the
addition of a new machine; bad debt expense increased by $18,320; and $51,137 in
goodwill amortization resulted from the purchase of ATI.

         Moving costs reflect the cost of moving to the new  Brunswick  facility
which move was completed in the first half of 1996. In connection  with the move
to the new  facility,  the  Company  recorded  in 1995 an expense of $150,000 to
cover  the  expenses  estimated  to be  incurred  for  the  restoration  of  the
facilities  being vacated.  The repairs  thought to be required when the expense
was recorded did not materialize and therefore the unexpended amount of $147,545
was recognized as an addition to operating income in June 1996 which offset,  to
some extent, other increases in operating expenses.

         Research and  development  expenses  increased  by $89,791 or 22.0%.  A
large  increase  in this  expense  grouping  was a $16,844  increase  in outside
professional fees.

         Other  Income.  The  increase  in the  interest  expense  is due to the
interest on the debt to Burlington  for November and December 1996 in the amount
of  $122,582.   Reimbursement   of  expenses  related  to  expenditures  on  new
technologies  from  a  grant  from  the  National  Institute  of  Standards  and
Technology  ("NIST") in the amount of $426,070  was included as a benefit to the
1996  Statement  of Income.  Cost of goods sold was credited for $93,638 of this
amount while $332,432 was credited to other income. The reimbursement of certain
expenditures  from this grant  resulted  in a credit of $34,266 to cost of goods
sold and recognition of $66,742 as other income in the 1995 period.


                                      -14-





         Income Taxes.  In 1996, the Company  recorded  income tax expense at an
effective  rate of 36%. In 1995,  an income tax benefit of $121,900 was recorded
due to the  elimination  of a  valuation  allowance  which had been  established
because of uncertainties  that existed with respect to the realization of income
tax benefits.

         1995 COMPARED TO 1994

         Refer to the table in the section  above  comparing  1996 to 1995 for a
summary of the changes in the net revenue  and cost of goods sold  accounts  for
1995 compared to 1994.

         Net Sales.  The  increase in net sales was  attributable  primarily  to
volume increases and favorable product mix gains.

         Operating  Expenses.   Selling,  general  and  administrative  ("SG&A")
expenses  increased  $584,593,  or 39%.  Wage  expense  increased in all expense
classifications  due, to a large degree, to the increase in total employees from
49 at year  end of  1994  to 65 at  year  end in  1995.  Shipping  expenses  are
classified within the SG&A caption throughout the financial  statements and were
favorably impacted by an increase in the capacity of trucks used per shipment as
well as results  from  improved  rates from the  carrier.  Also  within the SG&A
category,  selling and marketing expense increased by $168,155, from $525,883 in
1994 to $694,038 in 1995.  This was primarily due to an increase in wage expense
of $70,534  from  $190,548 to $261,082.  In  addition,  there was an increase of
$35,835  from $8,623 in 1994 to $44,458 in 1995 in outside  consulting  fees for
marketing  services.  General and administrative  expense increased by $204,751.
This was primarily due to an increase in wage expense of $98,068.

         Income Taxes. The Company received an income tax benefit of $121,900 in
1995 due to the elimination of a valuation  allowance which had been established
because of uncertainties  that existed with respect to the realization of income
tax benefits.  During 1995, the uncertainties were significantly  reduced as the
Company reported substantially higher taxable income suggesting that more likely
than not, the Company's income tax benefits would be fully realized.

LIQUIDITY AND CAPITAL RESOURCES

         INITIAL PUBLIC  OFFERING.  On February 10, 1997, the Company issued and
sold  1,700,000 new shares of its Common Stock in its IPO. As part of the IPO, a
stockholder  which owned a large  percentage  of the Company sold 800,000 of its
shares to the public so that the total sale to the public was 2,500,000  shares.
The price to the public was $9.50 per share.  After selling  commissions  of 7%,
the  Company  realized  proceeds  of $8.835 per share or  $15,019,500.  Expenses
associated with the offering were  approximately $1 million so that net proceeds
were about $14 million.  In accordance with the terms of the note to Burlington,
upon the  closing  of the IPO,  50% of the note was  redeemed  in the  amount of
$3,648,250 plus accrued interest of $94,954.  Bank debt totaling  $2,693,960 was
also paid with the IPO proceeds.  The Company plans to use about $3 million over
the next two years to expand its manufacturing  capacity through the purchase of
additional  capital  equipment and another $100,000 for capital  improvements at
its  plant in Texas.  It is  expected  that the  remainder,  approximately  $4.5
million,  will be used for general corporate  purposes,  including  research and
development and possible additional acquisitions of complementary businesses and
product lines.

         In connection with the IPO, the Company was  recapitalized  as follows:
all shares of Common  Stock  were  split on a 33 for 1 basis;  all shares of the
Company's  preferred stock,  converted into shares of Common Stock on a 33 for 1
basis; the holders of preferred stock were issued in the aggregate an additional
211,088  shares of  Common  Stock in  payment  of  $2,005,342  in  accrued  cash
dividends pursuant to the terms of the preferred stock; and the Company's no par
value common stock was  converted  into Common Stock with a par value of $0.0001
per share.

         On October 30,  1997,  (1 year from the date of the  acquisition),  the
outstanding  balance of the convertible note to Burlington  becomes  convertible
into common stock at a rate of $9.50 per share.  On October 30,  1997,  the note
also becomes  callable at par by the Company.  The note is  subordinate  to debt
incurred under the bank credit  agreement in an amount not to exceed  $7,500,000
(such limit to be increased by the amount of any  repayment of the  principal of
the note).


                                      -15-





         OTHER  CONSIDERATIONS.  The Company has in place a $2,500,000 revolving
credit facility with its bank.  Details of this  arrangement are given in Note 4
of Notes to the Consolidated Financial Statements of the Company.

FORWARD-LOOKING INFORMATION

         From time to time,  information  provided  by the  Company  may contain
forward-looking  information,  as defined in the Private  Securities  Litigation
Reform  Act of  1995.  The  Company  cautions  investors  that  there  can be no
assurance that actual results or business  conditions will not differ materially
from those projected or suggested in such forward-looking statements as a result
of various factors and risks.

         The Company's future operating  results are dependent on its ability to
achieve  increased  sales and to control  expenses.  Factors  such as lower than
expected inflation, product cost fluctuations, changes in product mix, continued
or increased  competitive  pressures from existing competitors and new entrants,
including price cutting  strategies,  and  deterioration  in general or regional
economic   conditions  are  all  factors  which  could  adversely  affect  sales
projections.  Other components of operating results could be adversely  affected
by state or federal legislation or regulation that increases costs, increases in
labor  rates due to low  unemployment  or other  factors,  or the  inability  to
control various expense categories.

         Furthermore,  the market price of the  Company's  common stock could be
subject  to  fluctuations  in  response  to quarter  to  quarter  variations  in
operating results,  changes in analysts' earnings estimates,  market conditions,
as well as  general  economic  conditions  and  other  factors  external  to the
Company.

Item 8.

                   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The  following  described  consolidated  financial  statements  of  the
Company are included in response to this item:

         Report of Independent Public Accountants

         Consolidated Balance Sheets as of December 31, 1995 and 1996.

         Consolidated  Statements  of Income for the years  ended  December  31,
1994, 1995 and 1996.

         Consolidated  Statements of  Stockholders'  Deficit for the years ended
December 31, 1994, 1995 and 1996.

         Consolidated  Statements of Cash Flow for the years ended  December 31,
1994, 1995 and 1996.

         Notes to Consolidated Financial Statements


                                      -16-






                        REPORT OF INDEPENDENT ACCOUNTANTS

         To the Board of Directors and  Shareholders of BRUNSWICK  TECHNOLOGIES,
INC.:

         We  have  audited  the  accompanying  consolidated  balance  sheets  of
Brunswick  Technologies,  Inc., and subsidiary as of December 31, 1996 and 1995,
and the related consolidated  statements of income,  stockholders'  deficit, and
cash  flows  for the  years  then  ended.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion  on these  financial  statements  based  on our  audits.  The  financial
statements of Brunswick Technologies, Inc. for the year ended December 31, 1994,
were audited by other auditors,  whose report dated January 20, 1995,  expressed
an unqualified opinion on those statements.

         We conducted our audit in accordance with generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our  opinion,  the 1996 and 1995  financial  statements  referred to
above present  fairly,  in all material  respects,  the  consolidated  financial
position of Brunswick Technologies, Inc., and subsidiary as of December 31, 1996
and 1995, and the consolidated  results of their operations and their cash flows
for the years  then  ended in  conformity  with  generally  accepted  accounting
principles.


/s/  COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Portland, Maine
February 28, 1997


                          INDEPENDENT AUDITORS' REPORT

The Board of Directors
Brunswick Technologies, Inc.:

We have audited the related  statements of income,  stockholders'  deficit,  and
cash flows of  Brunswick  Technologies,  Inc.,  for the year ended  December 31,
1994.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards  require that we plan and perform the audit to obtain reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management as well as evaluating the overall financial  statement  presentation.
We believe that our audit provides a reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the results of operations of Brunswick Technologies, Inc.
and its cash flows for the year  ended  December  31,  1994 in  conformity  with
generally accepted accounting principles.

                                               /s/  KPMG PEAT MARWICK LLP



January 20, 1995
Boston, Massachusetts



                                      -17-



                          BRUNSWICK TECHNOLOGIES, INC.

                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                           December 31,
                                                                             --------------------------------------
                                         ASSETS                                     1995                 1996
<S>                                                                          <C>                   <C>
                                                                             ----------------      ----------------
Current assets:
     Cash                                                                    $        117,959      $        355,106
     Accounts receivable, net of allowance for doubtful
         accounts of $7,287 in 1995 and $38,603 in 1996...........                  2,013,699             2,619,399
     Inventories..................................................                  1,429,864             3,262,850
     Refundable income taxes......................................                     16,000                21,061
     Deferred income taxes........................................                    306,700               167,000
     Other current assets.........................................                    119,801               300,190
                                                                             ----------------      ----------------
        Total current assets......................................                  4,004,023             6,725,606

Property, plant and equipment:
     Land and building............................................                         -                800,000
     Furniture and fixtures.......................................                    212,861               355,963
     Leasehold Improvements.......................................                    271,595                73,952
     Machinery and equipment......................................                  4,475,800             5,114,646
     Vehicles.....................................................                     60,678                68,039
     Machine under construction...................................                         -              1,040,922
                                                                             ----------------      ----------------
     .............................................................                  5,020,934             7,453,522
Less accumulated depreciation and amortization....................                 (1,261,881)           (1,453,090)
                                                                             ----------------      ----------------
     Net property, plant and equipment............................                  3,759,053             6,000,432
                                                                             ----------------      ----------------

Deferred charges..................................................                         -                512,679
Other assets, net.................................................                    103,470                85,783
Goodwill, net.....................................................                         -              5,309,673
                                                                             ----------------      ----------------
                                                                             $      7,866,546      $     18,634,173
                                                                             ================      ================

                          LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
     Bank overdraft...............................................           $        216,622      $        300,809
     Note payable to bank.........................................                         -              1,179,968
     Current installments of long-term debt.......................                    109,162               297,758
     Current obligations under capital lease......................                      2,620                    -
     Due to stockholder...........................................                  1,599,678             1,044,559
     Accounts payable-trade.......................................                    795,192             1,785,384
     Accrued expenses.............................................                    344,030               705,223
     Income taxes payable.........................................                     32,000             -
                                                                             ----------------      ----------------
        Total current liabilities.................................                  3,099,304             5,313,701

Due to stockholder................................................                     32,500                    -
Long-term debt, excluding current installments....................                  1,003,971             8,853,304
Deferred income taxes.............................................                     32,600               121,900
Commitments
Convertible preferred stock (liquidation preference of $6,641,317 in 1996)          6,069,530             6,589,209

Stockholders' deficit:
     Preferred stock $10 par value; 1,000,000 shares authorized, none
       outstanding................................................                         -                     -
     Common stock, $0.0001 par value; 20,000,000 shares authorized,
       301,624 outstanding in 1996 and 289,674 in 1995............                         29                    30
     Additional paid in capital...................................                    410,290               463,989
     Treasury stock 3,300 shares at cost..........................                     (5,000)               (5,000)
     Accumulated deficit..........................................                 (2,776,678)           (2,702,960)
                                                                             ----------------      ----------------
        Total stockholders' deficit...............................                 (2,371,359)           (2,243,941)
                                                                             ----------------      ----------------
                                                                             $      7,866,546      $     18,634,173
                                                                             ================      ================
</TABLE>

The accompanying notes are an integral part of the financial statements


                                      -18-






                          BRUNSWICK TECHNOLOGIES, INC.


                        CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                       For the Years Ended
                                                                                           December 31,
                                                                       -------------------------------------------------            
                                                                            1994                 1995             1996
                                                                        -------------        -------------    ----------
<S>                                                                       <C>                <C>             <C>

Net Sales.........................................................        $9,596,578         $15,476,424      $19,815,711
Cost of goods sold (raw material purchased from a stockholder
     amounted to $4,911,399 in 1994, $7,809,567 in 1995, and
     $8,548,754 in 1996)..........................................         7,382,285          11,978,978       15,317,619
                                                                         -----------         -----------     ------------

         Gross profit.............................................         2,214,293           3,497,446        4,498,092

Selling, general and administrative expenses......................         1,500,119           2,084,712        3,022,240
Research and development expenses.................................           373,955             408,247          498,038
Moving costs......................................................                -                8,560          248,314
Facility repair costs.............................................                -              150,000         (147,545)
                                                                         -----------         -----------     ------------
         Operating income.........................................           340,219             845,927          877,045
                                                                         -----------         -----------     ------------

Other Income (expense):
     Interest expense, net........................................           (19,595)           (124,122)        (251,829)
     Miscellaneous, net...........................................            (6,428)             62,800          303,181
                                                                         -----------         -----------     ------------
                                                                             (26,023)            (61,322)          51,352
                                                                         -----------         -----------     ------------
         Income before income tax.................................           314,196             784,605          928,397

Income tax benefit (expense)......................................                -              121,900         (335,000)
                                                                         -----------         -----------     ------------

         Net income...............................................           314,196             906,505          593,397
                                                                         -----------         -----------     ------------

Preferred stock dividend..........................................          (450,120)           (450,120)        (450,120)
Accretion of preferred stock redemption value.....................           (75,910)            (81,693)         (69,559)
                                                                         -----------         -----------     ------------
Net income (loss) attributable to common stock....................       $  (211,834)        $   374,692     $     73,718
                                                                         ===========         ===========     ============

         Pro forma earnings per common share......................                           $      0.26     $       0.17
                                                                                             ===========     ============

         Pro forma weighted average common shares outstanding.....                             3,460,445        3,498,302
                                                                                             ===========     ============

</TABLE>



    The accompanying notes are an integral part of the financial statements.


                                      -19-





                          BRUNSWICK TECHNOLOGIES, INC.

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>

                                                      Common Stock         Additional                                 Total
                                                     ----------------       Paid-in     Treasury     Accumulated   Stockholders'
                                                     Shares    Amount       Capital      Stock        Deficit         Deficit
                                                     ------    ------       -------     -------       -------      ------------
<S>                                                 <C>        <C>          <C>         <C>          <C>           <C>

Balance at December 31, 1993.....................     271,986   $   27      $392,617    $    -       $(2,939,536)  $(2,546,892)
Accrual of preferred stock dividend..............          -         -            -          -          (450,120)     (450,120)
Accretion of preferred stock redemption value....          -         -            -          -           (75,910)      (75,910)
Net income.......................................          -         -            -          -           314,196       314,196
                                                    ---------   ------      --------    -------       ----------   -----------
Balance at December 31, 1994.....................     271,986       27       392,617         -        (3,151,370)   (2,758,726)

Exercise of common stock options.................      13,035        2         3,573         -              -            3,575
Exercise of warrants to purchase common stock....       4,653        -        14,100         -              -           14,100
Repurchases of common stock......................          -         -            -      (5,000)            -           (5,000)
Accrual of preferred stock dividend..............          -         -            -          -          (450,120)     (450,120)
Accretion of preferred stock redemption value....          -         -            -          -           (81,693)      (81,693)
Net income.......................................          -         -            -          -           906,505       906,505
                                                    ---------   ------      --------    -------       ----------   -----------
Balance at December 31, 1995.....................     289,674       29       410,290     (5,000)      (2,776,678)   (2,371,359)

Exercise of common stock options.................       6,600        -           200         -              -              200
Issue of stock in acquisition of Advanced
     Textiles, Inc...............................       5,350        1        53,499         -              -           53,500
Accrual of preferred stock dividend..............          -         -            -          -          (450,120)     (450,120)
Accretion of preferred stock redemption value....          -         -            -          -           (69,559)      (69,559)
Net income.......................................          -         -            -          -           593,397       593,397
                                                    ---------   ------      --------    -------       ----------   -----------
Balance at December 31, 1996.....................     301,624   $   30      $463,989    $(5,000)     $(2,702,960)  $(2,243,941)
                                                    =========   ======      ========    =======       ==========   =========== 
</TABLE>




    The accompanying notes are an integral part of the financial statements.



                                      -20-






                          BRUNSWICK TECHNOLOGIES, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                        For the Years Ended
                                                                                           December 31,
                                                                      ---------------------------------------------------      
                                                                            1994                 1995           1996
                                                                       -------------        -------------    ------------
<S>                                                                    <C>                   <C>             <C>
Cash flows from operating activities:
     Net income...................................................       $   314,196         $   906,505     $    593,397
     Adjustments to reconcile net income to net cash provided
         by (used in) operating activities:
           Depreciation and amortization..........................           266,574             396,595          479,669
           Deferred taxes.........................................                -             (274,100)         229,000
           (Gain) on sale of property, plant and equipment........                -               (4,164)              -
           Changes in assets and liabilities:
             (Increase) decrease in accounts receivable...........          (156,751)         (1,071,253)         172,493
             (Increase) in inventories............................          (617,119)           (104,060)        (725,564)
             (Increase) in refundable income taxes................                -              (16,000)          (5,061)
             (Increase) decrease in other current assets..........            12,883             (51,684)        (176,721)
             Increase (decrease) in due to stockholder............           161,277             622,888         (587,619)
             Increase (decrease) in other accounts payable
               and accrued expenses...............................          (252,773)            597,585          721,129
             Increase (decrease) in income taxes payable..........                -               32,000          (32,000)
                                                                         -----------         -----------    -------------
                  Net cash provided by (used in) operating activities       (271,713)          1,034,312          668,723
                                                                         -----------         -----------    -------------           

Cash flows from investing activities:
     Acquisition of Advanced Textiles, Inc., net of cash acquired.                -                   -          (294,512)
     Purchases of property, plant and equipment...................        (1,286,797)           (899,271)      (1,132,236)
     Proceeds from sale of property, plant and equipment..........                -               12,126               -
     (Increase) decrease in other assets..........................           (48,914)            (36,140)          17,687
                                                                         -----------         -----------    -------------
                  Net cash used in investing activities...........        (1,335,711)           (923,285)      (1,409,061)
                                                                         -----------         -----------    -------------

Cash flows from financing activities:
     Bank overdraft...............................................           119,216              97,406           84,187
     Net proceeds (repayments) under line of credit...............            80,000             (80,000)       1,179,968
     Proceeds from long-term debt borrowings......................          1,100,00                  -           321,375
     Repayment of long-term debt..................................          (198,953)            (20,662)         (92,946)
     Net principal repayments under capital lease obligations.....            (3,250)             (5,293)          (2,620)
     Proceeds from exercise of common stock options and warrants..                -               17,675              200
     Costs related to issuance of convertible preferred stock.....            (2,724)                 -                -
     Increase in deferred charges.................................                -                   -          (512,679)
     Repurchase of common stock...................................                -               (5,000)              -
                                                                         -----------         -----------    -------------
                  Net cash provided by financing activities.......         1,094,289               4,126          977,485
                                                                         -----------         -----------    -------------
                  Net increase (decrease) in cash.................          (513,135)            115,153          237,147
Cash at beginning of period.......................................           515,941               2,806          117,959
                                                                         -----------         -----------    -------------
Cash at end of period.............................................       $     2,806         $   117,959    $     355,106
                                                                         ===========         ===========    =============

Supplemental disclosure of cash flow information:
     Cash paid during the year for:
         Interest (including interest capitalized of $14,022 in 1996
           and $36,945 in 1994)...................................       $    52,552         $   128,276    $    141,886
                                                                         ===========         ===========    ============
         Income taxes.............................................       $        -          $   136,200    $    168,626
                                                                         ===========         ===========    ============
     Acquisition of Advanced Textiles, Inc. net of cash acquired;
         Working capital, other than cash...............................................................   $    1,259,027
         Property, land and equipment...................................................................        1,537,675
         Goodwill.......................................................................................        5,360,810
         Convertible note due to seller.................................................................       (7,296,500)
         Other amount due to seller.....................................................................         (513,000)
         Issuance of common stock.......................................................................          (53,500)
                                                                                                            -------------
         Net cash used to acquire Advanced Textiles, Inc................................................    $     294,512
                                                                                                            =============          
</TABLE>
    During 1995, the Company entered into a capital lease  obligation  amounting
to $6,288 for telephone equipment.

    The accompanying notes are an integral part of the financial statements.


                                      -21-




                          BRUNSWICK TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1994, 1995 and 1996

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Nature Of Business

         Brunswick  Technologies,  Inc.  is  a  developer  and  manufacturer  of
stitchbonded  engineered composite reinforcement fabrics made from glass, carbon
and  other  fibers.  Its  products  are used in a  diverse  range  of  products,
including those used in the marine, automotive, construction, and transportation
industries.

         Principles of Consolidation

         The Consolidated Financial Statements include the accounts of Brunswick
Technologies,   Inc.  and  Advanced  Textiles,   Inc.  (ATI),  its  wholly-owned
subsidiary.  The accounts of ATI are included from October 30, 1996, the date of
acquisition.  All significant  intercompany  balances and transactions have been
eliminated in the Consolidated Financial Statements.

         Use of Estimates

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the reported  amounts of assets and liabilities and the
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting period. Actual results could differ from those estimates.

         Inventories

         Inventories   are  stated  at  the  lower  of  standard   cost,   which
approximates the first-in, first-out method, or market.

         Property, Plant and Equipment

         Property,  plant and  equipment  are  stated at cost.  Depreciation  is
provided on the straight-line method over the estimated useful lives as follows:


                                                                      Years
                                                                      -----
         Buildings................................................       30
         Furniture and fixtures...................................     2-15
         Machinery and equipment..................................     7-15
         Vehicles ................................................        5

         Amortization of capitalized leased assets and leasehold improvements is
provided on the  straight-line  method over the shorter of the lease term or the
useful  life.  Interest  expense  incurred  on  borrowings  used to finance  the
construction  of production  machinery is  capitalized  and included in the cost
basis of the asset.

         Expenditures  for  maintenance,  repairs  and  minor  replacements  are
charged to operations while  expenditures for major replacements and betterments
are added to the property,  plant and equipment accounts.  When fixed assets are
retired or otherwise  disposed of, the asset cost and  accumulated  depreciation
and amortization are removed from the accounts and any resulting gain or loss is
reflected in income.

         Research and Development

         Expenditures  for research and development are charged to operations as
incurred.

         Patents

         Costs associated with securing  patents for the Company's  products are
capitalized  and amortized over the shorter period of 17 years, or the estimated
useful life.

                                      -22-





                          BRUNSWICK TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        DECEMBER 31, 1994, 1995 AND 1996

1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

         Grants

         The Company  recognizes  revenues from cost  reimbursement  grants from
government agencies as reimbursable expenses are incurred.

         Stock Split and Authorized Shares

         On  January 6, 1997,  the Board of  Directors  approved a 33 to 1 stock
split of the  Company's  common stock to be effective  immediately  prior to the
effective date of the  registration  statement for the Company's  initial public
offering on February 5, 1997 (see Note 12). All share and per share amounts have
been retroactively  restated to reflect this stock split. In addition, on August
14, 1996 the Board and the  shareholders  approved an increase in the authorized
shares of common stock to 20,000,000  shares, to be effective  immediately prior
to  the  effective  date  of the  registration  statement.  The  Board  and  the
shareholders  also  authorized  the  creation  of a new  undesignated  class  of
preferred stock consisting of 1,000,000 shares, $10 par value.

         Pro Forma Earnings per Common Share

         Earnings per share has been presented on a pro forma basis after giving
effect to the conversion of the  outstanding  preferred stock (See Note 12) plus
when their effect is dilutive,  common stock  equivalents  consisting  of shares
subject to stock options and warrants.

         The following  table  presents  information  necessary to calculate pro
forma earnings per share:

                                                        Years Ended
                                                        December 31,
                                                  ------------------------  
                                                     1995         1996
                                                  ----------    ----------

      Net Income...............................    $ 906,505    $  593,397
                                                   =========     ========= 
      Pro forma earnings per common share......    $    0.26    $     0.17
                                                   =========    ==========
      Common shares outstanding:
      Weighted average common shares...........      280,830       297,140
      Common share equivalents.................      630,335       651,882
      Conversion of preferred stock............    2,337,192     2,337,192
      Preferred stock dividend.................      211,088       211,088
      Directors' stock grants..................        1,000         1,000
                                                   ---------     ---------
      Adjusted shares outstanding..............    3,460,445     3,498,302
                                                   =========     =========

         Cash and Cash Equivalents

         The Company considers all highly liquid debt instruments purchased with
an original maturity of three months or less to be cash equivalents.

         Fair Value of Financial Instruments

         At December 31, 1996, the carrying  amounts of the Company's  financial
instruments included in current assets and current liabilities  approximate fair
value because of the short maturity of those  instruments.  The carrying amounts
of the  Company's  long-term  debt  also  approximates  their  fair  value as of
December  31, 1996 based upon the  borrowing  rates  currently  available to the
Company for loans with similar terms and maturities.

         Goodwill

         Goodwill,   which  represents  the  excess  of  the  cost  of  the  ATI
acquisition  over the fair value of ATI's net assets at the date of acquisition,
is being amortized over 20 years.


                                      -23-





                          BRUNSWICK TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1994, 1995 and 1996


1.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED

         Impairment Accounting

         The Company adopted Financial  Accounting Standard No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of," (SFAS No. 121) in 1996.  The  Company  reviews  the  recoverability  of its
long-lived assets,  including goodwill and other intangible assets,  when events
or changes in  circumstances  occur that indicate that the carrying value of the
asset may not be recoverable. The measurement of possible impairment is based on
the Company's ability to recover the asset from the expected future pre-tax cash
flows (undiscounted and without interest charges) of the related operations. The
measurement  of impairment  requires  management  to make  estimates of expected
future  cash  flows  related to  long-lived  assets.  It is at least  reasonably
possible  that future  events or  circumstances  could cause these  estimates to
change. The Company's policy on impairment prior to the adoption of SFAS No. 121
was not materially different.

         New Accounting Pronouncements

         In February  1997,  the  Financial  Accounting  Standards  Board issued
Statement of Financial  Accounting Standards No. 128, "Earnings Per Share" (SFAS
No. 128) and No. 129,  "Disclosure of Information About Capital Structure" (SFAS
No.  129).  SFAS No.  128 will  require a change in how the  Company  calculates
earnings  per  share  and  SFAS No.  129  will  require  disclosure  of  certain
information  about the Company's  capital  structure.  The requirements of these
pronouncements  are effective for the Company's  fiscal year ending December 31,
1997 and the impact of these  statements on the Company's  financial  statements
has not yet been determined.

         Reclassifications

         Certain prior year amounts  primarily  relating to the preferred  stock
have  been  reclassified  to  conform  with  the  presentation  used in the 1996
financial   statements.   Pursuant  to   Securities   and  Exchange   Commission
regulations,  the convertible  preferred stock has been reclassified  outside of
stockholders'  equity and accrued  dividends  and an  increase in the  preferred
stock carrying value based on anticipated  redemption  value have been recorded.
As a result,  the  accumulated  deficit has increased by $526,030,  $531,813 and
$519,679 for 1994, 1995 and 1996, respectively.

2.       ACQUISITION OF ADVANCED TEXTILES, INC.

         On  October  30,  1996,  the  Company  acquired  ATI, a  subsidiary  of
Burlington Industries, Inc. for a total acquisition cost of $8,539,000,  payable
through the issuance of a note for  $7,296,500  convertible  into the  Company's
common stock at $9.50 per share;  deferred cash payments discounted to $513,000;
the issuance of common stock valued at $53,500 to a minority shareholder in ATI;
cash payments of $351,000; and acquisition costs of $325,000. The acquisition is
being  accounted for under the purchase  method of  accounting.  The fair market
value of the assets  acquired is estimated at $3,178,000,  resulting in goodwill
of $5,361,000 which amount will be amortized over 20 years.

         Pro forma unaudited results of operations of the Company,  assuming the
acquisition had occurred on January 1, 1995 are as follows:


                                          Years Ended
                                          December 31,
                                --------------------------------     
                                    1995                1996
                                -------------      -------------
                            (in thousands, except per share amounts)

       Net sales                $      26,444      $      28,475
                                =============      =============
       Net income               $       2,804      $         686
                                =============      =============
       Earnings per share       $        0.81      $        0.20
                                =============      =============


                                      -24-





                          BRUNSWICK TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1994, 1995 and 1996

3.       INVENTORIES

         Inventories consist of the following components:


                                                         December 31,
                                                  ----------------------------- 
                                                      1995           1996
                                                  ------------     -----------
                         Raw materials            $    450,447     $    576,275
                         Work in process               324,772          653,026
                         Finished goods                654,645        2,033,549
                                                  ------------     ------------
                                                  $  1,429,864     $  3,262,850
                                                  ============     ============

4.       DEBT

         Long term debt consists of the following:
                                                           December 31,
                                                   ---------------------------- 
                                                        1995            1996
                                                   ------------      ----------

5.75% note payable to a financial 
   institution, paid in full in January 1997      $     13,133     $      9,095
Equipment term loan payable to a bank, paid 
   in full in February 1997                          1,100,000        1,425,414
9.50% convertible subordinated note incurred 
   in the purchase of ATI                                   -         7,296,500
Non-interest bearing obligation incurred in 
   the purchase of ATI,  discounted at 8.25%                -           420,053
                                                  ------------      ------------
                                                     1,113,133        9,151,062
Less current installments                             (109,162)        (297,758)
                                                  ------------      ------------
Long term debt, excluding current installments    $  1,003,971      $ 8,853,304
                                                  ============      ============

         The  schedule of  maturities  of  long-term  debt  (adjusted to reflect
payments actually made in 1997) at December 31, 1996, are as follows:

       1997.........................................   $       5,182,759
       1998.........................................             100,000
       1999.........................................             100,000
       2000.........................................             120,054
       2001.........................................                   0
       Thereafter...................................           3,648,250
                                                       -----------------
                                                       $       9,151,063
                                                       =================


         In May 1996, the Company renegotiated its existing debt facility with a
bank.  The new agreement  increased the Company's line of credit from $1 million
to $1.5 million and  increased an equipment  line of credit from $1.1 million to
$1.8 million.  In December 1996 the Company increased the line of credit by $1.0
million to $2.5 million and pledged the accounts receivable and inventory of ATI
as collateral.  The loan was paid in full in February 1997 with a portion of the
IPO proceeds (see Note 12). Borrowings under the line of credit are based on 75%
of eligible accounts receivable and 50% of eligible inventory.  At the Company's
option,  interest  is  charged  at either  the  bank's  prime rate or the London
Interbank  Borrowing  Rate  (LIBOR),  plus 1.75%.  There is a commitment  fee of
0.125% on any unused balance. At December 31, 1996, borrowings under the line of
credit amounted to $1,179,968.  The weighted average interest rate of borrowings
outstanding at December 31, 1996, was 8.25%.  The line of credit expires on June
1, 1997.

         Under the equipment term line of credit loan, the bank will advance 75%
of  equipment  cost to be  acquired up to a total loan of $1.8  million.  At the
Company's option,  interest is charged at either the bank's prime rate or LIBOR,
plus 2.25%.  At December  31,  1996,  the Company had elected a nine month LIBOR
rate to be effective  through  March 1, 1997 and which  equals 8% including  the
2.25% mark up. This loan was paid in full on February 10, 1997.


                                      -25-





                          BRUNSWICK TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1994, 1995 and 1996

4.       DEBT, CONTINUED

         The terms of the  convertible  subordinated  note  required  payment of
$3,648,250  of the  principal  within seven months after the  completion  of the
Company's  initial public  offering;  this amount was paid in February 1997 (see
Note 12). The remaining principal amount of the convertible note will be payable
on October 30, 2002 and October 30, 2003.  On the earlier  date,  the Company is
required to pay 50% of the then outstanding principal plus any additional amount
permitted under any of the Company's  future existing  financial  covenants with
its senior lenders.  On October 30, 1997, the note becomes  convertible into the
equivalent amount of the Company's common stock at $9.50 per share.

         The non-interest bearing obligation is payable as follows: $100,000 was
paid on December 15 1996;  and $100,000 is due annually on December 15 until the
entire  obligation is paid. In addition,  the annual payment may be increased by
an  amount  equal to at least  $100,000  based on  certain  income  tax  effects
experienced by the Company. The obligation has been discounted at 8.25%.

5.       LEASES

         Commencing   January  1,  1996,  the  Company  began  leasing  a  newly
constructed  manufacturing  facility.  The lease  term is for ten years  with an
option to renew for an  additional  five  years.  The  Company has the option to
purchase  the  facility at fair market  value at any time between the end of the
fifth  year of the  lease  and the end of the  lease.  In  connection  with  the
vacating of its former facility in December 1995, the Company recorded  $150,000
as its estimated  cost to make repairs to the premises as specified in its lease
agreement.  However, this estimate was not realized and $147,545 was reversed in
June 1996. In connection  with the  relocation to its new facility,  the Company
has  recorded  a  separate  operating  expense  for the cost of the move,  which
includes the rental expense for the old facility for the six months through June
30, 1996.  The Company also has  operating  leases for  equipment and a vehicle.
Total rental  expense under all operating  leases was  $164,293,  $176,558,  and
$288,454 for the years ended December 31, 1994, 1995, and 1996 respectively.

         At  December  31  1996,   future   minimum  lease  payments  under  all
non-cancelable leases are as follows:

                                                               Operating
                                                                Leases
                                                            ------------- 
          1997...........................................   $     184,065
          1998...........................................         181,500
          1999...........................................         181,500
          2000...........................................         181,500
          2001...........................................         181,500
          Thereafter.....................................       1,778,500
                                                            -------------
          Minimum future lease payments..................   $   2,688,565
                                                            =============


                                      -26-





                          BRUNSWICK TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1994, 1995 and 1996

6. CONVERTIBLE PREFERRED STOCK (SEE ALSO NOTE 12 OF NOTES TO FINANCIAL 
   STATEMENTS)

         The Company's  convertible  preferred  stock,  no par value consists of
four series whose activity is shown in the following table:
<TABLE>
<CAPTION>

                                                                                                                   Total
                                                                                                                Convertible
                             Series AA           Series BB            Series C               Series D          Preferred Shares
                             ---------           ---------            --------               --------          ----------------
                           Shares   Amount   Shares       Amount   Shares    Amount      Shares     Amount     Shares     Amount
                           ------   ------   ------       ------   ------    ------      ------     ------     ------     ------
<S>                        <C>     <C>       <C>     <C>           <C>     <C>          <C>     <C>           <C>      <C>

Balance at December
   31, 1993                3,657   $264,170  33,167   $1,926,929   18,000  $1,056,032   16,000   $1,764,556    70,824   $5,011,687
Accrual of preferred
   stock dividend                    18,285              165,835                90,000              176,000                450,120
Accretion of preferred
   stock redemption value      -     34,465      -       18,432        -        7,031       -        15,982        -        75,910
                           ------  --------  ------  ----------    ------  ----------   ------   ----------    ------   ----------
Balance at December
   31, 1994                3,657    316,920  33,167   2,111,196    18,000   1,153,063   16,000    1,956,538    70,824    5,537,717

Accrual of preferred
   stock dividend                    18,285             165,835                90,000               176,000                450,120
Accretion of preferred
   stock redemption value      -     39,818     -        18,650        -        7,089       -        16,136        -        81,693
                           ------  --------  ------  ----------    ------  ----------   ------   ----------    ------   ----------
Balance at December
    31, 1995                3,657   375,023  33,167   2,295,681    18,000   1,250,152   16,000    2,148,674    70,824    6,069,530

Accrual of preferred
   stock dividend              -     18,285     -       165,835        -       90,000       -       176,000        -       450,120
Accretion of preferred
   stock redemption value      -     35,869     -        15,080        -        5,715       -        12,895        -        69,559
                            -----  --------  ------  ----------    ------  ----------    ------  ----------    ------   ----------
Balance at December
   31, 1996                 3,657  $429,177  33,167  $2,476,596    18,000  $1,345,867    16,000  $2,337,569     70,824  $6,589,209
                            =====  ========  ======  ==========    ======  ==========    ======  ==========     ======  ==========

Liquidation preference at
  December 31, 1996              $457,125            $2,487,525            $1,350,000            $2,346,667           $6,641,317    
</TABLE>


         Shares of all series of  preferred  stock are  entitled  to  cumulative
dividends at the rate of 10% per annum of the original issue price. In addition,
shares of preferred stock have a liquidation  preference.  On February 10, 1997,
the date of the closing of the Company's  initial  public  offering,  all of the
Company's four series of outstanding preferred stock were converted to 2,337,912
shares of common  stock.  In  addition,  holders  of shares of  preferred  stock
received  211,088  shares of common  stock in payment of  accrued  dividends  of
$2,005,342 as of the date of conversion.

7.       CAPITAL STOCK

         The Company has three employee stock option plans, one each established
in 1991, 1994 and 1997. The plans reserve for issuance a total of 990,000 common
shares.  Options  granted  prior to June 29, 1995 vest at a rate of 20% per year
beginning on the date of the grant.  Options  granted on June 29, 1995 and after
vest at 20% per year beginning one year after the date of grant.  All the shares
available  in the 1991 and 1994  plans have been  granted.  The  Company's  1997
Equity  Incentive Plan was adopted by the Board of Directors on January 22, 1997
and approved by the  shareholders at a meeting held on January 23, 1997. A total
of 421,740  shares of Common Stock have been  reserved for awards under the 1997
Plan.  Pursuant  to the 1997 Plan,  a  committee  of the Board of  Directors  is
authorized to grant incentive stock options,  non-statutory stock options, stock
appreciation rights,  restricted stock or similar securities defined thereunder,
all in its  discretion,  to key  individuals,  consultants  and directors of the
Company or one of its affiliates.


                                      -27-




                          BRUNSWICK TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1994, 1995 and 1996

7.       CAPITAL STOCK, CONTINUED

         A summary of changes in common stock  options  during 1994,  1995,  and
1996 is:

                                                              Weighted average
                                                    Shares     exercise price
                                                   --------    ---------------
Outstanding grants at December 31, 1993.........   435,039           $0.54
Granted.........................................    16,500           $1.52
Exercised.......................................       -
Canceled........................................       -
                                                   -------
Outstanding grants at December 31, 1994.........   451,539           $0.58
Granted.........................................    83,325           $1.52
Exercised.......................................   (13,035)          $0.27
Canceled........................................    (4,290)          $1.10
                                                   -------          
Outstanding grants at December 31, 1995.........   517,539           $0.74
Granted.........................................     9,900           $9.50
Exercised.......................................    (6,600)          $0.03
Canceled........................................     -                 -
                                                   -------     
Outstanding grants at December 31, 1996.........   520,839           $0.91
                                                   =======
Shares exercisable at December 31, 1994.........   308,319
                                                   =======
Shares exercisable at December 31, 1995.........   363,429
                                                   =======
Shares exercisable at December 31, 1996.........   408,969
                                                   =======


         The weighted  average grant date fair values of options  granted during
1995 and 1996  were  $0.42 and  $2.64,  respectively  and the range of  exercise
prices of all outstanding options at December 31, 1996 was $0.03 to $1.52.

         In 1995, the Financial  Accounting Standards Board issued "Statement of
Financial  Accounting  Standard  (SFAS) No.  123 -  Accounting  for  Stock-Based
Compensation."  This statement  requires a fair value based method of accounting
for  employee  stock  options and would  result in expense  recognition  for the
Company's employee stock plans. It also permits a company to continue to measure
compensation  expense for such plans using the  intrinsic  value based method as
prescribed by Accounting  Principles Board Opinion No. 25 (APB 25),  "Accounting
for Stock  Issued to  Employees."  The  Company  has elected to follow APB 25 in
accounting for its employee stock plans, and accordingly,  no compensation  cost
has been recognized.  Had  compensation  cost for the Company's stock plans been
determined  based on the fair value  requirements of SFAS No. 123, the Company's
net  income and  earnings  per share  would  have been  reduced to the pro forma
amounts indicated below:
                                                  1995                 1996
                                            --------------       --------------
  Net income:              As reported      $      906,505       $      593,397
                                            ==============       ==============
                           Pro forma        $      904,962       $      585,920
                                            ==============       ==============

  Earnings per share:      As reported      $         0.26       $         0.17
                                            ==============       ==============
                           Pro forma        $         0.26       $         0.17
                                            ==============       ==============

         The fair value of stock  options in the pro forma  accounts  for fiscal
1995 and 1996 is not necessarily  indicative of the future effects on net income
and  earnings  per share.  The fair value of each  stock  option  grant has been
estimated  on the  date of  grant  at its  minimum  value  using  the  following
weighted-average assumptions for both 1995 and 1996:
risk-free  interest  rate of 6.5%,  expected  life of five years and no dividend
yield.


                                      -28-





                          BRUNSWICK TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1994, 1995 and 1996

7.       CAPITAL STOCK, CONTINUED

         Through the date of the Company's  IPO, the plans have provided for, at
the option of the Company,  the  repurchase of stock held by employees when they
terminate  service  with the Company.  In 1995,  the Company  repurchased  3,300
common shares at $1.52 per share from a former  employee.  These shares are held
by the Company and recorded as Treasury Stock at their cost of $5,000.

         In conjunction  with the issuance of the preferred  stock,  the Company
has issued  warrants  for the  purchase  of its common  stock.  Each  warrant is
exercisable for one share of common stock.  In 1995,  warrants were exercised to
purchase  4,653 common  shares at $3.03 per share.  At December  31,  1996,  the
Company  had 211,200  warrants  outstanding  at an  exercise  price of $1.52 per
warrant, which expire on or before December 31, 1997.

8.       CONCENTRATION OF CREDIT RISK

         The  Company  utilizes a  national  distribution  system  that sells to
approximately  600-700 end users.  Four  individual  distributors  accounted for
approximately  89%, 78% and 76% of the Company's  1994,  1995 and 1996 revenues,
respectively.   The  same   distributors   also  represent  the   aforementioned
percentages of the Company's  respective account receivable balances at December
31, 1994, 1995 and 1996.

9.       INCOME TAXES

         Income tax benefit (expense) consists of the following:

                                                   For the Years Ended
                                                      December 31,
                                        --------------------------------------  
                                            1994          1995         1996
                                        -----------    ----------  -----------
  Current:
  Federal.............................  $     -        $(120,200)    $(103,000)
  State...............................        -          (32,000)       (3,000)
                                        -----------    ---------   -----------
                                              -         (152,200)     (106,000)
                                        -----------    ----------  ------------

  Deferred:
  Federal.............................        -           214,600      (36,000)
  State...............................        -            59,500     (193,000)
                                        -----------    ----------  ------------
                                              -           274,100     (229,000)
                                        -----------    ----------  ------------
       Total tax benefit (expense)....  $     -        $  121,900  $  (335,000)
                                        ===========    ==========  ============

The actual income tax benefit  (expense)  differs from the expected tax computed
by applying the U.S.  federal  corporate tax rate of 34% to income before income
tax as follows:

                                                     For the Years Ended
                                                         December 31,
                                        --------------------------------------- 
                                            1994           1995        1996
                                        ------------   -----------  -----------
      Computed expected income tax...   $  (107,000)   $ (267,000) $  (315,000)
      State income taxes.............       (18,000)      (47,000)     (54,000)
      Change in valuation allowance...      138,000       439,100           -
      Other...........................      (13,000)       (3,200)      34,000
                                        -----------    ----------  ------------ 
      Total tax benefit (expense)....   $       -      $  121,900  $  (335,000)
                                        ===========    ==========  ============


                                      -29-







                          BRUNSWICK TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1994, 1995 and 1996

9.       INCOME TAXES, CONTINUED

         The tax effects of temporary  differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities  consist of the
following at:
                                                           December 31,
                                                      ----------------------    
                                                       1995          1996
                                                      --------     ---------
Deferred tax assets (liabilities):
     Reserve.......................................    $ 70,900    $  23,000
     Other.........................................      42,000       66,000
     Net operating loss carryforward...............     303,000      171,000
     Alternative minimum tax credit carryforward...     152,200      283,000
     Compensation..................................      26,000       29,000
     Other.........................................      36,000       31,100
     Depreciation and amortization.................    (356,000)    (558,000)
                                                       --------    ---------
           Net deferred tax assets.................    $274,100    $  45,100
                                                       ========    =========
     Current deferred tax assets...................    $306,700    $ 167,000
                                                       ========    =========   
     Non-current deferred tax liabilities..........    $(32,600)   $(121,900)
                                                       ========    =========   


         As  of  December  31,  1996,   the  Company  had  net  operating   loss
carryforwards  for  federal  and state  income  tax  purposes  of  approximately
$427,000,  which expire at various dates through 2006.  Under  Internal  Revenue
Code Section 382, utilization of net operating loss carryforwards may be limited
in the event of changes in the ownership structure of the Company. Such a change
occurred  in 1990,  and the net  operating  loss  carryforwards  are limited for
utilization  at  approximately  $95,000 per year.  In addition,  the Company has
alternative  minimum tax credit  carryforwards of  approximately  $283,000 which
have no expiration  date.  At December 31, 1994,  the Company had a net deferred
tax  position  which was offset by a  valuation  allowance  of  $439,100  due to
uncertainties   about  the   ultimate   realization   of  net   operating   loss
carryforwards.  At December  31,  1995,  the Company was still in a deferred tax
asset  position  and  no  valuation  allowance  was  recorded  as  current  year
utilization of net operating loss carryforwards and projected utilization in the
future of such carryforwards  removed material  uncertainties about the ultimate
realization of the deferred tax assets.

10.      RELATED PARTY

         The Company  purchases over half of its raw materials  inventory from a
stockholder.  For the years ended December 31, 1994, 1995 and 1996, purchases of
raw materials  were  $4,911,399,  $7,809,567  and  $8,548,954  respectively.  At
December 31, 1995,  and 1996, the Company had due this  stockholder,  $1,529,678
and $1,044,559,  respectively,  for purchases of raw materials. In addition, the
Company  was  obligated  under  a  non-interest  bearing  note  payable  to  the
stockholder,  payable in quarterly  installments  of $17,500 through April 1997.
Amounts due under this note at  December  31,  1995 and 1996 were  $102,500  and
$32,500, respectively. The note is collateralized by certain equipment.

11.      NATIONAL INSTITUTE OF STANDARDS AND TECHNOLOGY (NIST) GRANT

         The Company is a participant in a consortium to develop a manufacturing
competency  to  replace  wood,   steel,   and  concrete  with  high  performance
composites.  The  project  has been  awarded a grant by NIST  whereby 50% of the
project's  costs will be  reimbursed.  In 1995,  the  Company  incurred  project
eligible costs of $201,936 and applied for reimbursement of $100,968,  for which
the Company has  recorded  miscellaneous  income of $66,742 and reduced  cost of
goods sold by $34,226.  In 1996 the Company  incurred project eligible costs of,
and applied for reimbursement for, $426,070,  for which the Company has recorded
miscellaneous income of $332,432 and reduced cost of goods sold by $93,638.


                                      -30-





                          BRUNSWICK TECHNOLOGIES, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                        December 31, 1994, 1995 and 1996

12.      SUBSEQUENT EVENT

         On February 10, 1997, the Company completed its initial public offering
of common stock. The sale to the public totaled 2,500,000 shares, with 1,700,000
new shares  being sold by the  Company and  800,000  shares  being sold from the
holdings of an existing  shareholder.  The  offering  price was $9.50 per shares
with proceeds to the Company,  after offering  expenses,  of  approximately  $14
million.  From the proceeds,  the Company was obligated to pay $3,648,250 of the
convertible  subordinated  note plus accrued interest thereon (see Note 4). With
the remaining proceeds,  the Company also paid off the balance of its bank debt,
approximately  $2.6 million.  Deferred charges of $512,679 at December 31, 1996,
and other transactional expenses (together aggregating approximately $1 million)
were offset against the stockholders' equity upon completion of the offering.

         Pursuant  to  the  terms  of  the  preferred  stock   agreements,   the
outstanding  shares of preferred  stock were  automatically  converted to common
stock,  on the  consummation  of the Company's  initial  public  offering.  As a
result,  70,824 shares of preferred stock were converted to 2,337,192  shares of
common stock. In addition,  on August 14, 1996, the Board of Directors  approved
the issuance of common stock in lieu of cash payment of the cumulative preferred
dividend.  This resulted in an additional  211,088  shares of common stock being
issued to holders of  preferred  stock as of the  closing  of the  offering.  In
addition,  the Board  approved  the grant of stock to Directors  totaling  1,000
shares,  to be issued at the closing of the  offering.  The  following pro forma
information  has been  included to reflect  the  conversion  of the  outstanding
preferred  stock to common stock,  the issuance of  additional  shares of common
stock in lieu of payment of a cumulative  cash dividend,  and  directors'  stock
grants.
<TABLE>
<CAPTION>


                                                              Actual at                     Pro Forma
                                                             December 31,   Pro Forma      December 31,
                                                               1996         Adjustments       1996
                                                             ----------    -----------      -----------
<S>                                                         <C>            <C>             <C>

Convertible preferred stock..............................   $ 6,589,209    $(6,589,209)    $      -
                                                            ===========    ===========     ============            
Stockholders' (deficit) equity:
Preferred stock, $10, par value actual and pro forma;
     1,000,000 shares authorized and none outstanding
      actual and pro forma........................                -                -              -
Common stock, par value $0.0001 actual and pro forma;
     20,000,000 shares authorized actual and pro forma;
     301,624 shares outstanding, actual 2,850,904 shares
     outstanding pro forma...............................            30            255              285
Additional paid-in-capital...............................       463,989      6,588,954        7,052,943
Treasury stock, 3,300 shares at cost.....................        (5,000)         -               (5,000)
Accumulated deficit......................................    (2,702,960)         -           (2,702,960)
                                                            ------------    -----------     -----------
                                                            $(2,243,941)    $ 6,589,209     $ 4,345,268
                                                            ============    ===========     ============
</TABLE>


                                      -31-





Item 9.

         CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                              FINANCIAL DISCLOSURE

         In July  1995,  the  Company  advised  KPMG  Peat  Marwick  LLP  ("Peat
Marwick") that it would no longer retain the firm as independent accountants due
to the closing of Peat Marwick's office in Portland,  Maine. The reports of Peat
Marwick  for the  previous  years  (1994 and 1993) did not  contain  any adverse
opinions or a disclaimer of opinions,  nor were they qualified or modified as to
uncertainty,  audit  scope or  accounting  principles.  The  decision  to change
accountants was recommended by the Company's Audit Committee and approved by the
full Board of Directors.  During the periods reviewed by Peat Marwick there were
no  disagreements  with Peat Marwick on any matter of  accounting  principles or
practices,  financial statement disclosure or auditing scope or procedure, which
disagreement(s) if not resolved to the satisfaction of Peat Marwick,  would have
caused  it to make  reference  to the  subject  matter of the  disagreements  in
connection with its report.  Coopers & Lybrand L.L.P. was engaged by the Company
as its independent accountants in July 1995.


                                    PART III

Items 10, 11, 12 and 13.

         The Company  incorporates  by  reference in response to these items its
1997 Proxy  Statement for its Annual Meeting of Stockholders to be held on April
29, 1997, to be filed with the SEC.


                                     PART IV
Item 14.

        EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 10-K

(a)      Financial Statements

Report of Independent Public Accountants

Consolidated Balance Sheets as of December 31, 1995 and 1996.

Consolidated  Statements of Income for the years ended  December 31, 1994,  1995
and 1996.

Consolidated  Statements of  Stockholders'  Deficit for the years ended December
31, 1994, 1995 and 1996.

Consolidated Statements of Cash Flow for the years ended December 31, 1994, 1995
and 1996.

Notes to Consolidated Financial Statements

Financial Statements Schedules:  Schedules are omitted because not applicable or
 not required by Regulation S-X.

(b)      Reports on Form 8-K

         None.


                                      -32-



(c)      Exhibits
<TABLE>
<CAPTION>

Exhibit No.                Description of Exhibit
-----------                ----------------------
<S>                        <C>    
  *3.1                     Amended and Restated Articles of Incorporation of the Registrant.
  *3.2                     Third Restated Bylaws of the Registrant.
  *4.1                     Amended and Restated Registration Rights Agreement dated August 25, 1993.
  *4.2                     Amendment No. 1 to the Registration Rights Agreement dated October 30, 1996.
  *4.3                     Amendment No. 2 to the Registration Rights Agreement dated October 30, 1996.
  *4.4                     Form of Josephthal Warrant.
  *4.5                     Specimen stock certificate for shares of Common Stock.
  *4.6                     Amendment No. 3 to Registration Rights Agreement dated February 3, 1997.
  *10.1                    Loan Agreement between the Registrant and Fleet Bank of Maine dated May 30, 1996.
  *10.2                    Security Agreement between the Registrant and Fleet Bank of Maine dated May 30, 1996.
  *10.3                    Demand Note in favor of Fleet Bank of Maine dated May 30, 1996.
  *10.4                    Supply Agreement between the Registrant and Vetrotex CertainTeed Corp. dated August 25, 1993
                           (confidential portions of which have been omitted and
                           filed  separately with the Commission under a request
                           for confidential treatment pursuant to Rule 406 under
                           the Securities Act).
  *10.5                    Private Activity Bond Requirements Certificate of Brunswick Technologies, Inc. dated December
                           1, 1995.
  *10.6                    Lease Agreement between the Registrant and Brunswick Development Corporation dated August 1,
                           1995.
  *10.7                    Collaborative Agreement between the Registrant and E.I. du Pont de Nemours and Company, Inc.,
                           et al.
  *10.8                    Financial Advisory Agreement and Indemnification Agreement between the Registrant and
                           Josephthal Lyon & Ross Incorporated.
  *10.9                    Installment Promissory Note between the Registrant and Vetrotex CertainTeed Corp. dated March
                           31, 1992.
  *10.10                   Security Agreement between the Registrant and Vetrotex CertainTeed Corp. dated March 31, 1992.
  *10.11                   Stock Purchase Agreement among the Registrant, Burlington Industries, Inc. and Peter L. DeWalt
                           dated  October 22, 1996 and First  Amendment to Stock
                           Purchase Agreement dated October 29, 1996.
  *10.12                   Registration Rights Agreement among the Registrant, Burlington Industries, Inc., and Peter L.
                           DeWalt, dated October 30, 1996.
  *10.13                   Employment Agreement between Advanced Textiles, Inc., a subsidiary of the Registrant, and Peter
                           L. DeWalt, dated October 30, 1996.
  *10.14                   Convertible Subordinated Promissory Note made by the Registrant in favor of Burlington
                           Industries, Inc. dated October 30, 1996.
  *10.15                   Recapitalization Agreement among the Registrant and the holders of its common stock.
  *10.16                   Term Note in favor of Fleet Bank of Maine dated May 30, 1996.
  *10.17                   First Amendment to Term Note dated December, 1996.
  *10.18                   First Amendment to Loan Agreement dated December, 1996.
  *10.19                   First Amendment to Demand Note dated December, 1996.
  *10.20                   First Amendment to Security Agreement dated December, 1996.
  *10.21                   1991 Stock Option Plan.
  *10.22                   Amendment No. 1 to 1991 Stock Option Plan.
  *10.23                   1994 Employee Stock Option Plan.
  *10.24                   Amendment No. 1 to 1994 Employee Stock Option Plan.
  *10.25                   1997 Equity Incentive Plan.
  *10.26                   Form of Common Stock Purchase Warrant.
  *10.27                   Form of Amendment No. 1 to Common Stock Puchase Warrant.
  *16                      Letter of KPMG Peat Marwick LLP re change in certifying accountant.
   21                      Registrant's subsidiary
   27                      Financial Data Schedule.
----------
* Previously filed and incorporated by reference to the Registant's Registration Statement on Form S-1
   (File No. 333-10721).
</TABLE>

                                      -33-



                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned,  thereunto duly authorized, on the 26th of March,
1997.
                          BRUNSWICK TECHNOLOGIES, INC.


                                                 By: /s/MARTIN S. GRIMNES
                                                 -------------------------------
                                                 Martin S. Grimnes
                                                 Principal Executive Officer


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934,  this report has been signed by the  following  persons in
the capacities and on the date indicated:
<TABLE>
<CAPTION>

              Signature                                 Title                               Date
              ---------                                 -----                               ----
<S>                                       <C>                                            <C>


/s/MARTIN S. GRIMNES                      Principal Executive Officer                     March 26, 1997
------------------------------------      and Director
Martin S. Grimnes                         


/s/DAVID M. COIT                          Director                                        March 26, 1997
------------------------------------
David M. Coit


/s/WILLIAM M. DUBAY                       President, Principal                            March 26, 1997
------------------------------------      Operating Officer and Director
William M. Dubay                          


/s/DONALD R. HUGHES                       Director                                        March 26, 1997
------------------------------------
Donald R. Hughes


/s/MAX G. PITCHER                         Director                                        March 26, 1997
------------------------------------
Max G. Pitcher


/s/DAVID E. SHARPE                        Director                                        March 26, 1997
------------------------------------
David E. Sharpe


/s/PETER N. WALMSLEY                      Director                                        March 26, 1997
------------------------------------
Peter N. Walmsley


/s/JOHN P. O'SULLIVAN                     Treasurer and Principal                         March 26, 1997
------------------------------------       Financial and Accounting Officer
John P. O'Sullivan                       


</TABLE>

                                      -34-