Registration No. 33-93894
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
----------
Post-Effective Amendment No. 1
To
Form S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1993
ALPHA PRO TECH, LTD.
(Exact name of registrant as specified in its charter)
----------
Delaware 3842 63-1009183
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
Alpha Pro Tech, Ltd. Sheldon Hoffman, CEO
Suite 112, 60 Centurian Drive Suite 112, 60 Centurian Drive
Markham, Ontario L34 9R2 Markham, Ontario L3R 9R2
(905) 479-0654 (905) 479-0654
(Name, address, including zip (Name, address, including zip
code and telephone number, code, telephone number,
including area code, of including area code, of agent
registrant's principal for service)
executive office)
Copy to:
Peter Landau, Esq.
Opton Handler Gottlieb Feiler & Katz
52 Vanderbilt Avenue, New York, NY 10017
Approximate date of commencement of proposed sale to public as soon as
practicable after effective date of Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. |X|
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K and Rule 404(a)
Item No. and Heading in Form S-1 Caption or Location in Prospectus
Registration Statement
1. Forepart of the Registration Forepart of the Registration Statement
Statement and Outside Front Outside of Front Cover Page of Prospectus
Cover Page of Prospectus
2. Inside Front and Outside Inside Front and Outside pages of Prospec-
Back Cover Pages of tus and Outside Back Cover Prospectus
Prospectus
3. Summary Information, Risk Prospectus Summary; Risk Factors
Factors and Ratio of
Earnings to Fixed Charges
4. Use of Proceeds Use of Proceeds
5. Determination of Offering Outside front Cover Page of Prospectus;
Price Plan of Distribution
6. Dilution Dilution
7. Selling Security Holders Outside Front Cover Page of Prospectus;
Selling Stockholders
8. Plan of Distribution Outside Front Cover Page of Prospectus;
Plan of Distribution
9. Description of Securities Description of Securities
to be Registered
10. Interests of Named Experts *
and Counsel
11. Information with Respect Cover Page of Prospectus, Prospectus
to the Registrant Summary; The Company; Risk Factors; Price
Range of Securities; Dividend Policy;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Principal
Shareholders; Certain Transactions; Legal
Proceedings; Legal Matters; Financial
Statements
12. Disclosure of Commission *
Position on Indemnification
for Securities Acts
Liabilities
- ----------
* Omitted because answer is negative or item is otherwise not applicable.
<PAGE>
PROSPECTUS Subject to completion
dated January ___, 1997
AlphaProTech, Ltd.
3,021,935 Shares of Common Stock
----------
All of the shares (collectively, the "Shares") of Alpha Pro Tech, Ltd.
(the "Company") offered hereby are to be sold for the accounts of the selling
stockholders set forth herein (the "Selling Stockholders"). The Company has
registered the Shares, at its expense, pursuant to certain registration rights,
and other contractual obligations incurred by the Company in connection with the
original issuance of such Shares. The Company will not receive any of the
proceeds from the sale of the Shares by the Selling Stockholders. The Company
will receive the exercise prices with respect to the exercise of any of the
warrants (the "Warrants") and certain stock options ("Options") described
herein. The Company estimates that its expenses will be approximately $43,000 in
connection with the offering (the "Offering") of the Shares. See "Selling
Stockholders" and "Plan of Distribution".
Of the 3,021,935 shares of the Common Stock, Par Value $ .01, Per share
(the "Common Stock"), being offered hereby, 1,739,381 shares of Common Stock are
to be issued from time to time upon the exercise of certain Warrants described
herein and 550,000 shares of Common Stock are to be issued from time to time
upon the exercise of certain stock Options. Of the 732,554 remaining shares
being offered hereby, 262,554 shares were issued in connection with private
placements and 470,000 shares were issued in connection with the settlement of
certain debt obligations of the Company, under Section 4(2) of the Securities
Act of 1933, as amended. See "The Company - Selling Stockholders" and "Recent
Developments".
The Selling Stockholders may sell the Shares to or through underwriters,
and also may sell the Shares directly to other purchasers or through agents from
time to time in the over-the-counter market at prevailing prices in such market.
See "Plan of Distribution".
The Common Stock of the Company is traded on the National Association of
Securities Dealers' (NASD) Over the Counter (OTC) Bulletin Board under the
symbol "APTD".
On January 14, 1997 the average of the last reported bid and asked prices
of the Company's Common Stock in the over-the-counter market as reported by NASD
was $ 1.437.
INVESTMENT IN THE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS".
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
----------
The date of this Prospectus is January _____, 1997
<PAGE>
TABLE OF CONTENTS
PAGE
----
Available Information.............................................. 3
Additional Information............................................. 3
Prospectus Summary................................................. 4
Summary Financial Data............................................. 6
Risk Factors....................................................... 7
The Company........................................................ 12
Use of Proceeds.................................................... 23
Dividend Policy.................................................... 23
Capitalization..................................................... 24
Dilution........................................................... 25
Price Range of Securities.......................................... 26
Selected Financial Data............................................ 28
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 29
Business........................................................... 38
Management......................................................... 45
Principal Stockholders............................................. 47
Certain Transactions............................................... 52
Selling Stockholders............................................... 53
Plan of Distribution............................................... 58
Description of Securities.......................................... 59
Taxation........................................................... 61
Legal Proceedings.................................................. 63
Legal Matters...................................................... 65
Experts............................................................ 65
Index to Financial Statements...................................... F-1
Consolidated Financial Statements
For the three years ended December 31, 1995,..........
For the nine month period ended September 30, 1996,...
2
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
accordingly, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed with the Commission are available for
inspection and copying at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at Citicorp Center, 500 W. Madison
Street, Suite 1400 Chicago, Illinois 60661-2511, at 75 Park Place, New York, New
York 10007, and at 5757 Wilshire Boulevard, Los Angeles, California 90024.
Copies of such material also may be obtained from the Public Reference Section
of the Commission, 450 Fifth Street, N.W., Judiciary Plaza, Washington D.C.
20549 at prescribed rates.
ADDITIONAL INFORMATION
The Company has filed a Registration Statement with the Commission under
the Securities Act with respect to the securities offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and in the exhibits and schedules thereto, certain parts of which are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the securities offered
hereby, reference is made to such Registration Statement and to the exhibits and
schedules thereto.
The Registration Statement and any amendments thereto, including exhibits
filed as a part thereof, are available for inspection and copying as set forth
above.
The Company distributes annual reports containing audited financial
statements to its stockholders.
No dealer, salesman or any other person has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the offering herein contained, and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy by any person in any jurisdiction in which it is
unlawful for such person to make such an offer or solicitation. Neither the
delivery of this Prospectus nor any sale made hereunder shall, under any
circumstances, imply that the information contained herein is correct as of any
date subsequent to the date hereof.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the
more detailed information and financial statements contained elsewhere in this
Prospectus. Investors should carefully consider information set forth under the
heading "Risk Factors."
THE COMPANY
The Company develops, manufactures and markets disposable protective
apparel, food industry, infection control, wound care and consumer products for
the cleanroom, food services, industrial, medical, dental and consumer markets.
The Company operates through four divisions: apparel; food industry; mask and
shield; and wound care. The Company's products are primarily sold under the
"Alpha Pro Tech" brand names but are also sold for use under private label.
The Company's products are classified into five groups: Disposable
protective apparel consisting of a complete line of shoecovers, headcovers,
gowns, coveralls and labcoats; food industry apparel consisting of a line of
automated shoecovers, sleeve protectors, aprons, coveralls and bus boy jackets;
Infection control products consisting of a line of facial masks and facial
shields; wound care products consisting of a line of mattress overlays,
wheelchair covers, geriatric chair surfaces, operating room table surfaces and
pediatric surfaces; consumer products consisting of a line of pet bedding and
pet toys.
The Company's strategy is to grow its cleanroom division through its
exclusive Agreement with VWR Scientific Products ("VWR") (formerly Baxter
Scientific), by increasing its manufacturing capabilities to meet VWR's needs.
The Company entered into an exclusive distribution agreement with a major
supplier to the food industry to launch a line of innovative new products to
help solve a major problem in the food industry: accidents that occur because of
employees slipping and falling on wet slippery surfaces found in restaurants and
food processing plants and to help decrease the number of burns caused by frying
and grilling. The Company intends to also maintain its core business in the
medical, dental, industrial and health related markets by using its existing
distributors.
The Company's products are used primarily in hospitals, clean rooms,
laboratories and dental offices and are distributed principally in the United
States through a network presently consisting of four purchasing groups, ten
major distributors, approximately 200 additional distributors, approximately 30
independent sales representatives and a Company sales force of 6 people.
4
<PAGE>
The Offering
Securities Offered
Common Stock 3,021,935 shares of Common Stock. See
"Description of Securities".
Of the 3,021,935 shares of Common Stock $ .01 par
Value per Share being offered hereby, 1,739,381
shares are to be issued from time to time upon the
exercise of certain Warrants described herein and
550,000 shares of Common Stock are to be issued
from time to time upon the exercise of employee
stock options. Of the 732,554 remaining shares
being offered hereby, 262,554 shares were issued
in connection with private placements and 470,000
shares were issued in connection with the
settlement of certain debt obligations of the
Company under Section 4(2) of the Securities Act
of 1933, as amended. See "Selling Stockholders".
Common Stock
Outstanding
and to be
Outstanding 20,595,463 shares of Common Stock at September
30, 1996 and 22,884,844 shares as adjusted for
this Offering. (1) (2).
Warrants and Options 3,295,969 Warrants and 2,825,000 Options at
Outstanding September 30, 1996 and 1,556,588 Warrants and
2,275,000 Options to be outstanding as adjusted
for this Offering.
Use of Proceeds This Offering is being made by Selling
Stockholders and the Company will not receive any
of the proceeds of such sales. See "Use of
Proceeds" and "Selling Stockholders".
Risk Factors This Offering involves certain risks. See
"Risk Factors".
NASD Symbol Common Stock......APTD
- ----------
(1) Does not include as outstanding 3,295,969 shares reserved for issuance
upon the exercise of Warrants and 2,825,000 shares reserved for issuance
upon the exercise of certain Options and treats as to be outstanding the
1,739,381 shares and 550,000 shares being registered hereby to be issued
upon the exercise of Warrants and Options respectively.
(2) Does not include 364,000 additional shares reserved for issuance
under the Company's stock option plans for employees and directors as of
September 30, 1996.
- ----------
See "The Company," - "Recent Developments" - "Private Placements,"
"Management-Stock Option Plans," "Description of Securities" and Note 10
of Notes to Consolidated Financial Statements.
5
<PAGE>
SUMMARY FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
May 31, Year Ended December 31 Ended September 30,
1991* 1991** 1992 1993 1994 1995 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations:
Sales $ -- $ 310 $ 8,129 $ 9,439 $ 11,966 $ 13,031 $ 9,893 $11,231
Gross profit -- 55 3,177 3,500 4,247 4,469 3,491 3,903
Total expenses 161 2,182 3,752 6,126 4,905 10,440 3,876 3,807
Net income/(loss) (161) (2,127) (575) (2,626) (658) (5,971) (385) 96
Net income/(loss)
per share (.04) (.33) (.06) (.22) (.05) (0.36) (.02) .00
Weighted average shares 4,488 6,430 9,616 11,765 13,437 16,538 16,358 20,164
Balance Sheet Data:
Working capital (deficit) 836 1,694 2,233 2,108
Total assets 11,192 6,410 11,181 7,757
Long term liabilities 1,154 240 194 239
Shareholders' equity 6,159 3,004 8,456 3,758
</TABLE>
* Reflects 12 month period ended May 31, 1991.
** In 1991 Alpha Pro Tech changed its fiscal year end from May 31 to December
31. Therefore, December 31, 1991 reflects a seven month period.
6
<PAGE>
RISK FACTORS
The securities offered hereby are speculative and involve a high degree of
risk. In analyzing this offering, prospective purchasers should carefully
consider the following factors, among others:
1. History of Losses
The Company has operated at a net loss during each of its last three
fiscal periods. Its net loss for the fiscal year ended December 31, 1993 was
$2,626,000; its net loss for the fiscal year ended December 31, 1994 was
$658,000; and its net loss for the fiscal year ended December 31, 1995 was
$5,971,000. For the nine month period ended September 30, 1996, the Company had
net income of $96,000 as compared to a net loss of $385,000 for the period ended
September 30, 1995. As of September 30, 1996 the Company had an accumulated
deficit of $15,772,000. There can be no assurance that the operations of the
Company will be profitable in future periods. See "Financial Statements",
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
2. Need For Working Capital - Dependence On Private Sales of Securities
While the Company has incurred a deficiency in net cash flow from
operating activities for each of the three years ended December 31, 1995 and the
nine months ended September 30, 1996, it had net working capital of $1,694,000
as of December 31, 1995 and net working capital of $2,108,000 as of September
30, 1996.
The Company has been dependent for the financing of its working capital
requirements on private sales of its securities to individual investors and
groups of investors and the receipt of proceeds from the exercise of outstanding
warrants and options. The Company intends to continue its practice of funding
its working capital requirements through private sales of securities to the
extent that it is unable to meet its working capital requirements by generating
sufficient income from operations.
In addition management has addressed the Company's working capital
position by the conversion of Notes Payable into shares of Common Stock and
obtaining a new line of credit facility. While there can be no assurance with
respect to the Company's continuing ability to sell its securities privately or
that additional warrants or options will be exercised, management believes that
its available cash together with expected
7
<PAGE>
proceeds from the various sources noted above will be sufficient to finance its
working capital and capital requirements for at least a 12 month period.
The sale by the Company of Common Stock, securities convertible into or
exchangeable for Common Stock or warrants and options exercisable for Common
Stock, and the exercise of the rights of holders of such convertible securities,
warrants and options may result in dilution of the investments of present and
future holders of Common Stock. See "Financial Statements", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the "Company - Recent Developments Private Placements".
3. Potential Fluctuation in Quarterly Results
The Company's quarterly operating results have varied significantly as a
result of a number of factors, including the timing of significant orders from
and shipments to customers and the timing and market acceptance of new products.
The Company expects that its operating results will fluctuate in the future as a
result of these and other factors including its product mix, the Company's
success in developing, introducing and shipping new products and the level of
competition. There can be no assurance that the Company will be able to achieve
and sustain a level of profitability on a quarter-to-quarter basis. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
4. Dividends
The Company has not paid any dividends on its Common Stock and does not
anticipate paying any dividends in the foreseeable future.
See "Dividend Policy".
5. Regulatory Matters Pending Before The British Columbia Securities
Commission
In March 1992 the British Columbia Superintendent of Brokers
("Superintendent") raised certain concerns with respect to the adequacy of
public disclosure relating to the Company's affairs including allegations
relating to an agreement to perform certain promotional services for BFD, prior
press releases issued by the Company, trading activities of directors of the
Company and other technical regulatory issues. In November of 1992 certain
additional concerns were raised relating to potential regulatory non-compliance
in respect of the issuance of securities pursuant to various private placements.
Included among those persons named as
8
<PAGE>
respondents with respect to these matters are Sheldon Hoffman, Chief Executive
Officer and a director of the Company and Alexander W. Millar, President and a
director of the Company. The issues relating to the concerns raised by the
Superintendent with respect to the Company and its officers and directors have
been resolved. See "The Company - Recent Developments - Notice of Hearing -
March 3, 1992 and Cease Trade Order - November 13, 1992".
6. Dependence Upon Key Personnel
The Company is dependent upon the experience and ability of certain key
personnel, including Sheldon Hoffman, Chief Executive Officer, and Alexander W.
Millar, President. The loss of the services of either of those individuals could
have an adverse effect on BFD. See "Management - Directors and Executive
Officers - Employment Arrangments" and "The Company - Recent Developments".
Dependence on Significant Customer
The Company has one customer whose sales represent 28.2% of total sales in
1995 and one customer whose sales represent 29.2% for the nine months ended
September 30, 1996. The loss of this customer would have a materially adverse
effect on the Company's business. (See "Business Distribution")
7. Dependence on Foreign Employees
The Company's operations are substantially dependent upon its
approximately 348 employees in Mexico. While the Company's relations with the
union representing these employees and the employees themselves to be good, any
unforeseen work stoppages would have an adverse effect on the Company's
business. See "Business - Employees."
8. Control By Directors And Officers
The Company's current directors and officers and their affiliates
beneficially own approximately 16.4% of its outstanding Common Stock. As a
result of their Common Stock ownership, the Company's current directors and
officers and their affiliates will have significant influence over all matters
requiring approval by the Company's stockholders, including the election of
directors. Through any directors that they nominate and elect, they may have the
ability to direct policy and influence the Company's day-to-day operations. See
"Principal Stockholders, Management, and Selling Stockholders".
9
<PAGE>
9. Dilution
As of December 31, 1996 there were outstanding (a) employee stock options
to purchase ___________ shares of Common Stock and (b) options and warrants to
purchase ___________ shares of Common Stock.
Any exercise of options or warrants will usually take place at a time when
the Company would be able, in all likelihood, to obtain funds from the sale of
the Company's Common Stock at prices higher than the exercise prices thereof. As
a result, investors in the securities offered hereby may incur substantial
dilution of their investments as the issuance of such a significant number of
additional securities, or even the possibility thereof, may depress the price of
such securities. See "Dilution".
10. Patent Protection
The Company's policy is to protect its intellectual property rights,
products, designs and processes through the filing of patents in the United
States and, where appropriate, in Canada and other foreign countries. The
Company also registers trademarks and trade names.
The Company believes that its patents may offer a competitive advantage,
but there can be no assurance that any patents, issued or in process, will not
be circumvented or invalidated. The Company relies on trade secrets and
proprietary know-how to maintain and develop its commercial position. See
"Business - Patents and Trademarks".
11. Competition
The Company faces substantial competition from numerous other companies,
including companies with greater marketing and financial resources. The
Company's major competitor is TECNOL INC. of Fort Worth, Texas as well as
several other larger competitors. The Company believes that the quality of its
products, along with the price and service provided will allow it to remain
competitive in the disposable apparel market. See "Business - Competition."
12. Potential Future Sales Pursuant to Rule 144 Or Registration
Rights
Future sales of shares by existing stockholders under Rule 144 of the
Securities Act, or through the exercise of outstanding registration rights, or
the issuance of shares of Common Stock upon exercise of options, warrants or
otherwise could have a negative impact on the market price of the Common Stock.
The Company is
10
<PAGE>
unable to estimate the number of shares that may be sold under Rule 144 or
pursuant to registration rights since this will depend on the market price for
the Common Stock of the Company, the personal circumstances of the sellers and
other factors. Any sale of substantial amounts of Common Stock in the open
market may adversely affect the market price of the Common Stock offered hereby.
See "Shares Eligible For Future Sale".
13. Registration Rights
The Company has granted demand and piggy-back registration rights at the
Company's cost and expense to purchasers of unregistered securities offered and
sold by the Company in private sales of its securities, and the Company expects
that purchasers of securities in future private sales also will receive
registration rights at the company's cost and expense. Such registration rights
require the Company to register such securities with the Securities and Exchange
Commission and state securities commissions for resale by the selling
securityholders, and enable such securityholders to sell the securities to or
through underwriters or to other purchasers in market transactions at prevailing
market prices. In the absence of such registration, the securities acquired in
private placements are restricted securities and can be sold only under Rule 144
under the Securities Act after a holding period of two years from the date of
purchase or pursuant to another available exemption from the registration
requirements under the Securities Act.
The approximate cost of registering the securities offered hereby is $
43,000.
11
<PAGE>
14. Effect of Delaware Law and Certain Charter and By-Law Provisions
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware. Section 203 prohibits certain publicly held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an "interested stockholder", unless the
business combination is approved in a prescribed manner. This statute as well as
certain charter and By-law provisions may make it more difficult for a third
party to acquire, or discourage future acquisition bids for the Company. See
"Description of Capital Stock - Delaware Law and Certain Charter and By-Law
Provisions."
THE COMPANY
ALPHA PRO TECH, LTD. (referred to herein as "the Company") was
incorporated on February 17, 1983 pursuant to the British Columbia Company Act
R.S.B.C. 1979, Chapter 59 (the "Company Act (British Columbia)" under the name
Princeton Resources Corp. The Company subsequently changed its name to Canadian
Graphite ltd. on July 27, 1988 and further changed its name to BFD Industries
Inc. on July 4, 1989. Effective July 1, 1994 the Company changed it's corporate
domicile from Canada to the State of Delaware in the United States and changed
it's name to Alpha Pro Tech, Ltd. At that time all of the Company's operating
assets were transferred to it's wholly owned subsidiary Alpha Pro Tech, Inc.
Historical Development
In April 1989 the Company purchased all the assets, patents, trade
secrets, inventory, goodwill and other properties to manufacture, among other
items, certain transparent eye protection products utilizing an optical-grade
polyester film from John Russell (the inventor of certain products currently
being manufactured, marketed and distributed by the Company), Al Millar
(currently president and a director of the Company), Sheldon Hoffman (currently
chief executive officer and a director of the Company), Robert Isaly, (currently
a director of the Company) and Irving Bronfman, a former director of the
Company), BFD Inc. (an Alabama corporation), 779177 Ontario Inc. (a corporation
owned by Messrs. Hoffman and Bronfman), Milmed International Distributors
Limited (a company owned by Al Millar). None of the persons or entities referred
to above were officers, directors or affiliated with the Company in any way
prior
12
<PAGE>
to the transaction.
From April 1, 1990 to August 30, 1991, the business currently being
carried on by the Company, was operated by the BFD Industries Limited
Partnership, an Ontario limited partnership (the "BFD Limited Partnership"), of
which a wholly-owned subsidiary of the Company was the general partner, and of
which there was only one limited partner. Pursuant to an agreement between the
Company and the sole limited partner of the Company's Limited Partnership dated
June 21, 1991, the Company purchased the limited partner's 50% interest in the
BFD Limited Partnership for a purchase price of $1,000,000.00 The BFD Limited
Partnership was dissolved on August 30, 1991 and the business and operations
have continued to be carried on by the Company directly.
Prior to its acquisition of the business currently being conducted by it,
the Company was involved in mining and exploration. However, for the fiscal
years ended May 31, 1987, 1988, 1989 and 1991 the Company generated no revenues.
The Company's executive offices are located at 60 Centurian Drive, Suite
112, Markham Ontario, Canada L3R 9R2, and its telephone number is (905)
479-0654.
13
<PAGE>
RECENT DEVELOPMENTS
Matters Before The British Columbia Securities Commission
As a result of concerns raised by the Brish Columbia Superintendent of
Brokers (the "Superintendent") with respect to the adequacy of public disclosure
relating to the Company's affairs, the Superintendent, on March 3, 1992, issued
a Temporary Order and Notice of Hearing naming as respondents among others, the
Company and Messrs. Al Millar, Sheldon Hoffman, Irving Bronfman, Robert Henry
Isaly, James S. Lewis, and Hans Rieder, and ordered that all trading in the
securities of the Company cease for a period originally expiring on March 18,
1992. The Superintendent also set a hearing for March 18, 1992 to give the
respondents an opportunity to be heard before the British Columbia Securities
Commission (the "Commission"). The Notice of Hearing contained a variety of
allegations including those relating to prior press releases issued by the
Company, trading activities of directors of the Company and other technical
regulatory issues. Messrs. Millar, Hoffman and Isaly are presently directors.
Messrs. Lewis, Bronfman and Reider are former directors.
With respect to trading activities by directors of the Company, the
Superintendent alleged that Messrs. Millar, James B. Lewis (a former director)
and Isaly, traded in the securities of the Company with knowledge of a material
change in the Company which they knew had not been generally disclosed and that
on or before January 28, 1992, the directors of the Company reserved incentive
stock options for 435,000 of the Company's Common Shares while they had
knowledge of the material change which they knew had not been generally
disclosed
The Company and the other respondents all denied any wrongdoing with
respect to the above allegations related to the Company. The Company and its
directors cooperated fully with the Superintendent's office with regard to the
matters in the Notice of Hearing which was adjourned by consent.
On April 10, 1992 the Company issued a comprehensive news release
providing disclosure to the public concerning its affairs and matters related to
the Temporary Order and Notice of Hearing. Contemporaneously the Company
submitted a Filing Statement to the Vancouver Stock Exchange containing
information similar to that contained in the news release. On April 13, 1992
citing that the Company had issued the April 10, 1992 news release and that the
directors of the Company had consented to an order that they cease
14
<PAGE>
all trading in the securities of the Company until a hearing is held and a
decision rendered, the Superintendent issued a Variation of Order revoking the
Cease Trade Order against the Company. On April 14, 1992 the Company's
securities resumed trading on the Vancouver Stock Exchange.
On November 13, 1992 the Superintendent issued a Cease Trade Order in
respect of all of the securities issued pursuant to two private placements of
the Company's securities pending resolution of concerns relating to potential
regulatory non-compliance in respect of the issuance of these securities.
Between November 13, 1992 and late January of 1993, extensive discussions
ensued and a substantial amount of documentation was compiled and provided to
the staff at the office of the Superintendent with respect to the details
surrounding those private placements. As a result of providing such information,
an agreement in principle was reached with the Superintendent whereby the
Superintendent would consider a revocation of the Cease Trade Order issued
November 13, 1992, such revocation being conditional upon, among other things,
the Company preparing and disseminating a news release setting out further
details with respect to those private placements, the provision to each
purchaser under those private placements who was affected by the Cease Trade
Order of additional corporate disclosure documentation, specifically the
Company's Form 10-Q for the periods ending September 30, 1992 and a right to
rescind their subscription and have returned to them any subscription funds
previously provided by such purchaser to the Company pursuant to their
subscription.
In accordance with the above a news release was issued by the Company on
January 28, 1993 which outlined these matters and on February 11, 1993, a
complete package of documentation was prepared and sent to each purchaser of
securities affected by the Cease Trade Order issued November 13, 1992. On
February 23, 1993 the Superintendent revoked the November 13, 1992 Cease Trade
Order as to all persons other than the officers and directors of the Company.
Settlements with British Columbia Securities Commission
On November 23, 1993 the Company signed an agreement with the British
Columbia Securities Commission resolving all outstanding issues with respect to
the Company. The Company agreed and consented to the following:
1. The Company will seek professional counsel or take such other steps as may
be reasonably necessary to ensure that its future
15
<PAGE>
activities are in compliance with applicable securities legislation and
policies; and
2. The Company will pay to the Minister of Finance and Corporate Relations
the sum of 425,000; and
3. The Company waives any right it may have, under the Act or otherwise, to a
hearing, hearing and review, judicial review or appeal related to, in
connection with or incidental to this agreement.
On November 10, 1995, Sheldon Hoffman a Director and CEO of the Company
and Alexander Millar, a Director and President of the Company settled all
outstanding matters pending before the British Columbia Securities Commission
(the "BCSC"), which were commenced in March 1992 by the British Columbia
Superintendent of Brokers ("Superintendent"). The settlement provides that as to
each of Messrs. Hoffman and Millar: a Cease Trade Order as to sales by them of
the Company's securities in British Columbia shall remain in effect for 2 years;
each shall be prohibited from becoming or acting as a director or officer of any
British Columbia reporting issuer, other than the Company, until such time as
they have successfully completed a course of study satisfactory to the
Superintendent concerning the duties of directors and officers of reporting
issuers; full payment to the BCSC shall have been made of $29,000 as to Hoffman
and $14,500 as to Millar; and the Superintendent consents to their acting in the
capacity of a director or officer of a British Columbia reporting issuer. All
matters pending as to Robert Isaly, a Director of the Company, were dropped.
Alpha Pro Tech Acquisition
In May 1992 the Company acquired Alpha Pro Tech, Inc., ("Alpha"), from
William C. Klintworth Jr., the principal shareholder of Alpha acting on behalf
of himself and all other shareholders.
Alpha is in the business of manufacturing and selling medical and dental
surgical face masks, bed patient monitoring systems, Unreal Lambskin decubitus
products (used to prevent bedsores) and pet bedding products. Unreal Lambskin is
a material made from durable synthetic fleece fabric which has the
characteristics and attributes of real lambswool. Alpha's corporate office and
manufacturing facility is located at 903 West Center Street, Bldg. E. North Salt
Lake, Utah 84054. A second manufacturing facility is located at 1145 Norwood
Road, Janesville, Wisconsin.
The purchase price of $7,200,000 (plus closing adjustments) was
16
<PAGE>
paid as follows: a $100,000 deposit upon the execution of the Agreement,
$3,600,000 paid at closing with the balance of $3,500,000 paid by a promissory
Note ("Note") payable in one year and convertible in whole or in part at any
time during the year, at the option of the holder, into Common Shares of the
Company at a deemed price per share of $3.50. No interest accrued on the Note
for the first 120 days after closing, but interest thereafter accrued at the
rate of 8 1/2% per annum, due and payable at the maturity date of the Note. If a
holder of the Note elected to be paid in cash, such holder had to give the
Company at least 120 days advance written notice of such election prior to April
29, 1993. The Note was secured by all of the issued and outstanding shares of
Alpha pursuant to a pledge agreement.
As part of the transaction, Mr. Klintworth, the principal shareholder and
president of Alpha entered into a Confidentiality Agreement with the Company in
consideration of a total payment of $300,000 paid at closing. Pursuant to this
agreement, Mr. Klintworth provided consulting services to the Company and
covenanted not to compete, directly or indirectly, with the Company or Alpha
during the term of the agreement and for a period of 18 months following the
termination thereof. This agreement was for a term of 3 years.
Alpha also entered into an Employment Agreement with Mr. Klintworth for a
three year term at a salary of $115,000 per annum which could be terminated
without cause, upon 6 months notice after the above referenced Note was
satisfied. Alpha also entered into an employment agreement with Elvin Boyce at a
salary of approximately $3,000 per month. The employment agreement with Mr.
Boyce was generally in accordance with his existing Independent Consulting
Agreement with Alpha dated January 1, 1990 which was for a term of 10 years. Mr.
Boyce was the inventor of certain products now produced by Alpha and continues
to be involved in the manufacturing operations of Alpha.
The transaction was subject to approval of the Vancouver Stock Exchange
and required a report and commentary with respect to the purchase price to be
paid. The Company engaged Deloitte & Touche for this purpose. Their comments
concluded that the proposed purchase price was determined as a result of arm's
length negotiations and that while the price earning multiples and price to book
value ratios inherent in the net purchase price appear higher than Canadian
"norms" for smaller manufacturing companies, they do not appear out of line with
such ratios inherent in initial public offerings in the U.S. and with current
trading data in the med-tech industry.
17
<PAGE>
They also noted that the opportunity existed for the Company to increase
the value of Alpha in particular, due to the potential synergetic benefits
associated with selling Alpha's products through the Company's hospital buying
group agreements.
Finally, they commented that based upon the scope of their review,
analysis and assumptions used, the proposed cash equivalent purchase price of
$7.2 million, at January 1, 1992 for all the issued and outstanding shares of
Alpha Pro Tech, Inc. would not be unreasonable. The Company financed this
acquisition with the proceeds of private placements.
Gross revenues of Alpha for each of the three fiscal years ending December
31, were as follows:
1991 $5,508,000
1990 $5,197,000
1989 $3,886,000
On January 26, 1993, the holders of the Notes notified the Company of
their election to receive payment in cash.
On May 14, 1993 the Company paid the noteholders the principal sum of
$3,500,000 together with approximately $199,000 of accrued interest. Of this
amount $550,000 was provided by a loan from Harberton Trading, Ltd.,
("Harberton") a European merchant bank, $1,104,000 was provided by a credit
facility secured by accounts receivable, inventory and equipment from Allstate
Financial Corporation of Arlington, Virginia, with the balance of $2,045,000
from the Company's working capital. The Harberton loan was initially for a
nine-month term, bearing a monthly compound interest rate of 1.13% and secured
by a pledge of all of the shares of Alpha as well as a general security interest
(subordinate to that of Allstate's Financial Corporation) on all personal
property, including accounts receivable, inventory and equipment. Harberton was
also issued 40,000 shares of the Company's Common Stock as a bonus and a
finder's fee of $ 47,250 was paid to an unaffiliated third party. On February
18th 1994, this loan was extended for an additional nine month period. In
connection with such extension an additional fee of approximately $55,000 and an
additional bonus of approximately $125,000 were paid by the Company. In 1995
this loan was converted into 487,000 shares of the Company's Common Stock.
Contemporaneously with the payment of the Note, Mr. Klintworth resigned as
an officer and director of Alpha Pro Tech and his employment contract was
terminated effective August 14, 1993.
18
<PAGE>
In the fourth quarter of 1995 the Company evaluated the carrying value of
goodwill associated with the acquisition of Alpha based on current operating
results and forecasts of future operations of this business and concluded that
goodwill should be written off. This write-off (recorded in the fourth quarter
of 1995) amounted to $ 4,922,000 and is reported in the income statement as a
component of expenses under the caption "Impairment Loss on Intangible Assets".
See "Consolidated Financial Statements - Consolidated Statements of Operations"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Acquisition of Assets of Gem Non-wovens
In October 1992, the Company acquired the assets of Gem Non-wovens, Inc.
("GEM"), an automated manufacturer of disposable surgical head and shoe covers,
located in Huntsville, Alabama in exchange for approximately $330,000, and the
assumption of approximately $50,000 of GEM's liabilities to unsecured creditors.
Included in the assets acquired were cash and accounts receivables the
collection of which equalled substantially all of the liabilities assumed. GEM
manufactured its products in a leased facility of approximately 8,500 square
feet at in Huntsville, Alabama. The facility was consolidated into Alpha's
facilities in North Salt Lake, Utah effective January 1, 1994.
Purchase of MDC Corporation
In July 1993 the Company purchased all the shares of MDC Corporation
("MDC"), a South Carolina sales and marketing consulting firm from Marilyn
Hutchens in exchange for a Promissory Note in the amount of $50,000 due on
December 24, 1993, with interest at 6% per annum; a $100,000 fee paid to Ms.
Hutchens for consulting services for one year and the issuance of 50,000 of the
Company's Common Shares to Ms. Hutchens. The Company had previously entered into
an agreement with MDC for a term of ten years, commencing December 1, 1991,
pursuant to which MDC was to use its good faith efforts to further the sales of
the Company's products for which it was to receive two percent of gross revenues
derived from all medical industry sales by the Company. For the year ended
December 31, 1992, MDC was entitled to receive $101,000 pursuant to the
agreement. Upon the closing of the purchase of MDC the agreement with MDC was
terminated and the obligation to pay was canceled. Ms. Hutchens together with
her husband owned 111,095 shares of the Company's Common Stock at the time of
the acquisition. Subsequent to the acqusition of MDC, the Company elected not to
renew MDC's Corporate Charter and therefore, MDC no longer exists as a separate
corporate entity.
19
<PAGE>
Acquisition of License Agreement and Patents
In April 1993, the Company also acquired a license agreement for an
Inflation Control for Air Supports Device and the patents for a Delta Foam
Support System (Delta) from Ms. Hutchens for an aggregate of $200,000 ($175,000
for the Patents and $25,000 for the license). The $200,000 originally due
December 24, 1993 was paid by the issuance of an additional 50,000 shares of the
Company's Common Stock and payment of $4000 per month for 24 months, commencing
March 31, 1994. The license and patents relate to a line of therapeutic
mattresses and overlays used in the prevention and treatment of pressure ulcers.
The Company was obligated to pay a royalty to Ms. Hutchens and two co-inventors
of the Delta Support System on all Delta and Inflation Control Device sales, up
to a maximum royalty of $250,000 per year, for the life of the patent.
As part of the Delta agreement, the Company was required to sell $1
million worth of the product within two years of its first sale, and $1 million
per year thereafter until the patents expire. If they did not attain these
levels all rights to the product and the patents were to revert back to Ms.
Hutchens. These sales levels were not attained. These rights have reverted back
to Ms. Hutchens and as a result the patent was written off at December 31, 1994
and the license agreement was surrendered in 1995.
Acquisition of Assets of Disposable Medical Products, Inc.
On March 25, 1994, the Company, through its wholly owned subsidiary Alpha,
entered into an agreement to purchase approximately $105,000 of inventory and
$228,000 of capital equipment of Disposable Medical Products, Inc. ("DMPI"), a
debtor in possession pursuant to a Chapter 11 proceeding in the United States
bankruptcy court in New Orleans, Louisiana. The inventory was purchased
immediately, but the acquisition of the capital equipment was to take place upon
approval of the sale by the bankruptcy court which occurred on July 29, 1994 and
upon payment of the purchase price, which occurred on March 3, 1995.
Between the period of March 25, 1994 and March 3, 1995, under a
post-petition financing agreement Alpha was responsible for the operation of
DMPI and had all of the risks and rewards of the business. The post-petition
financial results of the operation of DMPI have been included in the Company's
consolidated financial statements effective April 1, 1994.
Under the post-petition financing agreement, Alpha Pro Tech, was to supply
DMPI with a $450,000 line of credit until the date the
20
<PAGE>
agreement was finalized. As collateral for the entire amount, DMPI assigned its
post-petition accounts receivable and all other assets to be acquired, to Alpha
Pro Tech, In connection with the asset purchase agreement, employment contracts
were entered into with five employees of DMPI.
Acquisition of Ludan Corporation
Effective April 1, 1995 the Company acquired an 80% interest in Ludan
Corp., a Georgia based materials laminating company, for $29,000 cash plus the
assumption of $ 23,000 of net liabilities. In addition, a note payable of
$20,000 was converted to 20,000 Common Shares of the Company in March 1995. On
June 30, 1996, the Company acquired the outstanding 20% interest in Ludan
Corporation from the minority shareholder for $68,000. The Company paid $49,000
of the purchase price in July 1996 and the remaining $19,000 is due in March
1997.
Recent Private Placements
The Company has been dependent for the financing of its working capital
requirements on private sales of its securities to individual investors and
groups of investors and the receipt of proceeds from the exercise of outstanding
warrants and options. The Company intends to continue its practice of funding
its working capital to the extent that it is unable to meet its working capital
requirements by generating sufficient cash flow from operations. In April 1993
the Company sold 119,048 units at a price of $3.70 Canadian ("CDN") for a total
of $440,478 CDN to a private investor. Each unit consists of one common share
and one non-transferrable share purchase warrant exercisable within twelve
months at a price of $3.70 CDN per share. The net proceeds from this private
placement were added to the Company's working capital. A finder's fee of 9,319
common shares was paid to an unaffiliated third party in connection with this
transaction.
In June 1993, the Company sold 100,000 units at a per unit price of $2.38
CDN for a total of $238,000 CDN to a private investor. Each unit consists of one
common share and one non-transferrable share purchase warrant exercisable within
twelve months at a price of $2.38 CDN per share. The net proceeds from this
private placement were added to working capital. A finders fee of 8,500 common
shares was paid to an unaffiliated third party.
In July 1993, the Company sold 233,697 units at a per unit price of $2.64
CDN for a total of $616,960 to a group of four private investors. Each unit
consists of one common share and one non-transferrable share purchase warrant
exercisable within twelve months at a price of $2.64 CDN per share. The net
proceeds from this private placement were used for working capital. A finders
21
<PAGE>
fee of 12,555 common shares, valued at $ 33,145, was paid to an unaffiliated
third party.
In March, 1994 the Company commenced a private offering pursuant to which
a minimum of 500,000 Units to a maximum of 3,000,000 Units were to be issued at
a price of $1.00 per Unit. Each Unit consisted of one share of Common Stock, and
one Class A Stock Purchase Warrant. Each Warrant entitled the holder to
immediately purchase one share of Common Stock at a price of $2.00 subject to
adjustment in certain circumstances, until their expiration on February 28,
1996. Subsequently the agreement with the dealer manager to offer the Units was
terminated, no Units having been sold. The Company continued to offer Units,
under revised terms, to investors. During the year ended December 31, 1995, the
Company had sold 1,802,649 Units at $.75 per Unit, each Unit consisting of one
share of Common Stock and a two year Warrant to purchase one share of Common
Stock at $.75 per share, for which it has received aggregate proceeds of
$1,352,000.
22
<PAGE>
USE OF PROCEEDS
Since all of the Shares offered hereby are to be sold for the account of
Selling Stockholders, the Company will not receive any cash proceeds pursuant to
this Offering.
The Company may, however, receive cash proceeds to the extent outstanding
Warrants and Options are exercised by a Selling Stockholder. If the Warrants and
Options are exercised in full, as to which there can be no assurance, the net
proceeds would be approximately $1,874,400. The Company would use these
proceeds, if any, for general corporate purposes including working capital. See
"Selling Stockholders."
Pending the ultimate application of the proceeds of any financing the
Company makes temporary investments in interest bearing savings accounts,
certificates of deposit, United States Government obligations or money market
certificates.
United States government obligations are not necessarily those backed by
the full faith and credit of the United States government. Company policy does
not require temporary investments to be investment grade as determined by a
nationally recognized statistical rating organization nor does it require that
such investments have any additional safety feature such as insurance.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The current
policy of the Board of Directors is to retain any earnings to provide for the
development and growth of the Company. Consequently, no cash dividends are
expected to be paid in the foreseeable future.
23
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996. All information set forth below should be read in
conjunction with the financial statements and notes thereto included elsewhere
in this Prospectus.
September 30, 1996
(in thousands)
Long-term liabilities, less current portion $ 239
Stockholders Equity:
Common stock $.01 par value; 50,000,000
shares authorized; 20,595,463 issued
and outstanding(1) 206
Additional paid-in capital 19,324
Accumulated deficit (15,772)
-------
Total stockholders' equity 3,758
-------
Total capitalization $ 3,997
-------
(1) Excludes 6,120,969 shares of Common Stock issuable upon the exercise of
outstanding options and warrants. See "Management 1993 Stock Option Plan"
and "Shares Eligible for Future Sale."
(2) See "Note 13" of "Notes to Consolidated Financial Statements" with respect
to future lease obligations.
24
<PAGE>
DILUTION
The following table sets forth the number of shares of Common Stock
outstanding as of September 30, 1996 as well as the number of shares of Common
Stock that would be outstanding if all of the outstanding options and warrants
were exercised. Any exercise of options or warrants will take place at a time
when the Company would be able, in all likelihood, to obtain funds from the sale
of the Company's Common Stock at prices higher than the exercise prices of the
options and warrants. As a result, investors in the Shares offered hereby may
incur substantial dilution of their investment as the issuance of a significant
number of additional shares of Common Stock, or even the possibility thereof,
may depress the price of the Shares being offered hereby.
Common Stock
Market or Outstanding
Exercise or Reserved
Security Price for Issuance
- -------- -------- ------------
Common Stock 1.437(1) 20,595,463
Employee Stock
Options 1.01(2) 2,825,000
Warrants .758(2) 3,295,969
----------
TOTAL 26,716,432
(1) Based on the average of the last reported bid and asked price of the
Company's Common Stock in the over-the-counter market as reported by the NASD on
January 14, 1997.
(2) Based on the average of exercise prices ranging from $.75 to $2.03 per
share.
25
<PAGE>
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF SECURITIES
From January 1, 1991 through July 16, 1993 the Common Shares were traded
on the Vancouver Stock Exchange under the symbol BFI, at which time the Common
Shares were de-listed from the Vancouver Stock Exchange at the Company's
request.
On March 8, 1993 the Common Shares of the Company were cleared for
quotation on the National Association of Securities Dealers (NASD) Over the
Counter (OTC) Bulletin Board under the symbol "BFDIF". When the Company changed
its name to Alpha Pro Tech Ltd. on July 1, 1994, its symbol was changed to APTD.
The high and low range of bid prices for the Common Shares of the Company
for the quarters indicated as reported by the NASD were as follows:
Low High
--- ----
1994 First Quarter 5/8 1-7/8
Second Quarter 1-3/16 1-7/16
Third Quarter 31/32 1-3/16
Fourth Quarter 13/16 1-1/16
1995 First Quarter 3/4 3-1/8
Second Quarter 1-7/8 2-5/8
Third Quarter 1-5/8 2-1/2
Fourth Quarter 1-7/16 2-1/16
1996 First Quarter 1-1/32 1-31/32
Second Quarter 1-1/4 2-3/16
Third Quarter 1-1/32 1-11/32
Fourth Quarter 15/16 1-5/16
1997 First Quarter
(thru 01/14/97) .906 1.435
Such over the counter market quotations reflect interdealer prices,
without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.
As at January, 1997 there were approximately 625 shareholders of record.
In the period 1993 through 1995 the Company made several efforts to list
its Common Stock on the NASDAQ SmallCap Market. Each time the Company received
notification that its request for listing on the NASDAQ Stock Market had been
denied based on the Company's inability to meet NASDAQ's minimum bid price
criterion of $3.00 per share and/or the fact that there was a pending proceeding
with British Columbia Securities Commission.
26
<PAGE>
As noted above, the Company's officers and directors agreed to a
settlement with the BCSC in October 1995 which was actually signed as of
November 10, 1995. The Company reapplied for listing on NASDAQ in October 1995
and was again advised by the NASDAQ staff on January 2, 1996 that its
application was not approved because of the failure to satisfy the minimum bid
price requirement of $3.00 and the fact that the involvement of the Company's
officers in the BCSC proceeding was sufficient to support a denial of the
listing application. The Company requested a review of this decision by the
NASDAQ Review Committee. This Committee upheld the staff's decision.
Dividend Policy
The holders of the Company's Common Shares are entitled to receive such
dividends as may be declared by the directors of the Company from time to time
to the extent that funds are legally available for payment thereof. The Company
has never declared nor paid any dividends on any of its Common Shares. It is the
current policy of the Board of Directors to retain any earnings to provide for
the development and growth of the Company. Consequently, the Company has no
intention to pay cash dividends in the foreseeable future.
27
<PAGE>
SELECTED FINANCIAL DATA
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Selected Financial Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Twelve Months
Ended Ended
September 30, December 31,
--------------------------- ------------------------------------------------------------
1996 1995 1995(1) 1994(2) 1993 1992(3)
Historical Statement
of Operations Data
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $11,231,000 $ 9,893,000 $ 13,031,000 $ 11,966,000 $ 9,439,000 $ 8,129,000
Gross profit 3,903,000 3,491,000 4,469,000 4,247,000 3,500,000 3,177,000
Selling, general and
administrative expenses 3,415,000 3,010,000 4,342,000 3,562,000 4,852,000 3,236,000
Interest expense 212,000 411,000 563,000 898,000 450,000 99,000
Impairment loss on intangible assets -- -- 4,922,000 -- -- --
Other expenses 180,000 455,000 613,000 445,000 824,000 417,000
----------- ------------ ------------ ------------ ------------ ------------
Total expenses including provision
(benefit) for income taxes
3,807,000 3,876,000 10,440,000 4,905,000 6,126,000 3,752,000
----------- ------------ ------------ ------------ ------------ ------------
Net income (loss) $ 96,000 $ (385,000) $ (5,971,000 $ (658,000 $ (2,626,000 $ (575,000)
=========== ============ ============ ============ ============ ============
Loss per share $ 0.00 $ (0.02) $ (0.36) $ (0.05) $ (0.22) $ (0.06)
=========== ============ ============ ============ ============ ============
Weighted average shares
used in loss per share 20,163,671 16,357,883 16,533,294 13,437,198 11,764,871 9,615,921
Historical Balance Sheet Data
Current assets $ 5,868,000 $ 4,764,000 $ 4,860,000 $ 4,715,000 $ 2,749,000 $ 4,126,000
Total assets $ 7,757,000 $ 11,181,000 $ 6,410,000 $ 11,192,000 $ 9,578,000 $ 11,100,000
Current liabilities $ 3,760,000 $ 2,531,000 $ 3,166,000 $ 3,879,000 $ 2,885,000 $ 4,847,000
Long-term liabilities $ 239,000 $ 194,000 $ 240,000 $ 1,154,000 $ 278,000 $ 654,000
Common stockholders' equity $ 3,758,000 $ 8,456,000 $ 3,004,000 $ 6,159,000 $ 6,415,000 $ 5,599,000
</TABLE>
Seven Months Twelve Months
Ended Ended
December 31, May 31,
------------ -------------
1991(4) 1991
Historical Statement
of Operations Data
Operating revenues $ 310,000 $ --
Gross profit 55,000 --
Selling, general and
administrative expenses 780,000 87,000
Interest expense 12,000 51,000
Impairment loss on intangible assets -- --
Other expenses 1,390,000 23,000
----------- -----------
Total expenses including provision
(benefit) for income taxes
2,182,000 161,000
----------- -----------
Net income (loss) $(2,127,000) $ (161,000)
=========== ===========
Loss per share $ (0.33) $ (0.04)
=========== ===========
Weighted average shares
used in loss per share 6,430,076 4,488,000
Historical Balance Sheet Data
Current assets $ 994,000 $ 373,000
Total assets $ 1,139,000 $ 373,000
Current liabilities $ 424,000 $ 363,000
Long-term liabilities $ -- $ --
Common stockholders' equity $ 715,000 $ 10,000
(1) Includes the operations of Ludan Corporation which was acquired effective
April 1, 1995. See footnote 15 in Notes to the Consolidated Financial
Statements.
(2) Includes the operations of Disposable Medical Products, Inc. which was
acquired on March 25, 1994. See footnote 14 in Notes to the Consolidated
Financial Statements.
(3) Includes the operations of Alpha Pro Tech, Inc. which was acquired on May
14, 1992.
(4) In 1991, Alpha Pro Tech changed its fiscal year end from May 31 to
December 31. Therefore, December 31, 1991 reflects a seven month period.
December 31, 1991 balances include the operations of the limited partner's
interest in BFD Industries Limited Partnership which was purchased on
August 30, 1991.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS FROM OPERATIONS
RESULTS OF OPERATIONS
Nine months ended September 30, 1996, compared to the nine months ended
September 30, 1995
Sales. Consolidated sales were $11,231,000 and $9,893,000 for the nine
months ended September 30, 1996 and 1995, respectively representing an increase
on 13.5%. The increase is attributable to an increase in apparel sales of 54.1%,
offset by a decrease in mask and shield products of 3.4% and a decrease in
Unreal Lambskin(R) of 22.1%.
Cost of Goods Sold. For the nine months ended September 30, 1996 as
compared to 1995, cost of goods sold increased to $7,328,000 from $6,402,000. As
a percentage of net sales for the nine months, cost of goods sold increased to
65.2% from 64.7%. Gross profit margin decreased slightly as a result of sales
mix to 34.8% from 35.3% for the nine months ended September 30, 1996 and 1995
respectively.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $405,000 to $3,415,000 for the nine months
ended September 30, 1996 from $3,010,000 for the nine months ended September 30,
1995. As a percentage of net sales, selling, general and administrative expenses
remained consistent with the previous year at 30.4%.
Depreciation & Amortization. Depreciation and amortization expense
decrease by $269,000 for the nine months ended September 30, 1996 compared to
1995. These decreases are attributable to the 1995 fourth quarter write off of
impaired intangible assets related to the acquisition of its wholly-owned
subsidiary, Alpha Pro Tech, Inc.
Interest. Interest expense decreased by 48.4% for the nine months ended
September 30, 1996 compared to 1995. The decrease is due to the Company
obtaining asset based financing at lower interest rates effective March 31, 1995
and to $830,000 of notes payable being converted to common stock during the
second quarter 1995.
Income from Operations. Income from operations increased by $276,000 for
the nine months ended September 30, 1996 compared to the same period in 1995.
The increase is primarily due to a decrease in depreciation and amortization,
and to an improved gross profit percentage.
29
<PAGE>
Net Income. Net income for the nine months ended September 30, 1996 was
$96,000 compared to a loss of $385,000 for the nine months in 1995. The net
income increase of $481,000 is comprised of an increase of income from
operations of $276,000 and a decrease of interest of $199,000. Net income (loss)
as a percentage of sales increased to 0.9% in the first nine months of 1996
compared to (3.9%) in the same period 1995.
1995 Compared to 1994
Alpha Pro Tech, Ltd. reported a net loss for the year ended December 31,
1995 of $5,971,000 as compared to a net loss of $658,000 for the year ended
December 31, 1994. The principal components of the loss consist of a write-off
of $4,922,000 of intangible assets associated with masks, shields, and wound
care products manufactured and distributed through its wholly-owned subsidiary,
Alpha ProTech, Inc. and an increase of $780,000 in selling, general, and
administrative expenses.
Sales. Consolidated net sales for the year ended December 31, 1995
increased to $13,031,000 from $11,966,000 in 1994, representing an increase of
$1,065,000 or 8.9%. Net sales for the Apparel Division for the year ended
December 31, 1995 were $4,953,000 as compared to $3,148,000 for the same period
of 1994. The Apparel Division sales increase of $1,805,000 or 57% was primarily
due to increased sales to its largest customer and the fact that Alpha began
including the results of the Apparel Division on April 1, 1994. Virtually all of
the 1995 overall sales increase came from the Apparel Division and this trend is
expected to continue into the future. The Company similarly sees its newly
launched food service industry product line as a revenue source beginning in
1996. Mask, and eye shield sales decreased by 13.9%, to $5,205,000 in 1995 from
$6,042,000 in 1994, due primarily to a softening in medical sales. Sales from
the Company's Unreal Lamb's Wool and other related products increased by 3.5% to
$2,873,000 in 1995 from $2,776,000 in 1994. The Company's Unreal Lamb's Wool
line of products is a mature line which is no longer an area for significant
growth.
30
<PAGE>
Gross profit. Gross profit margin decreased to 34.3% for the year ended
December 31, 1995 from 35.5% for the year ended December 31, 1994. The gross
profit margin decline was primarily due to both the initial training costs and
the initial lost efficiencies associated with re-locating shield manufacturing
to Mexico. Gross profit margin for the year ended December 31, 1995 eliminating
the re-location start up costs would have been 35.1%. Management plans to
improve margins through the streamlining of its Mexican operations and there can
be no assurance that these improvements will be attained.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $780,000 to $4,342,000 for the year ended
December 31, 1995 from $3,562,000 for the year ended December 31, 1994. As a
percentage of net sales, selling, general and administrative expenses increased
to 33% in 1995 from 30% in 1994. The increase in selling, general and
administrative expenses is primarily in the areas of Apparel Division costs
$386,000; payroll related costs $169,000; investor relations $79,000;
professional fees $49,000; marketing $46,000; and travel expenses $86,000.
Approximately half of the $386,000 selling, general and administrative expense
increase for the Apparel division is related to increased 1995 sales. The other
half of the increase in the Apparel Division selling, general and administrative
expenses is due to comparing twelve months of expenses in 1995 compared to 9
months in 1994 since the acquisition of the Apparel Division took effect April
1, 1994. As a percentage of net Apparel Division sales, selling, general and
administrative expenses for the Apparel division remained constant at 20% for
both 1995 and 1994.
Depreciation & Amortization. Depreciation and amortization expense
decreased by $116,000, to $618,000 for the year ended December 31, 1995 from
$734,000 for the same period in 1994. This decrease is primarily attributable to
the write off in 1994 of unamortized Delta patents offset by fixed asset
additions in 1995 and the amortization of goodwill recorded in connection with
the Ludan acquisition.
Impairment Loss on Intangibles. At the end of 1995, the Company decided to
write off the remaining intangible assets of $4,922,000 acquired on the
acquisition of its wholly-owned subsidiary, Alpha ProTech, Inc. During the
fourth quarter of 1995, it became apparent to management that cash flows from
the mask, shield, and wound care products manufactured and distributed through
Alpha ProTech, Inc. had declined for each of the past four years and would
decline in the future. Dramatic changes have taken place in the health care
market with downsizing, cost containment pressure
31
<PAGE>
and changing of buying practices for medical products. A significant investment
would have to be made to change the Company's manufacturing equipment and
facilities to continue to aggressively attack these markets. As a result, the
Company has modified its strategy in order to maximize sales and profit by
focusing on increased demand for its apparel cleanroom products and food service
industry products.
Interest. Interest expense decreased by $335,000, to $563,000 for the year
ended December 31, 1995 from $898,000 for the year ended December 31, 1994. This
decrease is due to the Company obtaining asset based financing at lower interest
rates, as well as due to $830,000 of notes payable being converted to common
stock.
Loss from Operations. Loss from operations increased by $5,364,000 to a
loss of $5,413,0000 for the year ended December 31, 1995 from a loss from
operations of $49,000 for the year ended December 31, 1994, primarily due to the
impairment loss of $4,922,000 and the increased selling, general and
administrative expenses of $780,000 less the improved gross profit of $222,000.
Net Loss. Net Loss for the year ended December 31, 1995 was $5,971,000
compared to a net loss of $658,000 for the year ended December 31, 1994, an
increase of $5,313,000. The net loss increase of $5,313,000 is comprised of the
increased loss from operations of $ 5,364,000, as described above, a 1994
$285,000 benefit for income taxes offset by a decrease in interest expense of
$335,000.
The Company does not have any pension, profit sharing or similar plans
established for its employees, however, the chief executive officer and
president are entitled to a combined bonus equal to 10% of the pre-tax profits
of the company. No bonus was earned in 1995 or 1994.
32
<PAGE>
1994 Compared to 1993
Sales. Consolidated sales for the year ended December 31, 1994 increased
to $11,966,000 from, $9,439,000 in 1993 representing an increase of $2,527,000
or 27%. Included in 1994 revenues are sales generated by the Company's new
Disposable Apparel Division of $2,941,000. This division arose through the
Company purchasing the assets of Disposable Medical Products, Inc. on March 25,
1994. Mask, eye shields and shoe cover revenue increased by $125,000 or 2% from
$6,006,000 in 1993 to $6,249,000 in 1994. Revenue from the Company's medical
unreal lamb's wool and other related products declined by $131,000 or 5% from
$2,907,000 to $2,776,000. Other non core products sales decreased by $384,000 as
the Company focused resources on producing and selling products with higher
margins and larger growth potential.
Gross Profit. The gross profit percentage for 1994 was 35.5% compared to
37.1% in 1993. The gross profit decline is due to the lower margin sales from
the new Disposable Apparel Division. The Company's gross profit without
Disposable Apparel was 40.0% compared to 37.1% in 1993 due to improved
manufacturing efficiencies through consolidating operations. Disposable
Apparel's gross profit was 21.7% in 1994.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased by $1,290,000 over 1993 due to the following:
Decreases
Closing Facilities $ (590,000)
o Closing the Atlanta sales office and the Huntsville and Birmingham,
production facilities reduced head count resulting in lower salaries,
benefits, rents, utilities, insurance and other related overhead costs.
Reduction in Professional Fees (258,000)
o Professional fees decreased due to the Company incurring significant costs
in the prior year in defending the Company in the John Russell and the BC
securities commission lawsuits and various other legal matters including
emigrating the Company's headquarters to the United States.
o Legal and accounting fees were lower in 1994 due to the Company incurring
significant fees in 1993 in connection with becoming listed on the NASD
bulletin board in the United States.
33
<PAGE>
o Consulting expense increased by $53,000 as a result of the Company
entering into a two year general business consulting contract.
Termination of Full-Time Sales People (65,000)
o During 1994 the Company terminated three full-time sales people and
replaced them with outside sales people resulting in reduced salaries and
benefits of $124,000. This savings was offset by an increase in outside
commissions of $59,000.
Royalties (316,000)
o Royalty expense decreased due to the Company making payments in 1993 to
terminate a royalty agreement.
Advertising/Marketing/Promotional (329,000)
o These expenses declined as the Company was more selective spending
advertising dollars only on activities that increased product name
recognition.
Financing Expense (265,000)
o The Company paid $158,000 in finders fees to raise capital in 1993. In
1993 the Company also incurred approximately $107,000 in expenses
consisting of $35,000 in loan renewal fees and $72,000 in pursuing
alternative financing sources. Similar fees were not incurred in 1994.
Other (60,000)
Increases
Disposable Medical Products $ 593,000
o Acquiring DMP resulted in an increase in selling, general and
administrative costs.
------------
$(1,290,000)
------------
Depreciation and amortization. Depreciation and amortization expense
increased by $159,000 from $575,000 in 1993 to $734,000 in 1994 due to the asset
additions resulting from the acquisition of the Disposable Apparel Division and
due to the write-off of the Delta Foam patent in 1994.
34
<PAGE>
Reorganization Costs. Reorganization costs decreased by $159,000 in 1994.
The Company accrued for costs to close their Alabama manufacturing facilities
and their Georgia sales office in 1993.
Interest. Interest expense increased by $488,000 in 1994 compared to 1993
due to increased borrowings at higher rates. Management expects interest expense
to decrease because of the conversion of $830,000 of debt to common stock during
the first quarter of 1995 and due to the Company obtaining asset based financing
at lower rates than continuing to factor accounts receivable.
Income Taxes. The Company received an income tax benefit of $285,000 in
1994 compared to a provision for income taxes of $80,000 in 1993. The benefit
resulted primarily from the favorable tax consequences of emigrating to the
United States.
Net Loss. The loss from operation of $49,000 in 1994 compares to a loss of
$2,086,000 in 1993 representing a decrease of $2,037,000 or 98%. The
consolidated net loss for the year ended December 31, 1994 was $658,000 compared
to $2,626,000 in 1993, a decrease of $1,968,000 or 75%. Contributing to the
decreased loss was an increase in the gross margin of $747,000, a decrease in
selling, general and administrative expenses of $1,290,000, a decrease in
reorganization costs of $159,000 and a decrease in the provision for income
taxes of $365,000, resulting from the utilization of net operating loss
carrybacks and favorable tax consequences of emigrating to the United States.
These amounts were offset by an increase in depreciation and amortization
expense of $159,000 and an increase in interest expense of $448,000.
35
<PAGE>
Liquidity and Capital Resources:
As of September 30, 1996 the Company had cash of $453,000 and working
capital of $2,108,000. The company currently has a secured asset based lender's
line of credit of $3,000,000 based upon the level of eligible accounts
receivable, inventory, and equipment, which expires in March 1998. At September
30, 1996, the maximum line of credit available was $1,354,000 for accounts
receivable, inventory, and equipment, of which, $1,336,000 has been used.
Net cash used by operations was $178,000 for the nine months ended
September 30, 1996, compared to $484,000 used for operations for the same period
in 1995. The Company's use of cash for operations for the nine months ended
September 30, 1996 have been due primarily to increases in accounts receivable,
inventories, and other assets, partially offset by a decrease in income tax
receivable and an increase in accounts payable and accrued liabilities.
The Company's investing activities have consisted primarily of
expenditures for fixed assets for the food service business, acquisition of
businesses and the purchase of intangibles which totalled $445,000 for the nine
months ended September 30, 1996, and $655,000 for the same period of 1995.
The Company has no significant capital commitments, but currently
anticipates that additions to property and equipment for the balance of 1996
could be approximately $50,000.
For the nine months ended September 30, 1996 the Company's financing
activities consisted primarily of raising $595,000 through the exercise of
options and warrants. The Company expects to continue to raise funds through the
exercise of options and warrants.
The Company believes that is has adequate resources through its existing
credit facility, working capital, and expected cash provided by operations and
through the anticipated exercise of outstanding options and warrants to meet
future cash requirements for at least a twelve month period.
36
<PAGE>
NEW ACCOUNTING STANDARDS
The financial accounting standards board has issued statement of financial
accounting standards ("SFAS") No. 121, "Accounting for the impairment of
long-lived assets and for long-lived assets to be disposed of". SFAS No. 121
requires that long-lived assets and certain identifiable intangible assets be
reviewed for impairment whenever events indicate that the carrying amount of an
asset may not be recoverable. The Company adopted SFAS No. 121 effective January
1, 1996.
The Financial Accounting Standards Board issued a statement in October
1995 entitled "Accounting for Stock-Based Compensation" which will be effective
for the Company in 1996. This statement establishes an accounting method based
on fair market value of equity instruments awarded to employees as compensation,
however, companies are permitted to continue applying previous accounting
standards in the determination of net income with disclosure in the notes to the
financial statements of the differences between previous accounting measurements
and those formulated by the new accounting standard. Effective January 1, 1996,
the Company intends to determine net income using previous accounting standards
and to make the appropriate disclosures in the notes to the financial statements
as permitted by the standard.
37
<PAGE>
BUSINESS
The Company develops, manufactures and markets disposable protective
apparel, food industry, infection control, wound care and consumer products for
the cleanroom, food services, industrial, medical, dental and consumer markets.
The Company operates through four divisions: apparel; food industry; mask and
shield, disposable apparel and wound care. The Company's products are primarily
sold under the "Alpha Pro Tech" brand names but are also sold for use under
private label.
The Company's products are classified into five groups: Disposable
protective apparel consisting of a complete line of shoecovers, headcovers,
gowns, coveralls and labcoats; food industry apparel consisting of a line of
automated shoecovers, sleeve protectors, aprons, coveralls and bus boy jackets;
Infection control, products consisting of a line of facial masks and facial
shields; wound care products consisting of a line of mattress overlays,
wheelchair covers, geriatric chair surfaces, operating room table surfaces and
pediatric surfaces; consumer products consisting of a line of pet bedding and
pet toys.
The Company's strategy is to grow its cleanroom division through its
exclusive Agreement with VWR Scientific Products ("VWR") (formerly Baxter
Scientific), by increasing its manufacturing capabilities to meet VWR's needs.
The Company entered into an exclusive distribution agreement with a major
supplier to the food industry to launch a line of innovative new products to
help solve a major problem in the food industry: accidents that occur because of
employees slipping and falling on wet slippery surfaces found in restaurants and
food processing plants and to help decrease the number of burns caused by frying
and grilling. The Company intends to also maintain its core business in the
medical, dental, industrial and health related markets by using its existing
distributors.
The Company's products are used primarily in hospitals, clean rooms,
laboratories and dental offices and are distributed principally in the Untied
States through a network presently consisting of four purchasing groups, ten
major distributors, approximately 200 additional distributors, approximately 30
independent sales representatives and a Company sales force of 7 people.
38
<PAGE>
PRODUCTS
The Company's product groups and products are as follows:
Disposable Protective Apparel
* Shoecovers
* Headcovers
* Gowns
* Coveralls
* Lab Coats
Food Industry
* Automated Shoecovers
* Sleeve Protectors
* Aprons
* Coveralls
* Bus Boy Jackets
Infection Control
* Face Masks
* Eye Shields
Wound Care
* Unreal Lambswool
* Medi-Pads
Consumer Products
* Pet Bedding
* Pet Toys
Disposable Protective Apparel
The Apparel division was established April 1, 1994, for the acquisition of
the assets of DMPI. The products manufactured include many different styles of
shoecovers, headcovers, gowns, coveralls, lab coats, and other miscellaneous
products. These are manufactured in Mexico. See "Recent Developments -
Acquisition of Assets of DMPI"(TM).
39
<PAGE>
Food Industry
Through the acquisition of Gem Nonwovens, Inc. a patented automated shoe
cover machine was required. This prototype machine has been replaced with an
improved new machine which in combination with a patent pending, laminated
material produced by Ludan allowed the Company to develop a shoecover that to
date is being tested by a number of restaurant chains with favorable results and
is to be marketed on an exclusive basis by Chicopee, Inc. The balance of the
food industry products are to be manufactured by the apparel division.
Masks
The facemasks come in a wide variety of filtration efficiencies and
styles. The Company's patented Positive Facial Lock(TM) feature that provides a
custom fit to the face to prevent blow-by for better protection. Combine this
feature with the Magic Arch(TM), that holds the mask away from the nose and
mouth and creates a breathing chamber, and you have a quality disposable
facemask.
The term "blow-by" is used to describe the potential for infectious
material entering or escaping a facemask without going through the filter as a
result of gaps or openings in the face mask.
Face Shields
All of the face shields are made from an optical-grade, 7 mil, polyester
film, and have a permanent anti-fog feature. This provides the wearer with
extremely light weight, distortion-free protection that can be worn for hours
and will not fog up from humidity and/or perspiration. An important feature of
all eye and face shields is that they are disposable. This eliminates a change
of cross infection between patients and saves hospitals the expense of
sterilization after every use.
Wound care
The Wound Care Division began with the Company's Unreal Lambswool pressure
sore and bed patient monitoring system product lines. The Unreal Lambswool is
used to prevent decubitus ulcers or bedsores on long term care patients. The bed
patient monitoring system offers nurses an alarm system that tell when patients
try to get out of bed. This helps nursing and other extended and long term care
facilities to comply with the Omnibus Reconciliation Act (OBRA) of 1987 mandate
to work towards using no restraints to control residents or patients in these
facilities.
Consumer Products
The Consumer Product Division uses the Company's existing medical products
and technologies for general consumer purposes. The Unreal Lambswool is being
packaged for the retail pet bed market and pet toys.
40
<PAGE>
Distribution
The Company relies primarily on a network of independent distributors for
the sale of its products including the following:
* VWR Scientific (formerly Baxter Scientific Products)
* Baxter Shared Services
* General Medical
* Medline Industries
* ABCO
* Texwipe
* Owens & Minor
* Stuart Drug & Surgical Supply, Inc.
* Astra Pharmaceutical
* Cottrell, Ltd.
* Henry Schein, Inc.
Of the ten major distributors in the United States to the best of the
Company's knowledge, all sell competing products.
In 1994, the Company entered into an exclusive five year agreement to
supply Scientific Products, a division of Baxter Healthcare Corporation, with
eye and face shields, masks and disposable apparel for sale to the
Industrial/Cleanroom market place. The distribution calls for Baxter to purchase
a minimum of $1 million during the first year to retain exclusive distribution
rights. This minimum figure has been attained for 1994 and 1995. During 1995
Baxter Scientific Products was sold to VWR Scientific Products who has continued
to honor the Agreement. In 1996, a new agreement was entered into with VWR
Scientific Products with required minimum purchases of $ 5,000,000 annually to
retain exclusive distribution rights.
In April, 1996 the Company entered into a three year distribution
agreement with Chicopee, Inc. of Dayton, New Jersey with respect to the
distribution of the Company's line of Aqua Trak black shoe covers.
Chicopee was granted exclusive distribution rights for the restaurant,
food service, food processing and related businesses in the United States,
Canada and Mexico. In order to maintain this exclusivity, Chicopee must purchase
$ 11 Million of products during the 18 month period, beginning April 8, 1996.
Failure to meet such minimum purchases could result in termination of
exclusivity. The contract also allows for new products to be added to the
agreement with their own agreed upon minimum purchase amounts in return for
similar exclusivity. The product is still in the introductory stage and sales to
date have not been material.
The Company has one customer whose sales represent 28.2% of total sales in
1995 and one 29.2% for the first nine months of 1996. The loss of this customer
would have a material adverse effect on its business.
The Company does not generally have backlog orders, as orders are usually
placed for immediate shipment and contract for shipment over a period of time.
The Company anticipates no problems in fulfilling orders as they are placed.
41
<PAGE>
Manufacturing
The Company's mask production, shield production and automated shoecover
facility is located in a leased 26,800 square foot building at 903 West Center
Street, Bldg. E North Salt Lake, Utah. Approximately 3000 square feet of this
building is used for corporate offices. A 19,500 square foot facility is located
at 1145 Norwood Road, Janesville, Wisconsin 53543 is used for the manufacture of
the Company's unreal lambskin products.
The Company's disposable protective apparel's production is located in
three facilities, a 35,000 sq. ft. facility is located at 1180 West Industrial
Park Drive in Nogales, Arizona which is used for cutting, warehousing and
shipping, a 33,000 square foot facility is located at Bustamonte Drive, Nogales,
Mexico which is used for assembly of shields and sewing, and a 30,000 sq. ft.
facility located at Ave. Abolardo L. Rodriguez y Novena, Benjamin Hill, Sonora
83900, is used for sewing.
As a result of the March 1995 acquisition of Ludan Corporation the Company
has a materials coating and automated shoe cover facility of 16,000 square feet
in Valdosta, Georgia.
The Company has multiple suppliers of the materials used to produce its
products. In that regard, the Company currently has no problems, and does not
anticipate any problems, with respect to the sources and availability of the
materials needed to produce its products. The business of the Company is not
subject to seasonal considerations. It is necessary for the Company to have
adequate finished inventory in stock, and the Company generally maintains a one
to two-month supply of product. With respect to the optical grade polyester film
used in its products, it generally must be ordered two months in advance, and
the Company generally carries a three-month supply of film.
Competition
The Company faces substantial competition from numerous other companies,
including some companies with greater marketing and financial resources. The
Company's major competitor is TECNOL INC. of Fort Worth, Texas and there are
several other competitors. The larger competitors would include Minnesota Mining
and Manufacturing Corporation (3M), Johnson & Johnson, Becton Dickinson,
Bristol-Myers Squibb Company and Boehringer Mannheim GmbH, Isolyser, Inc.,
Kimberly Clark, American Threshold and Maxium. However, the Company believes
that the quality of its products, along with the price and service provide, will
allow it to remain competitive in the disposable apparel market.
The Company is not required to obtain regulatory approval from the U.S.
Food and Drug Administration ("FDA") with respect to the sale of its products.
The Company's products are however, subject to prescribed "good manufacturing
practices" as defined by the FDA and its manufacturing facilities are inspected
by the FDA every two years to assure compliance with such "good manufacturing
practices." The Company is preparing to market a new protective HEPA (High
Efficiency Particulate Air) type face
42
<PAGE>
mask which will be subject to approval by the National Institute for Safety and
Health (NIOSH). This product is designed to help prevent the breathing in of the
tuberculosis virus.
The Company does not anticipate that any federal, state and local
provisions which have been or may be enacted or adopted regulating the discharge
of materials into the environment, or otherwise relating to the protection of
the environment, will have any material effect upon the capital expenditures,
earnings and competitive position of its business.
Patents and Trademarks
Patents
The Company's policy is to protect its intellectual property rights,
products, designs and processes through the filing of patents in the United
State and, where appropriate, in Canada and other foreign countries. At present,
the Company has 13 United States patents relating to its MEDS, Add-A-Mask,
Coverall, 1/2 Coverall, Combo Cone, Combo, Positive Facial Lock and Shieldmate
products. The Company also has a United States patent pending for its 1/2
Coverall. The Company has foreign patents either issued or pending for its MEDS,
1/2 Coverall, Combo Cone and Combo products but does not intend to maintain
those foreign patents on products whose sales do not justify the maintenance
expense. The Company believes that its patents may offer a competitive
advantage, but there can be no assurance that any patents, issued or in process,
will not be circumvented or invalidated. The Company also intends to rely on
trade secrets and proprietary know how to maintain and develop its commercial
position.
The various United States patents issued have remaining durations of
approximately 10 to 15 years before expiry.
Trademarks
Many of the Company products are sold under various trademarks and trade
names including Alpha Pro Tech and others. The Company believes that many of its
trademarks and trade names have significant recognition in its principal markets
and takes customary steps to register or otherwise protect its rights in its
trademarks and trade names.
Employees
As of December 30, 1996, the Company had 471 employees, including eight
persons at its head office in Markham, Ontario, Canada; 45 persons at its
facemask, production facility in Salt Lake City, Utah and 13 persons at its
Unreal Lambskin production facility in Janesville, Wisconsin; 31 persons at its
cutting, warehouse and shipping facility in Nogales, Arizona; 110 persons at its
shield assembly in Nogales, Mexico; 238 at its sewing operation in Benjamin
Hill, Mexico; and 22 persons at its coating and automated shoe cover facility in
Valdosta, Georgia. Ludan Corporation, the Company's subsidiary, has 4 employees
at its facility in Valdosta, Georgia.
43
<PAGE>
None of the Company's employees in the United States and Canada are
subject to collective bargaining agreements. However, a collective bargaining
agreement with the Confederation of Mexican Workers, exists for its Mexican
employees. Benefits are reviewed annually in May and the 1997 agreement is
expected to be signed with no or moderate benefit increases. Wages are set by
the Government of Mexico. The Company considers its relations with the union and
its employees to be good.
PROPERTIES
The Company's Head office is located at 60 Centurian Drive, Suite 112,
Markham, Ontario L3R9R2. The approximate monthly costs are $2,000 under a lease
expiring January 31, 1998. Eight (8) employees of the Company, including the
President, Alexander Millar; Chief Executive Officer, Sheldon Hoffman and Vice
President and Controller, Lloyd Hoffman work out of this head office.
The Company manufactures its surgical face masks at 903 West Center
Street, Building C, North Salt Lake, Utah 84054. The monthly rental is $ 6,413
for 26,800 square feet. This lease expires July 1, 1998 with successive 2-year
renewal options at rents based on the U.S. Consumer Price Index.
A second manufacturing facility is located at 1145 Norwood Road,
Janesville, Wisconsin. These premises of 19,500 square feet are leased for $
4,863 monthly. The lease expires June 30, 1997 and there are two, 2-year renewal
options tied to the U.S. Consumer Price Index. The Company's line of Unreal
Lambskin products are manufactured in these facilities.
The Apparel division has its cutting operation, warehousing, and shipping
facility at 1180 West Industrial Park Drive, Nogales, Arizona. The monthly
rental is $ 11,812 for 35,000 square feet. This lease is on a monthly basis.
Shield assembly and sewing is done at Bustamonte Drive in Sonora, Mexico. The
monthly rental is $ 9,900 for 33,000 square feet. This lease expires July 31,
1999. Sewing is done at Ave. Abelardo L. Rodriguez Y. Novena, Benjamin Hill,
Sonora, Mexico. The monthly rental is $ 8,500 for 30,000 square feet. This lease
is on a month to month basis.
The Coating Division has its facility at 2224 Cypress Street, Valdosta,
Georgia. The monthly rental is $ 3,600 for 16,000 square feet.
The Company believes that these arrangements are adequate for its present
needs and that other premises, if required, are readily available.
44
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The executive officers and directors of the Company are listed in the
table below and brief summaries of their business experience and certain other
information with respect to them are set forth thereafter:
Name Age Director or Executive
- ---- --- Officer Since Position with the Company
------------- -------------------------
Sheldon Hoffman 58 July 11, 1989 CEO & Director of the
Company and Alpha Pro
Tech, Inc.
Al Millar 54 July 11, 1989 President & Director of the
Company and Alpha Pro
Tech, Inc.
Robert Isaly 67 November 15, 1989 Director
John Ritota 45 December 18, 1991 Director
Donald E. Bennett, Jr. 55 June 23, 1994 Director and President of the
Company's Apparel Division
Lloyd Hoffman 35 July 1, 1993 Vice President and Controller
Michael Scheerer 37 January 1, 1997 Senior Vice President -
Sales and Marketing
SHELDON HOFFMAN is a chartered accountant and has been a director and chief
executive officer of the Company since July 11, 1989. Mr. Hoffman founded and
was president of Absco Aerosols Ltd., a custom manufacturer of aerosols and
liquids, from 1967 to 1985 until that company was sold to CCL Industries Inc.
("CCL"), a manufacturer of aerosol and liquid products and containers. Mr.
Hoffman joined CCL from 1986 to 1987 as director of business development and
then joined CCW Systems Ltd., a water filter manufacturer, as president and
chief executive officer. Mr. Hoffman devotes full time to the Company's
operations.
ALEXANDER W. MILLAR has been a director of the Company since July 11, 1989 and
president since August 1, 1989. Mr. Millar has spent over 20 years as a
professional in sales and marketing including international marketing. Mr.
Millar, in various sales capacities, including vice-president of sales, was
associated with Mr. Hoffman at Absco Aerosols Ltd. from 1971 to 1985, when the
business was sold to CCL. He then joined CCL as manager of business development
for North America. In March, 1988, he formed Milmed International Distributors
Limited to distribute the Company's products internationally. In 1989 Milmed
gave up its rights to distribute these products internationally at which time
Milmed ceased operations. Mr. Millar devotes full time to the Company's
operations.
45
<PAGE>
ROBERT ISALY has been a director of the Company since November 20, 1989. He was
the owner of a nursery, Florida Bedding Plants Inc. from 1986 to 1992 and is
currently an independent businessman.
JOHN RITOTA has been a director of the Company since December 18, 1991 and since
1981 to the present time has been operating a general dentistry practice, Ritota
and Ritota, with his brother in Del Ray Beach, Florida.
DONALD E. BENNETT, JR. joined the Company on March 24, 1994 as President of its
newly formed Apparel Division which was established to acquire the assets of
Disposable Medical Products, Inc. ("DMPI"), a manufacturer of medical apparel
items including bouffant caps, shoe covers, gowns, coveralls and lab coats. Mr.
Bennett owned and operated DMPI for approximately twenty years prior to the
Company's acquisition of its assets. (See "Certain Relationships and Related
Transactions").
LLOYD HOFFMAN has been employed by the Company starting November 15, 1991 in the
capacity of accountant and since early 1995 in the capacity of Vice President
and Controller. From 1987 to 1991, Mr. Hoffman was a shareholder and was in
charge of finance and administration at Software Concept Inc., a developer of
software for association and magazine publishers.
MICHAEL SCHEERER joined the Company on January 1, 1997 as Senior Vice
President-Sales and Marketing. From 1990 to October 1992, Mr. Scheerer was
Director of Sales Development and Administration at Baxter Scientific Products.
In October, 1992, he was named Vice President-Sales and Marketing for Baxter's
Critical Environmental Solutions business. In September, 1995 Baxter Scientific
Products was purchased by VWR Scientific Products, Inc. where Mr. Scheerer
served as Vice-President Critical Environmental Solutions and New Business
Ventures until joining the Company.
There are no family relationships between the above persons other than
Lloyd Hoffman who is the son of Sheldon Hoffman.
Settlement with British Columbia Securities Commission
On November 10, 1995, Sheldon Hoffman a Director and CEO of the Company
and Alexander Millar, a Director and President of the Company settled all
outstanding matters pending before the British Columbia Securities Commission
(the "BCSC"), which were commenced in March 1992 by the British Columbia
Superintendent of Brokers ("Superintendent"). See "Recent Developments - Matters
Before the British Columbia Securities Commission." The settlement provides that
as to each of Messrs. Hoffman and Millar: a Cease Trade Order as to sales by
them of the Company's securities in British Columbia shall remain in effect for
2 years; each shall be prohibited from becoming or acting as a director or
officer of any British Columbia reporting issuer, other than the Company, until
such time as they have successfully completed a course of study satisfactory to
the Superintendent concerning the duties of directors and officers of reporting
issuers; full payment to the BCSC shall have been made of $29,000 as to Hoffman
and $14,500 as to Millar; and the Superintendent consents to their acting in the
capacity of a director or officer of a British Columbia reporting issuer. All
matters pending as to Robert Isaly, a Director of the Company, were dropped. The
payments to the BCSC are being made monthly over a two year period ending in
December, 1997. Messrs. Millar and Hoffman are enrolled in a course of study
scheduled to begin and be completed during the month of March, 1997.
46
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of December 31, 1996
with respect to shares of Common Stock of the Company beneficially owned by each
director of the Company, each nominee for director, each executive officer of
the Company, by all officers and directors as a group, and by persons known to
the Company to be beneficial owners of more than 5% of the Company's Stock.
Directors, Executive Officers Number of Shares
and 5% Shareholders Beneficially Owned Percent of Class
- ----------------------------- ------------------ ----------------
Cede & Co. 11,033,631 49.2%
Box 20 Bowling Green Sta.
New York, NY
U.S.A. 10004
Al Millar, President & Director 1,341,611 (1)(8) 6.0%
423 Herridge Circle
Newmarket, Ontario
L3Y 7H7
Canada
Sheldon Hoffman, CEO 1,049,297 (2)(8) 4.7%
and Director
Robert H. Isaly, Director 615,613 (3) 2.7%
John Ritota, Director 140,194 (4) **
Lloyd Hoffman, VP & Controller 273,000 (5) 1.2%
Donald E. Bennett, Jr., Pres., 163,334 (6) **
Apparel Division of Company
Michael Scheerer 100,000 (7) **
Sr. VP-Sales and Marketing
All Directors and Officers 3,682,049 16.4%
as a Group (7 persons)
* This company is nominee for beneficial owners of these shares whose
identity is unknown to the Company.
** Less than l%
47
<PAGE>
(1) Includes 300,000 options currently exercisable at $0.75 per share,
expiring October 27, 1998; 200,000 currently exercisable options at $1.34
per share, expiring December 21, 2000; 46,840 currently exercisable
warrants at $1.03 per share expiring January 31, 1997; and includes 44,198
shares and currently exercisable options to purchase 35,000 shares at
$0.75 per share owned beneficially by Mr. Millar's wife as to which Mr.
Millar denies beneficial ownership.*
(2) Includes 300,000 currently exercisable options at $0.75 per share,
expiring October 27, 1998; 200,000 options currently exercisable at $1.34
per share, expiring December 21, 2000; Warrants to purchase 48,544 shares
at $1.03 per share expiring January 31, 1997; and includes 42,821 shares
owned beneficially by Mr. Hoffman's wife, as to which Mr. Hoffman denies
beneficial ownership. Does not include 420,051 shares held by Hoffman
Family Trust, as to which Mr. Hoffman denies beneficial ownership. The
beneficiaries of the Hoffman Family Trust are Mr. Hoffman's wife and their
two children. Mr. Hoffman does not have the power to vote or dispose of
the shares held by the Trust.*
(3) Includes 141,523 shares owned beneficially by Mr. Isaly's wife, as to
which Mr. Isaly denies beneficial ownership; 108,000 currently exercisable
options at $0.75 per share, expiring October 27, 1998; and 50,000 options
currently exercisable at $1.34 per share expiring December 21, 2000.*
(4) Includes currently exercisable options to purchase 50,000 shares at $0.75
per share, expiring October 27, 1998; 50,000 currently exercisable options
at $1.34 per share expiring December 21, 2000; and includes 2,000 shares
held by Mr. Ritota's wife as to which Mr. Ritota denies beneficial
ownership.*
(5) Includes 135,000 options currently exercisable at $0.75 per share,
expiring October 27, 1998, 25,000 options currently exercisable at $1.34
per share expiring December 21, 2000; and 5,000 shares beneficially owned
by Mr. Hoffman's wife, as to which Mr. Hoffman denies beneficial
ownership. Mr. Hoffman disclaims beneficial ownership with respect to any
shares of the Company held in the Hoffman Family Trust (see (2) above),
except to the extent of his pecuniary interest therein. See "Certain
Relationships and Related Transactions".*
(6) Includes 100,000 options currently exercisable at $1.00 per share, 50,000
of which expire on April 29, 1999 and 50,000 of which expire on December
31, 1999; 25,000 currently exercisable options at $2.03 per share,
expiring June 22, 2000; 25,000 options currently exercisable at $1.34 per
share, expiring December 21, 2000; and 6667 Warrants currently exercisable
at $.75 per share, expiring March 1, 1999.*
(7) Includes 100,000 options currently exercisable at $0.875 per share
expiring December 31, 2001. See "Management - Employee Arrangements."*
48
<PAGE>
OPTION GRANTS FOR FISCAL YEAR 1995
<TABLE>
<CAPTION>
Individual Grants Potential Realizable Value
---------------------- at Assumed Annual Rates
Options Percent Exercise Expiration of
Granted of Total Price Date Stock Price Appreciation
(#) Options ($/Sh) for
Granted Option Term (2)
to Employees --------------------------
in Fiscal Year 5% 10%
------- -------------- ------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Sheldon Hoffman 200,000 25.5% $1.34 12/21/2000 $342,043 $431,617
Al Millar 200,000 25.5% $1.34 12/21/2000 342,043 431,617
Lloyd Hoffman 25,000 3.2% $1.34 12/21/2000 42,755 53,952
Donald E. Bennett, Jr. 50,000 $1.00 12/31/1999
25,000 $2.03 06/22/2000
25,000 12.8% $1.34 12/21/2000 171,341 216,211
</TABLE>
- ----------
(1) Each option was granted under the 1993 Incentive Stock Option Plan. Each
option is immediately exercisable for all the option shares.
(2) There is no assurance provided to any executive officer or any other holder
of the Company's securities that the actual stock price appreciation over
the five-year option term will be the assumed 5% and 10% levels or at any
other defined level. Unless the market price of the Common Stock does in
fact appreciate over the option term, no value will be realized from the
option grants made to the executive officers.
Employment Arrangements
Messrs. Hoffman and Millar receive annual car allowances of $4,500 and
$7,500, respectively.
Messrs. Hoffman and Millar are also entitled to a combined bonus equal to
10% of the pre-tax net profits of the Company (5% to each). No bonus was earned
with respect to the fiscal years ended December 31, 1993, 1994 or 1995.
Donald E. Bennett, Jr., entered into a three year employment agreement
with the Company in March 1994 as President of the newly formed Apparel Division
providing for an annual salary of $65,000, a $700 per month automobile allowance
and 15% of the Division's net profit before taxes. During 1995 the agreement was
amended to eliminate the 15% of net profits provision and to increase his annual
salary to $100,000.
Michael Scheerer entered into a three (3) year employment agreement with
the Company as of January 1, 1997 as Senior Vice President-Sales and Marketing,
providing for an annual salary of $112,500. Mr. Scheerer is also entitled to a
cash bonus based upon actual earnings for the year as a percentage of projected
net income, ranging from $30,000.00 if 80% of projected earnings are achieved to
$200,000.00 if 200% or more of projected earnings are achieved. If actual
earnings are 100% of projected net income in any year of the agreement, the
agreement shall automatically be extended for an additional two years. Mr.
Sheerer was also granted a five (5) year incentive stock option to purchase up
to 100,000 shares of Common Stock at $.875 per share, the fair market value on
the date of grant.
49
<PAGE>
He is also entitled to receive additional incentive stock options in each
year of the agreement based on the actual earnings as a percentage of projected
earnings, as follows:
Actual Earnings Number of
as a % of Projected Earnings Options
---------------------------- -------
80% 60,000
90% 80,000
100% 100,000
Stock Option Plans
Incentive Stock Option Plan
The Company has an Incentive Stock Option Plan (the "Plan") for Officers
and other Key Employees with 2,100,000 shares reserved for grant thereunder. The
Plan, which was adopted by the Board of Directors in October, 1993 was approved
by Shareholders at the Annual Meeting in June 1994. The Plan, is administered by
the Board of Directors which selects the employees to whom the options are
granted, determines the number of shares subject to each option, sets the time
or times when the options will be granted, determines the time when the options
may be exercised and establishes the market value of the shares. The Plan
provides that the purchase price under the option shall be at least 100 percent
of the fair market value of the shares of the Company's Common Stock. The
options are not transferrable. There are limitations on the amount of incentive
stock options that an employee can be granted in a single calendar year. The
terms of each option granted under the Plan is determined by the Board of
Directors, but in no event may such term exceed ten years. Between October 28,
1993 and September, 1996, five-year, options covering an aggregate of 1,859,000
shares were granted to 32 employees at an average exercise price of $0.957 per
share.
Included in those employees to whom options were granted are the following
executive officers:
Name Number of Options Granted
---- -------------------------
Al Millar, President 500,000
Sheldon Hoffman, CEO 500,000
Donald Bennett, President 150,000
Apparel Division
In addition, Donna Millar, an employee of the Company and the wife of Al
Millar, President, was granted an option to purchase 35,000 shares and Lloyd
Hoffman, an officer of the company and the son of Sheldon Hoffman, was granted
an option to purchase 260,000 shares.
50
<PAGE>
Directors Stock Option Plan
The Board of Directors of the Company in October 1993 approved the 1993
Directors Stock Option Plan (the "Directors Plan") covering an aggregate of
600,000 shares of Common Stock. The Board of Directors or a Committee thereof
administers the Directors Plan. Directors of the Company who are not employees
of the Company are eligible to participate in the Plan. Each option granted will
have an exercise price equal to fair market value on the date of grant. As of
December 31, 1995 options covering an aggregate of 400,000 shares have been
granted to 5 directors and two former directors at an average exercise price of
$1.02 per share as follows:
Name Option Date Expiration Date Number of Shares
Robert Isaly 12/21/95 12/21/2000 50,000
Robert Isaly 10/28/93 10/27/98 108,000
John Ritota 12/21/95 12/21/2000 50,000
John Ritota 10/28/93 10/27/98 50,000
Irving Bronfman** 10/28/93 10/27/98 25,000 (1)
Hans Rieder* 10/28/93 10/27/98 42,000 (1)
Robert Gayton** 10/28/93 10/27/98 25,000 (1)
Jim Rothstein*** 06/23/95 06/22/2000 25,000
Jim Rothstein*** 12/22/95 12/21/2000 25,000
The Company does not have any pension, profit sharing or similar plans
established for its employees, other than the bonus payable to Messrs. Hoffman,
Millar and Scheerer described above.
- ----------
* Retired as a director on June 24, 1994.
** Retired as a director on June 23, 1995.
*** Did not stand for re-election at June 21, 1996 Annual Meeting
(1) These options were exercised
51
<PAGE>
CERTAIN TRANSACTIONS
Transactions with Management and Others
As of January 31, 1996 Messrs. Millar and Sheldon Hoffman loaned $ 28,245
and $ 50,000 respectively to the Company. The terms of the loan provided for a
Note to each of Messrs. Millar and Hoffman, payable on demand, bearing interest
at 15% per annum, to be secured by and repaid from the proceeds of an
anticipated income tax refund of approximately $ 168,000. In addition, Messrs.
Millar and Hoffman were issued Warrants to purchase 46,840 and 48,544 shares
respectively of the Company's Common Stock at $ 1.03 per share, the fair market
value of the Common Stock on the date of issuance of the Warrant. The Warrants
expire on January 31, 1997. Interest on the loans have accrued but have not been
paid.
The business currently being conducted by the Company is an outgrowth of
an agreement made as of the 5th day of April, 1989 amongst John Russell (the
inventor of certain products currently being manufactured, marketed and
distributed by the Company), Al Millar (currently president and a director of
the Company), Sheldon Hoffman (currently chief executive officer and a director
of the Company), Robert Isaly, Irving Bronfman, (respectively a current and
former director of the Company), BFD Inc. (an Alabama corporation), 779177
Ontario Inc. (a corporation owned by Sheldon Hoffman and Irving Bronfman),
Milmed International Distributors Limited (a company owned by Al Millar), and
the Company (which was then known as Canadian Graphite Ltd.), pursuant to which
the Company purchased all the assets, patents, trade secrets, inventory,
goodwill and other properties owned by such parties (the "Assets") in exchange
for issuing an aggregate of 3,500,000 shares of its common stock to manufacture,
among other items, certain transparent eye protection products utilizing an
optical-grade polyester film (the "Acquisition Agreement").
Essentially, this was considered a "reverse acquisition" in that the
owners of the assets were in control of the Company after the issuance of the
3,500,000 shares. It was a requirement of the Vancouver Stock Exchange ("VSE")
(on which stock exchange the Company's shares were then listed) in these types
of transactions that a certain percentage of the newly issued shares were to be
held in escrow, the ultimate amount to be determined by the VSE after
negotiations with the owners of the assets.
Consequently, an escrow agreement was entered into in June 1989 between
the National Trust Company, the Company and certain shareholders of Alpha Pro
Tech, Ltd. (the "Escrow Agreement"), pursuant to which 3,150,000 of the
Company's shares were held in escrow by the National Trust Company, Vancouver,
B.C., and are subject to certain performance criteria before they are released.
The Escrow Agreement provides that the shares will be released to the depositing
shareholders, pro rata, on the basis of one share for each $ 0.30 of Net
Cumulative Cash Flow in any fiscal period after June 1, 1989.
52
<PAGE>
"Net Cumulative Cash Flow" is defined as:
(a) the Cash Flow of the Company from the sale of products in fiscal
periods commencing June 1, 1989; from
(b) plus, in the case of fiscal periods later than the 1989 fiscal year
of the Company the aggregate of the Cash Flow in each such
fiscal period from and after the 1989 fiscal year of the Company.
"Cash Flow" means net, after tax, profit for the appropriate period by
adding to the net profit the following add-backs:
(a) depreciation;
(b) depletion;
(c) deferred taxes;
(d) amortization of goodwill;
(e) amortization of research and development costs.
All of the foregoing are to be derived from the Company's audited
financial statements.
The shareholders participating in the Escrow Agreement included the
following persons in the following amounts: Al Millar, President and Director of
the Company as to 675,000 shares; Sheldon Hoffman, CEO and a Director of the
Company as to 337,500 shares; Hoffman Family Trust ( a trust for the benefit of
members of Sheldon Hoffman's family), as to 337,500 shares; Irving Bronfman a
former Director of the Company as to 675,000 shares and Robert Isaly, currently
a Director of the Company, on behalf of various persons, as to 450,000 shares.
The balance of 675,000 shares were owned by John Russell the inventor of certain
products currently being manufactured by the Company, the rights to which were
purchased by the Company in June, 1989. These 675,000 shares were cancelled
pursuant to a Litigation Settlement Agreement dated August 19, 1994, the terms
of which provided for the payment by the Company of $ 260,000 to Mr. Russell and
the cancellation of the 675,000 shares.
On December 30, 1996, the Board of Directors of the Company (including
Messrs. Millar, Hoffman and Isaly who constitute a majority of the board)
authorized the issuance of 2,475,000 shares of its Common Stock in exchange for
all rights to the 2,475,000 shares of Company Common Stock owned by Al Millar,
President, Sheldon Hoffman, CEO, the Hoffman Family Trust, Irving Bronfman and
Robert Isaly, (Exchanging Shareholders"), and which are subject to the existing
Escrow Agreement. The Common Stock issued is identical in all respects to the
rights to the Common Stock surrendered by the Exchanging Shareholders. Common
Stock of the Exchanging Shareholders which is subject to the Escrow Agreement of
June 1989 was treated as issued and outstanding, has full voting rights, is
entitled to receive all dividends but have been excluded in computing earnings
per share because the effect of including them would be anti-dilutive. These
shares are being treated as "cancelled" on the books and records of the Company.
Therefore, the issuance of the shares to the Exchanging Shareholders does not
change any of the rights and privileges of the Exchanging Shareholders
53
<PAGE>
nor increase their beneficial ownership nor would there be an effective change
to the capitalization of the Company. The number of shares issued and
outstanding after the issuance is the same as that outstanding prior to the
transaction. The fair value of the newly issued shares, $2,204,000, is,
however, a charge to earnings for 1996 which will result in an increase to
accumulated deficit. Simultaneously, there will be a credit (increase) to paid
in capital resulting in shareholders equity remaining unchanged.
The Escrow Agreement also provides that the shares now held in escrow
would be released to the shareholders pro rata if certain performance criteria
noted above, are met, and that any shares not so released before April 5, 1999
would be surrendered to the Company for cancellation at that time.
The Board issued the shares free of any escrow arrangement because it is
the Board's belief that the current escrow terms do not give any weight to
certain achievements the Company has attained since these conditions were
imposed, notwithstanding that the Company has failed to record profits or to
increase stockholders equity in any material amount in the last several years,
and that it wrote off $ 4,922,000 of intangible assets and reported a net loss
of $ 5,971,000 for the year ended December 31, 1995. Since the time that the
escrow conditions were imposed, it is the Board's opinion that those persons
whose shares are in escrow including Irving Bronfman, a former director, have
made valuable contributions to the Company's substantial and measurable growth
including seeking out and consummating suitable acquisitions of companies,
assets and products; raising the working capital necessary to fund the
operations of the Company; increasing sales from approximately $ 310,000 per
year in 1991 to $ 13,031,000 as at December 31, 1995, and $ 11,231,000 for the
nine months ended September 30, 1996; and expanding the business from one
manufacturing facility and 20 employees in 1989 to approximately 471 employees
in six manufacturing facilities as of September 30, 1996.
The issuance of the shares has the effect of permitting the Escrowees to
alienate their shares at such time as were issued to the Exchanging
Shareholders. As to Messrs. Hoffman and Millar, pursuant to the above referenced
settlement with the BCSC, they cannot sell any shares of the Company's Common
Stock in British Columbia for the two (2) year period ending November 9, 1997.
The Common Stock received by the Exchanging Shareholders are "restricted
securities", as that term is defined under Rule 144 promulgated under the
Securities Act 1933, and the shares issued in this transaction are subject to
Rule 144 other than for the two year holding period. In general under Rule 144
as currently in effect, subject to the satisfaction of certain other conditions
of Rule 144, a person, including an affiliate of the Company (or persons whose
shares are aggregated), who has owned restricted securities of the Company
beneficially for at least two years is entitled to sell, within any three-month
period, a number of shares that does not exceed the greater of 1% of the total
number of outstanding shares of the same class or, if the Common Stock is quoted
on NASDAQ, a national securities exchange or a consolidated transaction
reporting system, the
54
<PAGE>
average weekly trading volume during the four calendar weeks preceding the sale.
A person who has not been an affiliate of the Company for at least the
three-months immediately preceding the sale and who has beneficially owned
restricted shares of Common Stock for at least three years is entitled to sell
such shares under Rule 144 without regard to any of the limitations described
above.
During the last three Fiscal years, each of the Escrowees would not have
been eligible to receive any shares out of Escrow applying the formula in the
Escrow Agreement.
SELLING STOCKHOLDERS
This Prospectus is being used for the offering of up to 3,021,935 shares
of Common Stock of the Company by Stockholders of the Company. These securities
were issued in connection with private placements, the settlement of certain
debt obligations of the Company, as well as shares to be issued from time to
time upon the exercise of Warrants and certain Stock Options.
55
<PAGE>
The following table sets forth the number of shares to be sold by each
Selling Stockholder, the number of shares to be owned by them, and their
respective percentages of the class, after the sale. Unless otherwise indicated,
all shares are owned of record and beneficially.
<TABLE>
<CAPTION>
Amounts & Percent Number of Number of Percent
Name Nature of of Class Shares to Shares to of Class
Beneficial (6) be Sold be Owned After Sale
Ownership After Sale
(1)
- --------- ---------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Enhanced Storage Co. Inc. 487,000 (2) 2.1 487,000 0 0
James C. Rothstein (4) 200,000 (2) * 200,000 0 0
Marilyn Hutchens (5) 61,095 * 50,000 11,095 *
Blake Berkson 135,000 * 75,000 60,000 *
David Venkus 86,667 * 86,667 0 0
86,667 (2) 86,667 0 0
Anthony Kamin (5) 133,334(2) * 133,334 0 0
0 0
Howard Kamin 66,666 (2) * 66,666 0 0
Wayne Fritzshe (5) 268,333 2.2 133,333 135,000 *
133,333 (2) 133,333 0 0
100,000 (3) 100,000 0 0
George Markelson 133,333 2.0 133,333 0 0
133,333 (2) 133,333 0 0
180,000 (3) 180,000 0 0
Wayne Johnson 116,667 * 66,667 50,000 *
66,667 (2) 66,667 0 0
Swanson Farms 50,000 * 50,000 0 0
Roger Moe 100,000 * 80,000 20,000 *
Ray James 7,554 * 7,554 0 0
33,333 (2) 33,333 0 0
Michael Morissett 50,000 * 50,000 *
30,000 (2) 30,000 0 0
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
Amounts & Percent Number of Number of Percent
Name Nature of of Class Shares to Shares to of Class
Beneficial (6) be Sold be Owned After Sale
Ownership After Sale
(1)
- --------- ---------- -------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
William Lykken 660,000 4.6 0 660,000 2.9
369,048 (2) 369,048 0 0
35,000 (3) 35,000 0 0
C.C.R.I. Corporation (5) 50,000 (3) * 50,000 0 0
Ross Haugen 57,600 * 0 57,600 *
100,000 (3) 100,000 0
F. Bloomberg (5) 12,900 * 12,900 0 *
60,000 (3) 60,000 0
R.K. Harrison & Co. Ltd. 50,000 * 50,000 0 0
Marjorie Atalienti 25,000 (3) * 25,000 0 0
</TABLE>
- ----------
* Represents less than one percent
(1) Each of the persons named in the table disclaims beneficial ownership of
the shares of the Company's Common Stock owned by such person's spouse or
by his or her minor children.
(2) Represents shares to be issued upon exercise of Warrants
(3) Represents shares to be issued upon exercise of Options
(4) Mr. Rothstein is a nominee for election to the Company's Board of
Directors. See "Certain Transactions".
(5) Each of these persons is currently or has been a consultant to the Company
within the least three years.
(6) All Warrants and Options are currently exercisable and "Percent of Class"
treats as outstanding the shares issuable upon the exercise of the
Warrants and Options.
57
<PAGE>
PLAN OF DISTRIBUTION
The Selling Stockholders may sell the shares being offered hereby: (i)
through dealers or in ordinary broker transactions, in the over-the-counter
market or otherwise, (ii) "at the market" to or through marketmakers or into an
existing market for the shares or warrants, (iii) in other ways not involving
marketmakers or established effected through agents, or (iv) in combinations of
any such methods of sale. The shares will be sold at market prices prevailing at
the time of sale or negotiated prices.
If a dealer is utilized in the sale of the shares in respect of which the
Prospectus is delivered, the Selling Stockholders will sell such shares to the
dealer, as principal. The dealer may then resell such shares to the public at
varying prices to be determined by such dealer at the time of resale.
Sales of shares "at the market" and not at a fixed price, which are made
into an existing market for the shares, will be made by the Selling Stockholders
to or through a marketmaker, acting as principal or as agent. Other sales may be
made, directly or through an agent, to purchasers outside existing trading
markets.
A selling broker may act as agent or may acquire the shares, warrants or
interests therein, as principal or pledgee and may, from time to time, effect
distributions of such sales.
The shares offered hereby are eligible for sale only in certain states,
and in some of those states may be offered or sold only to 2"institutional
investors" as defined under applicable state securities law.
No sales or distributions other than as described herein may be effected
until after this prospectus shall have been appropriately amended or
supplemented.
58
<PAGE>
DESCRIPTION OF SECURITIES
The Company's Certificate of Incorporation authorizes 50,000,000 common
shares, par value $ .01 per share, of which 20,595,463 shares were issued and
outstanding as at September 30, 1996.
The holders of common shares of the Company are entitled to one vote per
share for each common share held by them and do not have cumulative voting
rights. Holders of record of common shares are entitled to receive dividends
when and if declared by the board of directors out of legally available funds.
Upon any liquidation, dissolution or winding up of the Company, holders of
common shares are entitled to share pro rata in any distribution to the
shareholders. There are no pre-emptive or conversion rights and no provisions
for redemption, purchase for cancellation, surrender or sinking or purchase
funds. All of the outstanding common shares are fully paid and non-assessable
and duly authorized.
There are no special rights or restrictions of any nature attaching to any
of the common shares of the Company, except that pursuant to an escrow agreement
made in June 1989 between the National Trust Company, the Company and certain
shareholders of the Company (the "Escrow Agreement"), 3,150,000 shares (the
"Escrow Shares") are held in escrow by the National Trust Company (the Company's
registrar and transfer agent) and are subject to certain performance criteria
before they are released. All rights to the Escrow Shares have been transferred
to the Company in exchange for the Company issuing 2,475,000 of its Common Stock
to the owners thereof on December 30, 1996. These shares are treated as
cancelled. See "Certain Transactions."
59
<PAGE>
Transfer and Warrant Agent
The transfer agent for the Units, Common Stock and Warrants is American
Stock Transfer and Trust Company, New York, New York.
Delaware Law and Certain Charter and By-Law Provisions
Certain anti-takeover provisions
The Company is subject to the provisions of Section 203 of the General
Corporation Law of Delaware, Section 203 prohibits certain publicly held
Delaware Corporations from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an "interested stockholder", unless the
business combination is approved in a prescribed manner. A "business
combination" includes mergers, asset sales and other transactions resulting in a
financial benefit to the interested stockholder. Subject to certain exceptions,
an "interested stockholder" is a person or entity who, together with affiliates
and associates, owns (or within the preceding three years, did own) 15% or more
of the corporation's voting stock. This statute contains provisions enabling a
corporation to avoid the statute's restrictions if the stockholders holding a
majority of the corporation's voting stock approve an amendment to the
corporation's Certificate of Incorporation or By-Laws.
The Amended Certificate of Incorporation and the By-Laws of the Company
further provide that any action required or permitted to be taken by the
stockholders of the Company may be taken only at a unanimous written consent of
stockholders. These provisions could have the effect of delaying until the next
annual stockholders' meeting, stockholders actions which are favored by the
holders of a majority of the outstanding voting securities of the Company,
especially since special meetings of the stockholders may be called only by the
Board of Directors or any Officer of the Company instructed by the Board of
Directors to call a special meeting. These provisions may also discourage
another person or entity from making a tender offer for the Company's stock,
because such person or entity, even if it acquired a majority of the outstanding
voting securities of the Company, would be able to take actions as a stockholder
(such as electing new Directors or approving a merger) only at a duly called
stockholders meeting or by unanimous written consent.
60
<PAGE>
Elimination of Monetary Liability for Officers and Directors
The Company's Amended Certificate of Incorporation also incorporated
certain provisions permitted under the General Corporation Law of Delaware
relating to the liability of Directors. The provisions eliminate a Director's
liability for monetary damages for a breach of fiduciary duty, including gross
negligence, except in circumstances involving certain wrongful acts, such as
breach of a Directors duty of loyalty or acts or omissions which involve
intentional misconduct or a knowing violation of law. These provisions do not
eliminate a Director's duty of care nor do they prevent recourse against
Directors through equitable remedies such as injunctive relief. Moreover, the
provisions do not apply to clams against a Director for violations of certain
laws including federal securities laws.
Indemnification of Officers and Directors
The Company's Amended Certificates of Incorporation also contains
provisions to indemnify the Directors, officers, employees or other agents to
the fullest extent permitted by the General Corporation Law of Delaware. These
provisions may have the practical effect in certain cases of eliminating the
ability of shareholders to collect monetary damages from Directors. The Company
believes that these provisions will assist the Company in attracting or
retaining qualified individuals to serve as Directors.
TAXATION
During June of 1994, the Company changed its corporate domicile from
Canada to the United States and changed its name from BFD Industries, Inc., to
Alpha Pro Tech, Ltd. As a result of the domicile change, the following general
summary describes the principal Canadian federal income tax consequences to
shareholders of the Company who are resident in Canada and to whom, shares of
the Company constitute capital property for the purposes of the Income Tax Act
(the "ITA").
The summary is for the purpose of providing general assistance only and is
not intended to be a substitute for the advice of a prospective investor's own
tax advisors and should not be interpreted as legal or tax advice. Each
prospective investor should satisfy himself as to the tax consequences of his
investment by obtaining advice on tax matters from his own tax advisor.
This description is not exhaustive of all possible Canadian
61
<PAGE>
federal income tax consequences and does not take into account or anticipate any
changes in law, whether by legislative, governmental or judicial action other
than the Proposals, nor does it take into account provincial or foreign tax
considerations which may differ significantly from those discussed herein.
A Canadian shareholder who is an individual will be required to include in
the gross amount of any dividends received from the Company when computing his
income for the year of such receipt. Under the U.S./Canadian Treaty (the
"Treaty"), the rate of U.S. withholding tax which may be levied on such
individuals is limited to 15% of the gross amount of the dividends. The
shareholder will not be entitled to claim the dividend tax credit in respect of
such dividends. A foreign tax credit will be available under the ITA to the
Canadian shareholder to the extent of the lesser of:
1. withholding taxes paid and not deducted in computing income (up to a
maximum of 15% of certain foreign income from property), and
2. the Canadian taxes otherwise payable in respect of that foreign
income.
Alternatively, the Canadian shareholder can claim the foreign withholding
taxes paid as a deduction when computing his income for tax purposes. If the
withholding taxes paid exceed 15% of the foreign income from property, such
excess may be deducted in computing net income.
Dividends paid to a Canadian shareholder which is a corporation that owns
less than 10% of the voting stock of the Company will, in accordance with the
Treaty, also be subject to a U.S. withholding tax of 15%.
A foreign tax credit may be claimed to the extent of the lesser of the
foreign tax paid and not deducted in computing income and the Canadian federal
tax otherwise payable in respect of the shareholder's non-business income
derived from the U.S. Alternatively, the corporate shareholder may elect to
deduct all or any portion of the foreign tax paid when computing its income
under the ITA. If, and to the extent that, such a deduction is claimed an
equivalent, reduction may be made in respect of the foreign tax that will be
eligible for a foreign tax credit.
If the Canadian shareholder is a corporation that owns 10% or more of the
voting stock of the Company, the rate of U.S. tax that can be levied is
restricted under the Treaty to 10%. The gross amount of such dividends must be
included when calculating the net income of the shareholder. However, under
certain circumstances, the shareholder may be allowed to deduct the dividends in
the calculation of its taxable income. In these circumstances, the withholding
taxes previously paid will not be recoverable.
62
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
In addition to the 3,021,935 shares covered by this Prospectus, an
aggregate of 1,657,192 shares issuable upon the exercise of certain stock
options and warrants at prices ranging from $.75 to $ 2.03 per share and an
aggregate of approximately 2,910,528 shares of Common Stock issued in private
placements (see "Risk Factors Dilution") are "restricted securities", as that
term is defined under rule 144 promulgated under the Securities Act. In general,
under rule 144 as currently in effect, subject to the satisfaction of certain
other conditions of Rule 144, a person, including an affiliate of the Company
(or persons whose shares are aggregated), who has owned restricted securities of
the Company beneficially for at least two years is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of 1% of
the total number of outstanding shares of the same class or, if the Common Stock
is quoted on NASDAQ, the average weekly trading volume during the fourt calendar
weeks preceding the sale. A person who has not been an affiliate of the Company
for at least the three months immediately preceding the sale and who has
beneficially owned restricted shares of Common Stock for at least three years is
entitle to sell such shares under Rule 144 without regard to any of the
limitations described above. In addition, the Company has registered on a
registration statement on Form S-8, a total of 2,500,000 shares of Common Stock
subject to outstanding options or reserved for issuance to employees, directors
and consultants under the Company's 1993 Stock Option Plan and the 1993
Directors Stock Option Plan. As noted above, 3,021,935 shares are included in
this Prospectus on behalf of certain stockholders have certain registration
rights pursuant to which their securities could be publicly sold without regard
to the limitations set forth in Rule 144. (See "Selling Stockholders").
No prediction can be made as to the effect, if any, that sales of shares
of Common Stock or the availability of such shares for sale will have on the
market prices of the Company's securities prevailing from time to time.
Accordingly, the possibility exists that substantial amounts of Common Stock may
be sold in the public market which may adversely affect prevailing market prices
for the Company's securities and could impair its ability to raise capital
through the sale of equity securities.
LEGAL PROCEEDINGS
On November 10, 1995, Sheldon Hoffman CEO of the Company and Alexander
Millar, President of the Company settled all outstanding previously disclosed
matters pending before the British Columbia Securities Commission (the "BCSC"),
which were commenced in March
63
<PAGE>
1992 by the British Columbia Superintendent of Brokers ("Superintendent"). The
settlement provides that as to each of Messrs. Hoffman and Millar: a Cease Trade
Order as to sales by them of the Company's securities in British Columbia shall
remain in effect for 2 years; each shall be prohibited from becoming or acting
as a director or officer of any British Columbia reporting issuer, other than
the Company, until such time as they have successfully completed a course of
study satisfactory to the Superintendent concerning the duties of directors and
officers or reporting issuers; full payment to the BCSC shall have been made of
$ 40,000 (CDN), as to Hoffman and $ 20,000 (CDN) as to Millar; and the
Superintendent consents to their acting in the capacity of a director or officer
of a British Columbia reporting issuer. All matters pending as to Robert Isaly,
a director of the Company, were dropped.
In June, 1996, an action was commenced against the Company in the Superior
Court of the State of Arizona, in and for the County of Maricopa by Neu-Invest,
Inc., an Arizona Corporation (the "Plaintiff"). The complaint alleges that in
the latter part of December 1994, the Plaintiff, through its agent Alfred Bowen,
became aware of a private offering of securities being made by the Company, that
it contacted Al Millar, the Company's President, through Mr. Bowen, and that the
Company, in a letter dated February 14, 1995, offered to sell, to investors
including Plaintiff, a minimum $ 300,000 investment consisting of 400,000 shares
of Common Stock together with equal number of two year Warrants to pruchase an
additional 400,000 shares at $.75 per share, and that on March 22, 1995, Bowen
wrote to Mr. Millar accepting the offer on behalf of Plaintiff, noting that they
intended to request additional materials, and that the unnamed buyers board had
yet to approve the transaction. Plaintiff alleges that it is entitled to damages
equal to the difference between the price of the Company's Stock which was $
2.31 per share on February 14, 1995, the day they allege they accepted an offer
allegedly made by the Company, and the $ .75 per share price, or $ 624,000. In
addition, they allege an equal amount with respect to the Warrants that were to
be included with the shares.
The Company moved to have the case transferred to the United States
District Court for the District of Arizona. The Plaintiff consented to such
removal and the Company filed an answer to the complaint, denying all material
allegations. While the matter is still in the early stages of litigation, the
Company believes the case is without merit, and can be successfully defended.
It's belief is based on the following:
The Company's purported offer of February 14, 1995 was not unconditionally
accepted by Plaintiff in the letter of March 22, 1995, so as to create a
contract. It did not disclose the buyers; was conditioned upon approval by an
unnamed board of directors; and the receipt of additional material. Plaintiff
was advised by Mr.
64
<PAGE>
Millar that a pre-requisite to the sale of any stock by the Company to any party
was the execution and return by the purchaser of a Subscription Agreement, an
Investor Questionnaire and a Purchaser Representative Questionnaire and
Certificate. The Company contends that the Plaintiff and/or its representatives
received copies of these documents prior to receiving the Company's alleged
"offer", in the letter dated February 14, 1995. This information was essential
in order to ensure compliance with the exemptions claimed for this transaction
under the Securities Act. Moreover, the Company's stock transfer agent would not
transfer the stock to any party in the absence of an opinion of counsel that an
exemption under the Securities Act applied. Thus, no transfer would be made
unless it was shown that the buyer was an accredited investor, and made certain
representations which were included in the subscription documents.
As a further condition to any transaction, the Company required receipt of
payment for the stock agreed to be purchased, together with the executed
subscription agreements at its offices no later than March 31, 1995. Even though
Mr. Bowen was made aware of this deadline, no such payment was ever made or
tendered by Plaintiff, nor were any subscription agreements executed and
returned.
LEGAL MATTERS
Certain legal matters with respect to the offering will be passed upon for
the Company by Opton Handler Gottlieb Feiler & Katz, 52 Vanderbilt Avenue, New
York, NY 10017.
EXPERTS
The consolidated financial statements as of December 31, 1995 and 1994 and
for each of the three years in the period ended December 31, 1995 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given upon the authority of said firm
as experts in auditing and accounting.
65
<PAGE>
INDEX TO FINANCIAL STATEMENTS
66
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Report and Consolidated Financial Statements
December 31, 1995, 1994 and 1993
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Table of Contents to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Page
Financial Statements:
Report of Independent Accountants....................................... F-2
Consolidated Balance Sheets at December 31, 1995 and 1994............... F-3
Consolidated Statements of Operations for the three years ended
December 31, 1995 .................................................... F-4
Consolidated Statements of Shareholders' Equity for the
three years ended December 31, 1995................................... F-5
Consolidated Statements of Cash Flows for the three years ended
December 31, 1995 .................................................... F-6
Notes to Consolidated Financial Statements.............................. F-8
Financial Statement Schedules for the three years ended December 31, 1995:
Schedule II - Valuation and Qualifying Accounts......................... F-24
All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.
F-1
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of
Alpha Pro Tech, Ltd.
In our opinion, the consolidated financial statements listed in the index on
page F-1 present fairly, in all material respects, the financial position of
Alpha Pro Tech, Ltd. and its subsidiaries at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Salt Lake City, Utah
March 18, 1996
F-2
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1995 1994
<S> <C> <C>
Assets
Current assets:
Cash $ 344,000 $ 340,000
Marketable securities - restricted 36,000 --
Accounts receivable, net of allowance for doubtful accounts
of $61,000 and $66,000 2,071,000 1,844,000
Income taxes receivable 172,000 172,000
Inventories 2,098,000 2,039,000
Prepaid expenses and other assets 139,000 320,000
------------ ------------
4,860,000 4,715,000
Property and equipment, net 1,350,000 1,040,000
Intangible assets, net 167,000 5,401,000
Other 33,000 36,000
------------ ------------
$ 6,410,000 $ 11,192,000
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,351,000 $ 1,311,000
Accrued liabilities 751,000 928,000
Due to related parties -- 319,000
Notes payable, current portion including $33,000 due to
related parties at December 31, 1995 and 1994 152,000 406,000
Loans payable, current portion 890,000 915,000
Capital leases, current portion 22,000 --
------------ ------------
3,166,000 3,879,000
Notes payable, less current portion 10,000 892,000
Loans payable, less current portion 167,000 262,000
Capital leases, less current portion 49,000 --
Minority interest 14,000 --
------------ ------------
3,406,000 5,033,000
------------ ------------
Commitments and contingencies
Shareholders' Equity:
Common stock, $.01 par value, 50,000,000 shares authorized,
19,911,130 and 16,203,094 issued and outstanding at
December 31, 1995 and 1994 199,000 163,000
Additional paid-in capital 18,673,000 15,893,000
Cumulative translation adjustment -- 139,000
Accumulated deficit (15,868,000) (10,036,000)
------------ ------------
3,004,000 6,159,000
------------ ------------
$ 6,410,000 $ 11,192,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Sales $ 13,031,000 $ 11,966,000 $ 9,439,000
Cost of goods sold, excluding depreciation
and amortization 8,562,000 7,719,000 5,939,000
------------ ------------ ------------
4,469,000 4,247,000 3,500,000
Expenses
Selling, general and administrative 4,342,000 3,562,000 4,852,000
Depreciation and amortization 618,000 734,000 575,000
Impairment loss on intangible assets (Note 6) 4,922,000 -- --
Reorganization costs -- -- 159,000
------------ ------------ ------------
Loss from operations (5,413,000) (49,000) (2,086,000)
------------ ------------ ------------
Other (income) expense
Interest 563,000 898,000 450,000
Other (10,000) (4,000) 10,000
------------ ------------ ------------
553,000 894,000 460,000
------------ ------------ ------------
Loss before minority interest in consolidated
subsidiary and provision (benefit) for income taxes (5,966,000) (943,000) (2,546,000)
Minority interest in income of consolidated
subsidiary (5,000) -- --
Provision (benefit) for income taxes -- (285,000) 80,000
------------ ------------ ------------
Net loss $ (5,971,000) $ (658,000) $ (2,626,000)
============ ============ ============
Loss per share $ (0.36) $ (0.05) $ (0.22)
============ ============ ============
Weighted average number of shares
outstanding 16,533,294 13,437,198 11,764,871
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional Cumulative
Common Paid-in Translation Accumulated
Shares Stock Capital Adjustment Deficit Total
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1992 14,038,120 $ 12,212,000 $ -- $ 139,000 $ (6,752,000) $ 5,599,000
Stock issued for cash 1,493,242 3,376,000 -- -- -- 3,376,000
Stock issued for services 113,828 265,000 -- -- -- 265,000
Stock issued for purchase of
machinery and equipment 16,000 16,000 -- -- -- 16,000
Shares canceled per recision
offer (79,460) (215,000) -- -- -- (215,000)
Net loss -- -- -- -- (2,626,000) (2,626,000)
----------- ------------ ----------- --------- ------------ -----------
Balance at
December 31, 1993 15,581,730 15,654,000 -- 139,000 (9,378,000) 6,415,000
Stock issued for cash 686,364 474,000 -- -- -- 474,000
Stock issued for services 510,000 80,000 -- -- -- 80,000
Options/warrants issued
for services -- 55,000 -- -- -- 55,000
Shares canceled per litigation
settlement (675,000) (307,000) -- -- -- (307,000)
Conversion of note payable to
common stock 100,000 100,000 -- -- -- 100,000
Change to reflect par value
of common stock -- (15,893,000) 15,893,000 -- -- --
Net loss -- -- -- -- (658,000) (658,000)
----------- ------------ ----------- --------- ------------ -----------
Balance at
December 31, 1994 16,203,094 163,000 15,893,000 139,000 (10,036,000) 6,159,000
Stock issued for cash 2,564,088 25,000 1,751,000 -- -- 1,776,000
Stock issued for services 16,949 -- 13,000 -- -- 13,000
Options/warrants issued
for services -- -- 177,000 -- -- 177,000
Conversion of notes payable
to common stock 1,126,999 11,000 839,000 -- -- 850,000
Reclassification to
accumulated deficit -- -- -- (139,000) 139,000 --
Net loss -- -- -- -- (5,971,000) (5,971,000)
----------- ------------ ----------- --------- ------------ -----------
Balance at
December 31, 1995 19,911,130 $ 199,000 $18,673,000 $ -- $(15,868,000) $ 3,004,000
=========== ============ =========== ========= ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Cash flows form operating activities:
Net loss $(5,971,000) $ (658,000) $(2,626,000)
Adjustments to reconcile net loss to net
cash used for operating activities:
Depreciation and amortization 618,000 734,000 575,000
Write-off of impaired intangibles (Note 6) 4,922,000 -- --
Minority interest 5,000 -- --
Securities issued for services 190,000 135,000 210,000
Changes in assets and liabilities:
Accounts receivable (214,000) (869,000) 470,000
Income taxes receivable -- (117,000) (55,000)
Inventories (59,000) (794,000) 428,000
Prepaid and other assets 181,000 (189,000) 13,000
Accounts payable and accrued
liabilities (152,000) 911,000 (105,000)
Deferred income taxes -- (168,000) (53,000)
----------- ----------- -----------
Net cash used for operating activities (480,000) (1,015,000) (1,143,000)
----------- ----------- -----------
Cash flows from investing activities:
Acquisition of businesses (35,000) (32,000) --
Purchase of property and equipment (349,000) (76,000) (68,000)
Cost of intangible assets (55,000) (66,000) (466,000)
Purchase of marketable security (36,000) -- --
Proceeds from note receivable 58,000 -- --
----------- ----------- -----------
Net cash used for investing activities (417,000) (174,000) (534,000)
----------- ----------- -----------
Cash flows from financing activities:
Issuance of common stock 1,776,000 474,000 3,431,000
Funds held in trust -- -- (621,000)
Purchase and cancellation of common stock -- (307,000) (215,000)
Proceeds from related parties -- 15,000 --
Payments to related parties (323,000) -- --
Proceeds from loans payable -- 309,000 868,000
Principal repayments on loans payable (120,000) -- --
Principal repayments on notes payable (420,000) -- (2,480,000)
Proceeds from notes payable -- 598,000 --
Principal repayments on capital leases (12,000) -- --
Other -- -- 53,000
----------- ----------- -----------
Net cash provided by financing activities 901,000 1,089,000 1,036,000
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
Year ended December 31,
1995 1994 1993
Increase (decrease) in cash 4,000 (100,000) (641,000)
Cash, beginning of period 340,000 440,000 1,081,000
-------- --------- -----------
Cash, end of period $344,000 $ 340,000 $ 440,000
======== ========= ===========
Supplemental disclosure of cash flow
information:
Cash paid for interest $560,000 $ 777,000 $ 501,000
======== ========= ===========
Cash paid for income taxes $ -- $ -- $ 174,000
======== ========= ===========
Non-cash investing and financing activity:
1995
Effective April 1995, the Company acquired an 80% interest in Ludan
Corporation for $35,000 in cash including $6,000 of direct acquisition costs,
plus assumption of net liabilities of $23,000. In addition, a note payable
owed by LC to a third party was converted to 20,000 shares of the Company's
common stock.
Notes payable of $830,000 were converted to 1,106,999 shares of common stock
in 1995.
Capital lease obligations of $83,000 were incurred when the Company entered
into leases for office equipment and machinery and equipment.
1994
A $100,000 note payable was converted to 100,000 common shares in 1994.
The Company acquired the assets of Disposable Medical Products, Inc. and 96.8%
of the common stock of its subsidiary, DPI De Mexico, in March 1994 for
$32,000 cash and $304,000 of debt, which was unpaid at December 31, 1994.
1993
The Company issued 16,000 shares of common stock valued at $16,000 to purchase
machinery and equipment.
The Company issued 23,386 shares of common stock valued at $55,000 for
professional services in connection with private placements which were netted
against the offering proceeds.
The accompanying notes are an integral part of these financial statements
F-7
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. The Company
Alpha Pro Tech, Ltd. (the Company) manufactures and distributes a variety
of disposable mask, shield, shoe cover and apparel products and woundcare
products. Through its 1992 acquisition of Alpha Pro Tech, Inc. (APT), a
wholly-owned subsidiary, the Company began manufacturing and distributing
its line of disposable mask and shield products and woundcare products.
These products accounted for the majority of the Company's revenues until
1994. In March 1994, APT acquired all of the assets of Disposable Medical
Products, Inc. (DMP) (Note 14). DMP manufactures and distributes the
Company's disposable apparel products and has become the primary division
of the Company. In April 1995, the Company, through APT, acquired an 80%
interest in Ludan Corporation (LC) (Note 15). Through this acquisition,
the Company has developed other applications for existing products,
particularly disposable apparel and automated shoe cover products, to
market to the food service and other industries. Most of the Company's
disposable apparel, mask and shield products and woundcare products are
distributed to medical, dental, industrial and clean room markets,
predominantly in the United States.
In June 1994, the Company changed its corporate domicile from Canada to
the United States. In connection with this change, the Company changed its
name from BFD Industries Inc. to Alpha Pro Tech, Ltd.
2. Summary of significant accounting policies
Principles of consolidation
The consolidated financial statements of the Company include the accounts
of the Company and its wholly-owned subsidiary, Alpha Pro Tech, Inc. (APT)
as well as APT's 80% owned subsidiary, Ludan Corporation (LC), and 96.8%
owned subsidiary DPI De Mexico (DPI). No minority interest has been
recorded in these financial statements for DPI as such amounts are
immaterial. All significant intercompany accounts and transactions have
been eliminated. Certain prior year balances have been reclassified to
conform with the current period presentation.
Use of estimates
The preparation of these financial statements in conformity with generally
accepted accounting principles required management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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 these
estimates.
Revenue recognition
Revenue is recognized when goods are shipped to the customers. Revenues
are reduced for anticipated sales returns and allowances.
F-8
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Marketable securities
On January 1, 1995, the Company adopted Statement of Financial Accounting
Standards No. 115 (SFAS 115) "Accounting for Certain Investments in Debt
and Equity Securities" which requires investment securities to be
classified as either held to maturity, trading or available for sale. The
adoption of SFAS 115 did not have a material impact on the Company's
financial condition or results of operations.
At December 31, 1995, the marketable security is a restricted certificate
of deposit held by a financial institution that serves as a compensating
balance for lines of credit relating to the Company's credit cards. The
Company has classified its short-term security as available for sale and
appropriately recorded it at its fair market value of $36,000.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
Advertising
Advertising costs consist primarily of catalog preparation and printing
costs which are charged to expense as incurred. Catalog costs expensed in
1995 were $41,000.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation
and are depreciated on a straight-line basis over their estimated useful
lives as follows:
Factory equipment 9-20 years
Office furniture and equipment 7 years
Leasehold improvements 4-6 years
Vehicles 5 years
Intangible assets
The excess of purchase price over the estimated fair value of assets
acquired and liabilities assumed has been recorded as goodwill and are
being amortized using the straight-line method over 8 years. Patent rights
are recorded at cost and are amortized on a straight-line basis over their
estimated useful lives of 8-17 years.
During 1995, the Company reduced the useful lives of mask and shield
patents from 17 years to 8 years and the useful life of the APT goodwill
from 20 years to 8 years. These changes in estimate were based on the
Company's analysis that future sales from masks, shields and woundcare
products will decrease over the next five years as the Company continues
to focus its efforts to manufacture and promote its automated shoe cover
and disposable apparel products. Because the useful lives of the APT
goodwill and the majority of the Company's patents were based on mask,
shield and woundcare products, which are declining areas of the Company's
business, the Company determined the change in useful lives was
appropriate.
F-9
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
At each balance sheet date, the Company reviews its intangible assets and
determines whether an impairment has occurred by evaluating whether the
carrying value of intangible assets exceed their respective future
undiscounted cash flows, excluding interest. If an impairment has
occurred, the Company evaluates the expected fair value of the assets
based upon expectations of future discounted cash flows. Based upon its
most recent analysis, the Company concluded that an impairment of
$4,922,000 exists at December 31, 1995 as discussed further in Note 6.
Income taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes". This statement requires an asset and liability approach for
accounting for income taxes.
Translation of foreign currencies
During 1992, the Company adopted the United States dollar as the
functional currency. Prior to 1992, the Canadian dollar was the functional
currency. Prior to December 31, 1995, the difference of $139,000 in
translation for periods prior to the change in functional currency has
been recorded as the "cumulative translation adjustment" in shareholders'
equity. At December 31, 1995, the Company reclassified the cumulative
translation adjustment account to accumulated deficit as the balance is
immaterial to overall shareholders' equity and the account will not change
in future years. Transactions in foreign currencies during the reporting
periods are translated into the functional currency at the exchange rate
prevailing at the transaction date. Monetary assets and liabilities in
foreign currencies at each period end are translated at the exchange rate
in effect at that date and are immaterial in amount. Transactional gains
or losses on foreign exchange are reflected in net loss for the periods
presented and are immaterial in amount.
Loss per share
Loss per share has been calculated based on the weighted average number of
common and common equivalent shares outstanding, if dilutive, less shares
held in escrow (Note 10). Common equivalent shares for all years were
anti-dilutive and accordingly were excluded from the loss per share
calculations.
Major customer and concentration of credit risk
With the acquisition of the assets and business of Disposable Medical
Products, Inc. (Note 14) in 1994, the Company sells significant amounts of
product to a large distributor on credit terms. Net sales to this
distributor were 28.2% and 14.5% of total net revenue for 1995 and 1994,
respectively. Management believes that adequate provision has been made
for risk of loss on all credit transactions.
Fair value of financial instruments
The fair value of financial instruments including cash, accounts
receivable, accounts payable, accrued professional fees, other accrued
liabilities, due to related parties, notes payable and loans payable
approximate their respective book values at December 31, 1995 and 1994.
F-10
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Stock for services
Common stock, stock options to purchase common stock and warrants to
purchase common stock that are granted to third parties in exchange for
services are valued at their estimated fair value at the date of grant and
are expensed over the period the services are rendered.
Stock Based Compensation
The Financial Accounting Standards Board issued a statement in October
1995 entitled "Accounting for Stock-Based Compensation" which will be
effective for the Company in 1996. This statement establishes an
accounting method based on the fair value of equity instruments awarded to
employees as compensation, however, companies are permitted to continue
applying previous accounting standards in the determination of net income
with disclosure in the notes to the financial statements of the
differences between previous accounting measurements and those formulated
by the new accounting standard. Beginning in 1996, the Company intends to
determine net income using previous accounting standards and to make the
appropriate disclosures in the notes to the financial statements as
permitted by the standard.
3. Inventories
Inventories consist of the following: 1995 1994
Raw materials $1,308,000 $1,317,000
Work in process 140,000 9,000
Finished goods 650,000 713,000
---------- ----------
$2,098,000 $2,039,000
========== ==========
4. Prepaid expenses and other assets
Prepaid expenses and other assets consist of the following:
1995 1994
Consulting agreement $ 23,000 $ 69,000
Deferred private placement costs -- 163,000
Loan origination costs 45,000 --
Prepaid insurance 25,000 --
Other 46,000 88,000
-------- --------
$139,000 $320,000
======== ========
F-11
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
5. Property and equipment
Property and equipment consist of the following:
1995 1994
Machinery and equipment $ 1,590,000 $ 1,205,000
Office furniture and equipment 302,000 220,000
Leasehold improvements 67,000 53,000
----------- -----------
1,959,000 1,478,000
Less accumulated depreciation and amortization (609,000) (438,000)
----------- -----------
$ 1,350,000 $ 1,040,000
=========== ===========
At December 31, 1995, the Company had $83,000 of assets under capital
lease obligations consisting of $57,000 of machinery and equipment and
$26,000 of office equipment.
6. Intangible assets
Intangible assets consist of the following:
1995 1994
Goodwill $ 78,000 $ 5,148,000
Patents 40,000 1,119,000
Other 77,000 503,000
----------- -----------
195,000 6,770,000
Less accumulated amortization (28,000) (1,369,000)
----------- -----------
$ 167,000 $ 5,401,000
=========== ===========
F-12
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Impairment Loss
The Company acquired all of the common stock of Alpha Pro Tech, Inc. in
May 1992 for $7,307,000 including direct acquisition costs of $107,000.
The acquisition was accounted for as a purchase and the purchase price was
ultimately allocated as follows:
Net identifiable assets $ 690,000
Goodwill 5,148,000
Patents 1,012,000
Trademarks 127,000
Non compete agreement 300,000
Other 30,000
----------
$7,307,000
==========
As noted in Note 1, the Company manufactures and distributes its line of
disposable mask and shield products and woundcare products through its
wholly-owned subsidiary, APT. Due to declining sales of these product
lines since the 1992 APT acquisition and due to recent changes in the
health care market, the Company has modified its strategy to focus on
increased demand for its disposable apparel and automated shoe cover
products. The above changes resulted in the Company revising the estimated
useful lives of intangible assets recorded from the APT acquisition (Note
2). Additionally, the Company conducted an impairment analysis that
determined the fair value of the assets based on discounted cash flows.
From the analysis, the Company determined that the carrying value of the
APT goodwill and patents related to the Company's line of disposable mask
and shield products and woundcare products should be reduced by $4,922,000
at December 31, 1995. At December 31, 1995, the impairment loss has been
recorded in the 1995 statement of operations and relates to the carrying
value of the following assets:
December 31,
1995
Goodwill $4,215,000
Patents 586,000
Trademarks 61,000
Other 60,000
----------
$4,922,000
==========
Delta Foam Patent
In 1993, the Company purchased patent rights for the Delta Foam Support
System. Under the terms of the purchase agreement, the Company is required
to generate cumulative revenues for the product line of $1,000,000 by June
30, 1995 and $1,000,000 per year thereafter until the patent expires in
the year 2008. If these revenues are not achieved, the patent rights
revert back to the seller. Management believed the Company would not
generate sufficient revenues to retain the patent rights and, accordingly,
the unamortized balance of the patent rights, $175,000, was expensed in
1994.
F-13
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
7. Accrued liabilities
Accrued liabilities consist of the following:
1995 1994
Professional fees $439,000 $504,000
Payroll and payroll taxes 185,000 181,000
Interest 10,000 79,000
Sales tax 40,000 42,000
Other 77,000 122,000
-------- --------
$751,000 $928,000
======== ========
8. Notes Payable
Notes payable consist of the following:
1995 1994
Note payable, interest at 12%, maturing
March 31, 1995a $ -- $275,000
Note payable due in monthly installments
of $4,900, interest at 7.5%, maturing 41,000 --
July 31, 1996
Note payable due in monthly installments
of $1,500, interest at 8.0%, maturing 26,000 --
July 31, 1997
Note payable due in monthly installments of
$4,000, interest at 6%, with the remaining
balance due March 31, 1996a 62,000 110,000
Note payable convertible into common stock at
$0.75 per share, interest at 22%, due on demand -- 50,000
Notes payable to related parties, interest at 20%
payable quarterly, due on demand 33,000 33,000
-------- --------
162,000 468,000
Less: Current portion 152,000 406,000
-------- --------
10,000 62,000
-------- --------
F-14
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Notes converted to equity during 1995
Notes payable, interest at 9.5%, due December 29,
1994, convertible into common stock at $0.75
per share -- 300,000
Note payable, interest at 12%, due November 30,
1994, convertible into common stock at $0.75
per share -- 365,000
Notes payable, interest at 22%, maturing
April 30, 1995, convertible into common stock at
$0.75 per share -- 100,000
Note payable, interest at 22%, due October 31,
1994, convertible into common stock at $0.75
per share -- 65,000
-------- --------
-- 830,000
-------- --------
Notes payable, less current portion $ 10,000 $892,000
======== ========
9. Loans Payable
During 1995, the Company, through its wholly owned subsidiary APT, entered
into a three-year credit facility with an asset-based lender. Loans
payable at December 31, 1995 represent outstanding amounts against the
facility. Pursuant to the terms of the credit agreement, the Company has a
$3,000,000 line of credit secured by accounts receivable, inventory,
trademarks, patents, property and equipment, and all issued and
outstanding shares of DPI. Borrowings collateralized by machinery and
equipment are limited to $275,000 and borrowings for inventory are limited
to the lesser of $500,000 or 25% of the outstanding balance under the
facility. At December 31, 1995, the maximum line of credit available to
the Company was $1,350,000. The credit facility bears interest at prime
plus 5% which was 13.5% at December 31, 1995. At December 31, 1995,
$222,000 of the outstanding balance is collateralized by the Company's
machinery and equipment which is payable over five years.
The Company paid $30,000 in loan origination fees to obtain the credit
facility. Under the terms of the agreement, the Company pays a 1% loan fee
annually and is subject to certain other minimum loan fees, unused line
fees and prepayment penalties if the line of credit is repaid early.
F-15
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Future maturities for loans payable are as follows:
1996 $ 890,000
1997 55,000
1998 55,000
1999 55,000
2000 2,000
----------
$1,057,000
==========
Loans payable at December 31, 1994 of $877,000 and $300,000 represent
funds associated with $1,113,000 of trade account receivable that were
factored, with recourse, and a property and equipment loan. The Company
refinanced these loans through a new lender during 1995 as described
above.
10. Shareholders' Equity
Litigation settlement
In 1990, the Company was named as a co-defendant in a legal action. The
plaintiff, John P. Russell, the Company and other co-defendants have
settled and compromised all claims involved in the litigation pursuant to
a Settlement Agreement dated August 19, 1994. The terms of the Agreement
provided for the payment of $260,000 to Mr. Russell and the cancellation
of 675,000 escrowed shares (see below) of the Company's common stock owned
by Mr. Russell. Legal fees directly associated with the settlement totaled
$47,000, resulting in a total charge to shareholders' equity of $307,000.
Recision offer
Under an agreement with the Superintendent of Brokers for British
Columbia, a recision offer was made during 1993 to a group of participants
in two private placements, resulting in the cancellation of 79,460 shares
for $215,000.
Escrowed shares
Pursuant to an agreement dated April 5, 1989, the Company purchased all of
the assets and business of BFD Inc. from certain individuals. The purchase
price of $625,000 Canadian was settled by the issuance of 3,500,000 common
shares and the assumption of liabilities of $520,000 Canadian. Of the
shares issued, 3,150,000 are subject to an escrow agreement. These shares
may be released from escrow in future years using a formula based on cash
flow from operations which would result in a charge to earnings at the
then estimated fair market value of the shares when released from escrow.
Shares not released after ten years will be canceled. The escrowed shares
have full voting rights and privileges. At December 31, 1995, all of the
shares except for the shares canceled in connection with the settlement
with John P. Russell remain in escrow.
F-16
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Shares issued for services
During 1995, the Company issued 16,949 shares valued at $13,000 for
services performed relating to the Company's private placement. During
1994, the Company issued 510,000 shares valued at $80,000 relating to
consulting and advisory services. During 1993, 113,828 shares were issued
and valued at $265,000 for services performed in relation to the private
placements and other management and advisory services.
Private placement activity
During 1995, 1994 and 1993, 1,802,649, 432,964 and 645,865 common shares
were subscribed for under private placements for $1,352,000, $324,000, and
$1,542,000, respectively. Costs relating to the private placements were
$426,000, $76,000 and $92,000 for 1995, 1994 and 1993, respectively.
Warrant activity
Warrant activity for the three years ended December 31, 1995 is as
follows:
<TABLE>
<CAPTION>
Exercise Price
Shares Per Warrant
<S> <C> <C>
Warrants outstanding, December 31, 1992 1,272,378 $2.25 to $3.96
Granted in connection with private placement 452,745 1.75 to 3.07
Granted in connection with funds held in trust 20,812 3.07
Exercised (669,377) 2.25 to 3.96
Expired (623,813) 2.25 to 3.96
---------- --------------
Warrants outstanding, December 31, 1993 452,745 1.75
Granted in connection with private placement 432,964 0.75
Granted to lenders 1,064,999 0.75
---------- --------------
Warrants outstanding, December 31, 1994 1,950,708 0.75 to 1.75
Granted in connection with private placement 1,802,649 0.75
Granted to lenders 257,000 0.75
Exercised (451,439) 0.75 to 1.75
Expired (80,000) 1.75
---------- --------------
Warrants outstanding, December 31, 1995 3,478,918 $0.75 to $1.75
========== ==============
</TABLE>
The warrants outstanding at December 31, 1995 entitle the holders to
purchase one common share for the stated price and expire between June
1996 and February 1998.
F-17
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Option activity
During 1993, the Company adopted stock option plans for employees and
directors of the Company. As of December 31, 1995, 2,700,000 shares were
reserved for issuance under these plans, of which 2,249,000 have been
granted at December 31, 1995. The exercise price of the options is
determined based on the fair market value of the stock on the date of
grant. Option activity for the three years ended December 31, 1995 is as
follows:
Exercise Price
Shares Per Option
Options outstanding, December 31, 1992 1,068,000 $0.18 to $3.91
Granted to employees/directors 1,365,000 0.75
Granted to consultants 540,000 0.75 to 3.50
Exercised (178,000) 0.18 to 3.91
Expired (458,000) 0.18 to 3.91
Canceled (605,000) 0.18 to 3.91
---------- --------------
Options outstanding, December 31, 1993 1,732,000 0.75 to 3.50
Granted to employees/directors 100,000 1.00
Granted to lenders 747,500 0.75 to 1.06
Granted to consultants 555,000 1.00
Exercised (253,400) 0.75 to 1.00
Expired (108,600) 1.00 to 3.50
Canceled (85,000) 0.75
---------- --------------
Options outstanding, December 31, 1994 2,687,500 0.75 to 1.06
Granted to employees/directors 784,000 1.00 to 2.03
Granted to consultants 540,000 0.75 to 2.03
Exercised (310,000) 0.75 to 1.00
Canceled (160,000) 0.75 to 2.00
---------- --------------
Options outstanding, December 31, 1995 3,541,500 $0.75 to $2.03
========== ==============
The options outstanding at December 31, 1995 entitle the holder to
purchase one common share at the stated price and expire between March
1996 and December 2000. At December 31, 1995, 3,406,500 options are
exercisable.
11. Reorganization costs
During 1993, management adopted a formal plan to consolidate manufacturing
previously performed in Birmingham and Huntsville, Alabama into its
production facility at North Salt Lake City, Utah. The sales office in
Atlanta, Georgia was also closed. These facilities were closed in December
1993.
F-18
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Notes to Consolidated Financial Statements
- ------------------------------------------------------------------------------
12. Income taxes
The provision (benefit) for income taxes consists of the following:
Year ended December 31,
1995 1994 1993
Current $ -- $(117,000) $ (3,000)
Deferred -- (168,000) 83,000
--------- --------- --------
$ -- $(285,000) $ 80,000
========= ========= ========
No current benefit for income taxes has been recorded in the 1995
statement of operations since the Company's history of recurring losses
precludes anticipation of the benefit of the 1995 loss.
The current income tax benefit in 1994 is a result of the carryback of net
operating losses, generated by the Company's wholly owned United States
subsidiary, Alpha Pro Tech, Inc. This benefit resulted in tax refunds for
taxes paid in prior years.
The deferred income tax benefit of $168,000 in 1994 is the result of a
reduction in the prior year deferred tax liability. The reduction results
from the ability of the Company to utilize excess 1994 operating losses
generated by the U.S. operations to offset deferred tax liabilities.
Deferred tax assets (liabilities) are comprised of the following at
December 31.
1995 1994
Loss carry forwards
U.S $ 2,035,000 $ 1,473,000
Canada 2,082,000 2,082,000
Other 76,000 40,000
----------- -----------
Gross deferred tax assets 4,193,000 3,595,000
Depreciation and amortization (55,000) (108,000)
----------- -----------
Net 4,138,000 3,487,000
Valuation allowance (4,138,000) (3,487,000)
----------- -----------
$ -- $ --
=========== ===========
F-19
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The provision for income taxes differs from the amount that would be
obtained by applying the United States statutory rate to the loss before
income taxes as a result of the following:
<TABLE>
<CAPTION>
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Recovery of income taxes based on United
States statutory rates (34%) $(2,030,000) $(325,000) $(866,000)
Current unrecognizable tax benefit of losses of
parent Company -- -- 714,000
Non-deductible goodwill amortization 1,590,000 40,000 110,000
Increase in valuation allowance 430,000 -- --
Other 10,000 -- 122,000
----------- --------- ---------
Provision (benefit) for income taxes $ -- $(285,000) $ 80,000
=========== ========= =========
</TABLE>
At December 31, 1995, the Company has net operating losses for United
States and Canadian tax purposes available to reduce future United States
and Canadian taxable income amounting to approximately $5.5 million and
$4.7 million, respectively.
For United States tax purposes, these losses will expire as follows:
2005 $1,400,000
2006 37,000
2007 857,000
2008 184,000
2009 1,632,000
2010 323,000
2011 1,023,000
----------
$5,456,000
==========
For Canadian income tax purposes, these losses will expire as follows:
1996 $1,468,000
1997 109,000
1998 1,010,000
1999 357,000
2000 1,729,000
----------
$4,673,000
==========
F-20
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
13. Lease Commitments and Obligations
The Company leases three manufacturing facilities under month to month
operating leases and certain other office and warehouse facilities under
non-cancelable operating leases expiring between June 1996 and July 2000.
The Company also leases certain manufacturing and office equipment under
capital leases expiring between July 1997 and October 2000.
The following summarizes future minimum lease payments required under
capital and non-cancelable operating leases:
Year ending Capital Operating
December 31, Leases Leases
1996 $ 35,000 $169,000
1997 31,000 60,000
1998 20,000 2,000
1999 8,000 3,000
2000 7,000 1,000
--------- --------
Future minimum lease payments $ 101,000 $235,000
========
Less amounts representing interest (30,000)
---------
Present value of future minimum lease payments $ 71,000
Less amounts due within one year (22,000)
---------
Amounts due after one year $ 49,000
=========
Total rent expense incurred by the Company under operating leases for the
year ended December 31, 1995, 1994 and 1993 was $265,000, $237,000 and
$225,000, respectively.
14. Acquisition of Disposable Medical Products, Inc.
On March 25, 1994, the Company, through its wholly owned subsidiary Alpha
Pro Tech, Inc., acquired the assets of Disposable Medical Products, Inc.
(DMP) and 96.8% of the shares of DMP's wholly owned subsidiary DPI for
$336,000, including $32,000 of direct acquisition costs. The Company
recorded a liability of $304,000 at December 31, 1994 for the unpaid
purchase price which was subsequently paid in 1995. This amount was
payable to the previous owners who are now employees of the Company. Prior
to the acquisition, DMP had been operating as a debtor in possession under
Chapter 11 of the Bankruptcy Code.
F-21
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Under the purchase agreement, the Company operated DMP under a post
petition financing agreement through March 1995. In March 1995, the
acquisition was finalized and all related payments were made. Under the
terms of the agreement, the Company was entitled to the risks and rewards
of operating DMP in exchange for providing DMP with sufficient working
capital for continuing operations and, accordingly, DMP's operations have
been consolidated into those of the Company's since April 1, 1994. The
purchase price was allocated as follows:
Inventories $ 105,000
Prepaid expenses 30,000
Machinery and equipment 228,000
Accounts payable and accrued liabilities (27,000)
---------
$ 336,000
=========
Pro forma financial information (unaudited)
The unaudited pro forma results of operations of the Company, as if the
acquisition of DMP had occurred on January 1, 1993, are as follows:
December 31,
1994 1993
Revenue $ 12,574,000 $ 12,978,000
============ ============
Loss for the year $ (671,000) $ (2,792,000)
============ ============
Loss per common share $ (0.05) $ (0.24)
============ ============
The unaudited pro forma information does not purport to be indicative of
the results from operations that actually would have been obtained if the
purchase had been consummated January 1, 1993 or of the results of
operations that may be obtained in the future.
15. Acquisition of Ludan Corporation
Effective April 1995, the Company acquired an 80% interest in Ludan
Corporation, a Georgia based materials laminating company, for $35,000 in
cash including $6,000 of direct acquisition costs, plus assumption of net
liabilities of $23,000. In addition, a note payable owed by LC to a third
party of $20,000 was converted to 20,000 shares of the Company's common
stock. The Company recorded $78,000 of goodwill in connection with the
acquisition which is being amortized over 8 years.
F-22
<PAGE>
Alpha Pro Tech, Ltd.
(formerly BFD Industries Inc.)
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
16. Quarterly Financial Information (Unaudited)
Fourth quarter adjustment affecting prior quarter
During the fourth quarter of 1995, the Company recorded a $412,000
reduction to fourth quarter cost of sales to correct the September 30,
1995 inventory balance which was overstated.
Had this adjustment been recorded correctly in the proper interim period,
net income (loss) and net income (loss) per share for the quarter ended
September 30, 1995 would have been reported as follows:
Net income as reported $ 12,000
===========
Net income per share as reported 0.00
===========
Net loss as adjusted (400,000)
===========
Net loss per share as adjusted (0.02)
===========
Other Significant Fourth Quarter Adjustments
As further explained in Note 6, an impairment loss of $4,922,000 was
recorded in the fourth quarter of 1995.
F-23
<PAGE>
Alpha Pro Tech, Ltd. and Subsidiaries
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged Charged Balance at
Beginning to Costs and to Other End of
Description of Period Expenses Accounts (1) Deductions (2) Period
<S> <C> <C> <C> <C> <C>
December 31, 1995
Deducted from
related asset account:
Allowance for
doubtful accounts $ 66,000 $ 18,000 $ $ 23,000 $ 61,000
========== ========== ========== ========== ==========
Provision for
inventory $ 22,000 $ 140,000 $ -- $ 130,000 $ 32,000
========== ========== ========== ========== ==========
Valuation allowance
for income taxes $3,487,000 $ $ 651,000 $ $4,138,000
========== ========== ========== ========== ==========
December 31, 1994
Deducted from
related asset account:
Allowance for
doubtful accounts $ 75,000 $ 140,000 $ -- $ (149,000) $ 66,000
========== ========== ========== ========== ==========
Provision for
inventory $ 22,000 $ -- $ -- $ -- $ 22,000
========== ========== ========== ========== ==========
Valuation allowance
for income taxes $3,423,000 $ $ 64,000 $ $3,487,000
========== ========== ========== ========== ==========
December 31, 1993
Deducted from
related asset account:
Allowance for
doubtful accounts $ 47,000 $ 61,000 $ -- $ (33,000) $ 75,000
========== ========== ========== ========== ==========
Provision for
inventory $ -- $ 22,000 $ -- $ -- $ 22,000
========== ========== ========== ========== ==========
Valuation allowance
for income taxes $1,341,000 $ $2,082,000 $ $3,423,000
========== ========== ========== ========== ==========
</TABLE>
(1) Represents increase to net deferred tax assets and a corresponding increase
to the valuation allowance.
(2) Represents uncollectible accounts and inventory written off.
F-24
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following expenses are estimated:
SEC Registration Fee $ 4,291.00*
Accounting fees $ 15,000.00
Legal Fees $ 15,000.00
Printing, Engraving &
Mailing $ 5,000.00
Transfer agent
& registrar's fees $ 2,000.00
Blue Sky fees and
expenses $ 1,000.00
Miscellaneous expenses $ 1,709.00
-------------
TOTAL $ 43,000.00
* Actual
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article Tenth of the company's Certificate of Incorporation provides in
part as follows:
TENTH: The corporation shall, to the fullest extent permitted by 145 of
the General Corporation Law of the State of Delaware, as the same may be amended
and supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the Registrant's By-Laws, the Stock Purchase
Agreements, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnifications against public
policy
II-1
<PAGE>
as expressed in the act and is therefore unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person in connection with the securities being registered), the
Registrant will, unless in the opinion of its counsel, the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Item 15. RECENT SALES OF UNREGISTERED SECURITIES
During the past three years, the following securities were sold or issued
by the Company without registration under the Securities Act of 1933, as amended
(the "Act"):
In the period November 1994 through April 4, 1995 the Company sold
2,235,613 Units at $ .75 per Unit, each Unit consisting of one common share and
a two-year non-transferable share purchase warrant exercisable at $ .75 per
share, for total proceeds aggregating $ 1,673,877. These units were sold to
approximately 80 persons, all of whom the Company reasonably believes were
"accredited" investors as that term is defined in Regulation D under the Act,
and all but one were citizens of the U.S. In connection with this private
placement, a finder's fee of $ 70,320 and 16,947 Common Shares were issued.*
During the three months ended March 31, 1995 the Company issued 1,107,000
common shares and 1,107,000 warrants exercisable at $ 0.75 per share to 8
persons and one institution, in exchange for $ 830,000 of Notes Payable.*
In November, 1995 the Company issued 13,333 shares to one person in
connection with the exercise of the warrants included in the above referenced
units.*
* The above securities were issued in reliance on the exemption from
registration under Section 4(2) as not involving any public offering.
Claims of such exemptions are based upon the following: (i) all of the
purchasers in such transactions were sophisticated investors with the
requisite knowledge and experience in financial and business matters to
evaluate the merits and risk of an investment in the Company, were able to
bear the economic risk of an investment in the Company, had access to or
were furnished with the kinds of information that registration under the
Act would have provided and acquired securities for their own accounts in
transactions not involving any general solicitations or advertising, and
not with a view to the distribution thereof, and (ii) a restrictive legend
was placed on each certificate evidencing the securities; (iii) each
purchaser acknowledged in writing
II-2
<PAGE>
that he knew the securities were not registered under the Act or any State
securities laws, and are "RESTRICTED SECURITIES" as that term is defined
in Rule 144 under the Act, that the securities may not be offered for
sale, sold or otherwise transferred within the United States except
pursuant to an Effective Registration Statement under the Act and any
applicable State securities laws, or pursuant to any exemption from
registration under the Act, the availability of which is to be established
to the satisfaction of the Company.
II-3
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
16 (a) Exhibits
(3)(a) Certificate of Incorporation dated February 17, 1983.
(b) Certificate of Change of Name dated July 27, 1988.
(c) Certificate of Change of Name dated July 4, 1989.
(d) Memorandum.
(e) Articles (equivalent to By-Laws).
(f) Certificate of Incorporation of Alpha Pro Tech, Ltd.
dated June 15, 1994 *
(g) Application for Certificate of Registration and Articles of
Continuance State of Wyoming - filed June 24, 1995 *
(h) Certificate of Registration and Articles of Continuance
of Secretary of State, State of Wyoming,
dated June 24, 1994 *
(i) Certificate of Secretary of State of Wyoming
dated June 24, 1995 *
(j) Certificate of Amendment of Certificate of Incorporation
of Alpha Pro Tech, Ltd. dated
June 24, 1994 *
(k) Articles of Merger of BFD Industries Inc., a
Wyoming Corporation and Alpha Pro Tech, Ltd.,
a Delaware Corporation, effective July 1, 1994
(l) Certificate of Ownership and Merger which merges BFD Industries with
and into Alpha Pro Tech, Ltd., a Delaware Corporation effective July
1, 1994 *
(4)(a) Form of Common Stock Certificate **
(5)(a) Opinion of Counsel ***
(10)(a) Form of Director's Stock Option Agreement
(b) Form of Employee's Stock Option Agreement
(c) Employment Agreement between the Company and Al Millar
dated June, 1989
(c)(i) Employment Agreement between the Company and
Donald E. Bennett, Jr. **
(c)(ii) Employment Agreement between the Company and Michael Scheerer ***
(d) Lease Agreement between White Dairy Company, Inc. and the Company for
lease of the premises situated at 2724-7th Avenue South, Birmingham,
Alabama, 35233, dated March, 1990, and amendment thereto dated April,
1990.
(e) BFD Industries Limited Partnership Agreement between 881216 Ontario
Inc. and Bernard Charles Sherman dated May 17, 1990
II-4
<PAGE>
(f) Asset Purchase Agreement between the Company and the BFD Industries
Limited Partnership dated May 17, 1990
(g) Purchase Agreement between the Company, Bernard Charles Sherman and
Apotex, Inc. dated June 21, 1991 and amendment thereto made August
30, 1991
(h) Professional Services Agreement between the Company and Quanta
Corporation dated September, 1991
(i) Sales and Marketing Agreement between the Company and MDC Corp.,
dated October 4, 1991
(j) National Account Marketing Agreement between the Company and National
Contracts, Inc. dated October 7, 1991
(k) Group Purchasing Agreement between the Company and Premier Hospitals
Alliance, Inc. dated November 1, 1991
(l) Letter of Intent between the Company and the shareholders of Alpha
Pro Tech, Inc. dated December 11, 1991, and amendment thereto dated
February 19, 1992
(m) Group Purchasing Agreement between the Company and AmeriNet
Incorporated dated January, 1992
(n) Group Purchasing Agreement between the Company and Magnet, Inc.
(o) Share Purchase Agreement re Acquisition of Alpha Pro Tech, Inc.
(16)(a) Letter re: changes in certifying accountant. *
(24)(a) Consent of Price Waterhouse (included in Part II of Registration
Statement) ***
(b) Consent of Counsel (contained in their opinion Exhibit 5(a) included
in Part II of Registration Statement).
(16) (b) Financial Statement Schedules
Schedule VIII - Valuation and Qualifying Accounts (contained on Page
F-24 of the Financial Statements included herein) ***
Other schedules are omitted because of the absence of conditions
under which they are required or because the required information is
given in the financial statements or notes thereto.
- ----------
Unless otherwise noted, all of the foregoing exhibits are Incorporated by
reference to Form 10 Registration Statement (File No. 0-1983) filed on February
25, 1992.
* Incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1994 (File No. 019893).
** Incorporated by reference to Registration Statement on Form S-1, File No.
33-93894 which became effective August 10, 1995
*** Filed herewith
II-5
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or most
recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
being offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Markham, Province of
Ontario, Canada on January, _____ 1997.
ALPHA PRO TECH, LTD.
S/Sheldon Hoffman
---------------------------
BY: Sheldon Hoffman
Chief Executive Officer,
Principal Financial Officer
and Director
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
S/Sheldon Hoffman S/Alexander W. Millar
- ---------------------------- -----------------------------
SHELDON HOFFMAN, ALEXANDER W. MILLAR,
Chief Executive Officer, President and Director
Principal Financial Officer Date: January,_____ 1997
and Director
Date: January________, 1997
S/John Ritota S/Robert Isaly
- ---------------------------- -----------------------------
JOHN RITOTA, Director ROBERT ISALY, Director
Date: January_____, 1997 Date: January_____, 1997
S/Lloyd Hoffman S/Donald E. Bennett, Jr.
- ---------------------------- -----------------------------
LLOYD HOFFMAN, DONALD E. BENNETT, JR.
Vice President and Controller, Director
Principal Accounting Officer Date: January_____, 1997
Date: January_____, 1997
OPTON HANDLER GOTTLIEB FEILER & KATZ, LLP
Attorneys At Law
52 Vanderbilt Avenue
New York, New York 10017-3808
January , 1997
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
RE: Alpha Pro Tech, Ltd.
Post Effective Amendment No. 1 to
Registration Statement on Form S-1
Registration Number 33-93894
Dear Sirs:
In connection with the above referenced Post Effective Amendment filed by Alpha
Pro Tech, Ltd., a Delaware corporation (the "Company") with the Securities and
Exchange Commission (the "Commission"), relating to the sale by certain Selling
Stockholders of:
A maximum of 3,021,935 shares of Common Stock of the Company, par value
$.01 per share, (the "Common Stock").
We have reviewed the Certificate of Incorporation and By-Laws of the Company, as
amended, records of certain of the Company's corporate proceedings as reflected
in the Company's minute books and have examined such authorities and statutes as
we have deemed relevant to the opinions set forth hereinafter.
Based upon the foregoing, it is our opinion that:
The shares of Common Stock presently issued and outstanding are, and the shares
of Common Stock to be issued upon the exercise of Warrants and Options, will be,
when sold in accordance with the terms and conditions set forth in the
Prospectus constituting a part of the Post-Effective Amendment to the
Registration Statement, legally issued, fully paid and non-assessable.
We hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to us under the heading "Legal Matters" in the
Prospectus which forms a part thereof.
Very truly yours,
OPTON HANDLER GOTTLIEB FEILER AND KATZ
BY: /S/ PETER LANDAU
- ---------------------
Peter Landau, Counsel
Employment Contract
THIS AGREEMENT made the 1st day of January, 1997, by and between Alpha Pro
Tech, Inc. ("Employer"), a corporation organized and existing under the laws of
the state of Oklahoma and Michael Scheerer, an individual ("Employee").
Employer and Employee mutually agree as follows:
1) Employer agrees to employ Employee and Employee agrees to be employed
by Employer as Senior Vice President - Sales and Marketing.
2) During Employee's employment with Employer as Senior Vice President -
Sales and Marketing Employee will devote his full time and give his best effort
and skill exclusively to promoting the business of Employer. Employee shall
perform the duties customarily associated with that position, and shall have
such other duties and responsibilities as may be specified from time to time by
Employer. Employee agrees not to engage in any personal or business activity
which interferes with his ability to perform his duties and responsibilities to
Employer
3) Employer and Employee have agreed that Employee shall receive the
following compensation and benefits:
a) Annual salary of One Hundred Twelve Thousand Five Hundred Ninety
Two and No/100 Dollars ($112,592.00), payable semimonthly.
b) Annual cash bonus as provided in this subparagraph b of this
Paragraph 3. For the purposes of this Agreement, "Target Earnings" for any
fiscal year means the projected net income of Employer for that year set forth
in the annual budget of Employer for that year prepared by management of
Employer and approved by the President and CEO of Employer, and "Actual
Earnings" for that year means the actual net income of Employer for that
<PAGE>
year set forth in Employer's audited financial statements for that year. Each
year during the term of this Agreement, Employee shall earn a cash bonus based
upon the Actual earnings for the year as a percentage of the Target Earnings for
the year, as follows:
Actual Earnings as %
of Target Earnings Cash Bonus
- ------------------ ----------
80% $30,000
90% $40,000
100% $50,000
110% $55,000
120% $60,000
130% $65,000
140% $70,000
150% $75,000
160% $80,000
170% $85,000
180% $90,000
190% $95,000
200% and above $200,000
The cash bonus for a particular year shall be paid to Employee not later than 10
days after the date the audited financial statements of Employer establishing
the Actual Earnings for that year have been released by the Employer to the
public.
c) Stock options as provided in this subparagraph c of the Paragraph
3. (i) Upon commencement of his employment under this Agreement, Employee shall
be entitled to be granted options to purchase 100,000 common shares of ALPHA PRO
TECH, LTD. at a price per share equal to the market price per share on December
31, 1996 with an expiration date of December 31, 2001, pursuant to ALPHA PRO
TECH, LTD.'S Incentive Stock Option Plan for Officers and Other Key Employees
(Employee has been furnished with a copy of the registration statement on form
S-8 relating to said plan). (ii) In addition to the stock options provided for
in the foregoing clause (i) of this subparagraph c of this Paragraph 3, for each
of the first 5 years of the term of this Agreement, Employee shall be entitled
to be granted options to purchase a number of common shares of ALPHA PRO TECH,
LTD., pursuant to ALPHA PRO TECH. LTD.'S
<PAGE>
Incentive Stock Option Plan for Officers and Other Key Employees as in effect on
the date of grant, based on the Actual Earnings for the year as a percentage of
the Target Earnings for the year, as follows:
Actual Earnings as %
of Target Earnings Number of Options
- ------------------ -----------------
80% 60,000
90% 80,000
100% 100,000
Such stock options for a particular year shall be granted to Employee effective
as of the date the audited financial statements of Employer establishing the
Actual Earnings for the year have been released by Employer to the public, and
shall entitle Employee to purchase such shares at a price per share equal to the
market price per share on the date that such audited financial statements are so
released to the public with a 5 year expiration date.
d) Health and dental insurance as provided other employees of
Employer.
e) A car expense allowance of $14,000 per year, to be expensed at
the rate of $1,167.00 per month.
f) Normal and reasonable business expenses of Employee's performance
of his duties under this Agreement (other than automobile expenses which are
provided for in subparagraph e of this Paragraph 3).
g) Reasonable vacation as needed.
4. a) During Employee's employment with Employer, or at any time in the
future after employment with Employer terminates, whether voluntarily or
involuntarily, Employee agrees not to disclose to any person, firm, corporation
or other entity, except as required by law, any confidential information or
trade secrets acquired through employment with Employer unless Employee is
acting with the prior written consent of Employer.
<PAGE>
b) Such confidential information and trade secrets are and will
remain the exclusive property of Employer. Employee agrees to return all
information and materials provided to him by employer upon termination of
employment, whether voluntary or involuntary, and Employee agrees not to retain
any copies of any such confidential information and trade secrets.
c) Employee agrees that Employer shall have the right , title and
interest in and to each and every discovery, improvement or entire invention
developed by Employee during the term of his employment by Employer which are
related to Employee's employment by Employer. Employee will cooperate fully with
Employer as requested by Employer in preparing and executing documents as may be
required to evidence or perfect such right, title and interest, and obtain any
legal protection thereof Employer may desire.
5. During Employee's employment with Employer, Employee agrees not to
engage, directly or indirectly, individually or as a partner, director, officer,
consultant, advisor, employee or agent, in any business competing for the
customers or accounts of Employer, or solicit business from any customer of
Employer on behalf of any company, firm, business, or other entity engaged in a
line similar to or competitive with that of Employer.
6. It is agreed that due to the irreparable injury and damage to Employer
that would result from Employee's breach or anticipated breach of any of the
terms and covenants of Paragraph 4 or 5 of this Agreement, Employer will be
entitled to injunctive relief against Employee for any such breach.
7. The term of this Agreement shall be for (3) years commencing January 1,
1997, provided , however , that if Actual Earnings for at least one (1) of such
initial three (3) years is not less than 100% of the Target Earnings for that
year, then the term of this Agreement shall be automatically extended for an
additional two (2) years commencing January 1, 1999. During the term of this
Agreement, Employer may terminate Employee for reasons of gross misconduct,
dishonesty, inability of Employee by reason of sickness or injury to perform the
normal duties of his employment under this Agreement for a period of two (2)
months in any twelve (12) month period, or conduct which breaches this
Agreement.
<PAGE>
8. a) For a period of one (1) year from the termination of employment with
Employer, Employee will not directly or indirectly solicit, service or manage
competitive business from or of any existing customers of Employer.
b. For purposes of this Agreement, a "existing customer" shall mean
any person, corporation or entity that was an active customer of Employer at the
time of termination of Employee's employment, or at any time during the twelve
(12) months prior to such termination.
c. The geographical limit of this Paragraph shall be the areas or
territories in which the Employer does business at the time of termination, or
the greatest geographical extent deemed reasonable and enforceable by any court
of competent jurisdiction called upon in appropriate proceedings to enforce this
Agreement.
d. It is further agreed that due to the irreparable injury and
damage to Employer that would result from Employee's breach or anticipated
breach of any of the terms and covenants of this Paragraphs 8 of this Agreement,
Employer will be entitled to injunctive relief against Employee for any such
breach or anticipated breach.
9. This Agreement shall expire automatically at the end of the term
provided in Paragraph 7 of this Agreement, unless renewed by Employer and
Employee, in writing, for a specified additional term. If this Agreement so
expires, the employment relationship between Employer and Employee shall convert
to employment-at-will, and either Employer or Employee may terminate said
employment at any time, with or without notice. Should said employment
relationship convert to at-will-employment, the remaining provisions of this
Agreement shall continue in full force and effect except for the first sentence
of Paragraph 7, and subject to the following; (i) Employee shall not be entitled
to receive any stock options with respect to any such period of at-will
employment, (ii) Employee's salary and car allowance during such period of
at-will employment shall be at the annual rates provided for in subparagraphs a
and e of Paragraph 2 of this Agreement but shall be payable only for the period
of such at-will employment, (iii) should such at-will employment terminate
during a calendar year, Employee shall be entitled to receive that portion of
the cash bonus for such year as the number of days
<PAGE>
of his employment during the year bears to the total number of days in the year,
and (iv) Employee shall be entitled to reimbursement only of business expenses
actually incurred during such period of at-will employment, and shall be
entitled to health and dental insurance benefits and vacation only during the
period of at-will employment.
10. a. Employer and Employee agree that any and all disputes,
disagreements, controversies or claims arising out of or pertaining to
Employee's employment with Employer or arising out of or relating to this
Agreement, with the exception of disputes, disagreements, controversies, or
claims pertaining to Paragraph 4 or 5 or 8, of this Agreement if not resolved
informally, will be submitted to final and binding arbitration upon the written
request of either Employer or Employee.
b. The written request for arbitration must state the nature of the
dispute, disagreement, controversy, or claim of the party requesting arbitration
and state in detail the facts underlying the dispute, disagreement, controversy,
or claim.
c. The arbitrator will be selected and the arbitration proceedings
will be conducted in accordance with the Rules and Regulations of the American
Arbitration Association.
d. Employer and Employee will share equally all costs associated
with the arbitration procedure, including, but not limited to, any fees or
charges of the American Arbitration Association, and the arbitrator's fee,
regardless of the outcome of the arbitrator's decision.
11. This Agreement sets froth the entire Agreement between Employer and
Employee concerning the terms and conditions of Employee's employment with
Employer. All prior terms and conditions of employment, whether written or oral,
are superseded by this Agreement. This Agreement shall not be amended except by
written instrument executed by Employer and Employee.
12. Should any court of competent jurisdiction determine that any
provision of this Agreement is void or unenforceable, in whole or in part, such
determination shall not affect any other provision of this Agreement, and all
other provisions shall remain in force and effect.
<PAGE>
13. Any waiver by either party of a breach of any provision of this
Agreement shall not operate or be construed to be a waiver of any other breach
of such provision or any breach of any other provision of this Agreement. The
failure of either party to insist upon strict adherence to any terms of this
Agreement on one or more occasions shall not be considered a waiver or deprive
that party of the right thereafter to insist upon strict adherence to that term
or any other terms of this Agreement. No waiver by Employer shall be valid
unless in writing and signed by an authorized officer of Employer.
14. This Agreement shall be governed by and construed in accordance with
the laws of the State of Utah.
IN WITNESS WHEREOF, Alpha Pro Tech, Inc. has caused this instrument to be
executed and its corporate seal affixed by its duly authorized officers, and
Employee has set his hand and seal hereon as of the date first above written.
ALPHA PRO TECH, INC.
Date January 3, 1997 By /s/ Sheldon Hoffman
-------------------- -------------------------
/s/ [ILLEGIBLE] /s/ Michael Scheerer
- ----------------------------- -------------------------------
Witness Employee
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated March 18, 1996 to the
financial statements of Alpha Pro Tech, Ltd., which appears in such Prospectus.
We also consent to the application of such report to the Financial Statement
Schedule for the three years ended December 31, 1995 listed under Item 16(b) of
this Registration Statement when such schedule is read in conjunction with the
financial statements referred to in our report. The audits referred to in such
report also included this schedule.
/s/ Price Waterhouse LLP
Price Waterhouse LLP
Salt Lake City, Utah
January 30, 1997
