SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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Quarterly Report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 1998 Commission File No. 0-19893
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Alpha Pro Tech, Ltd.
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(exact name of registrant as specified in its charter)
Delaware, U.S.A. 63-1009183
- ---------------- ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation)
Suite 112, 60 Centurian Drive
Markham, Ontario, Canada L3R 9R2
- ------------------------ -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (905) 479-0654
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 3 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate the number of shares outstanding of each of the issuer's classes of
common stock , as of May 4, 1998
Common stock, $.01 par value..... 24,112,449
<PAGE>
Alpha Pro Tech, Ltd.
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1 Consolidated Financial Statements (Unaudited) Page No.
a) Consolidated Balance Sheet -
March 31, 1998 (unaudited) and December 31, 1997 1
b) Consolidated Statement of Operations for the three months
ended March 31, 1998 and March 31, 1997 (unaudited) 2
c) Consolidated Statement of Shareholder's Equity
for the three months ended March 31, 1998 (unaudited) 3
d) Consolidated Statement of Cash Flows for the three months
ended March 31, 1998 and March 31, 1997 (unaudited) 4
e) Notes to Consolidated Financial Statements 5-6
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-11
SIGNATURES 12
<PAGE>
Alpha Pro Tech, Ltd.
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
March 31, December 31,
1998 1997
(Unaudited)
Assets
Current Assets:
Cash $ 302,000 $ 490,000
Marketable Securities-restricted 17,000 21,000
Accounts receivable, net of allowance for
doubtful accounts of $84,000 and $91,000 2,918,000 2,805,000
Income taxes receivable 5,000 5,000
Inventories 3,668,000 3,697,000
Prepaid expenses and other assets 332,000 393,000
------------ ------------
7,242,000 7,411,000
Property and equipment, net of accumulated
depreciation and amortization of $1,176,000
and $1,088,000 2,124,000 2,084,000
Intangible assets, net of accumulated
amortization of $102,000 and $92,000 310,000 305,000
Other 187,000 185,000
------------ ------------
$ 9,863,000 $ 9,985,000
============ ============
Liabilities & Shareholder's Equity
Current Liabilities:
Accounts payable $ 1,575,000 $ 2,142,000
Accrued liabilities 589,000 494,000
Loans payable, current portion 1,311,000 1,051,000
Capital leases, current portion 120,000 112,000
------------ ------------
3,595,000 3,799,000
Loans payable, less current portion 307,000 320,000
Capital leases, less current portion 241,000 229,000
------------ ------------
4,143,000 4,348,000
------------ ------------
Shareholders' Equity
Common stock, $.01 par value, 50,000,000
shares authorized, and 24,112,449
issued and outstanding at March 31, 1998
and December 31, 1997 241,000 241,000
Additional paid-in capital 24,338,000 24,338,000
Accumulated deficit (18,859,000) (18,942,000)
------------ ------------
5,720,000 5,637,000
------------ ------------
$ 9,863,000 $ 9,985,000
============ ============
1
<PAGE>
Alpha Pro Tech, Ltd.
Consolidated Statement of Operations (Unaudited)
- --------------------------------------------------------------------------------
For the three months
ended March 31,
1998 1997
Sales $ 4,742,000 $ 3,985,000
Cost of goods sold, excluding
depreciation 2,846,000 2,445,000
=========== ===========
1,896,000 1,540,000
Expenses
Selling, general and administrative 1,661,000 1,323,000
Depreciation and amortization 98,000 70,000
=========== ===========
Income from operations 137,000 147,000
Interest 54,000 81,000
Other 0 0
=========== ===========
54,000 81,000
=========== ===========
Income before provision for income taxes 83,000 66,000
Provision for income taxes 0 0
=========== ===========
Net Income $ 83,000 $ 66,000
=========== ===========
Basic Net Income per share $ 0.00 $ 0.00
=========== ===========
Diluted Net Income per share $ 0.00 $ 0.00
=========== ===========
Basic weighted average number of shares
outstanding 24,112,449 22,216,718
=========== ===========
Diluted weighted average number of shares
outstanding 24,112,449 25,139,796
=========== ===========
2
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Alpha Pro Tech, Ltd.
Consolidated Statement of Shareholders' Equity (Unaudited)
- --------------------------------------------------------------------------------
Additional
Common Paid-in Accumulated
Shares Stock Capital Deficit Total
Balance at
December 31,
1997 24,112,449 $241,000 $24,338,000 ($18,942,000) $5,637,000
Net Income 83,000 83,000
---------- -------- ----------- ------------ ----------
Balance at
March 31, 1998 24,112,449 $241,000 $24,338,000 ($18,859,000) $5,720,000
========== ======== =========== ============ ==========
3
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Alpha Pro Tech, Ltd.
Consolidated Statement of Cash Flows (Unaudited)
- --------------------------------------------------------------------------------
For the three months ended
March 31,
1998 1997
Operating Activities:
Net Income/(loss) $ 83,000 $ 66,000
Adjustments to reconcile net income to cash
used for operating activities:
Depreciation and amortization 98,000 70,000
Changes in assets and liabilities:
Accounts receivable (113,000) (64,000)
Inventories 29,000 (194,000)
Prepaid expenses and other assets 59,000 (14,000)
Accounts payable and accrued liabilities (472,000) (647,000)
----------- -----------
Net cash provided by (used for) operating
activities: (316,000) (783,000)
----------- -----------
Investing Activities:
Purchase of property and equipment (128,000) (177,000)
Purchase of intangible assets (15,000) (9,000)
Sale of marketable securities 4,000 17,000
----------- -----------
Net cash used for investing
activities (139,000) (169,000)
----------- -----------
Financing Activities:
Issuance of common stock -- 2,191,000
Net proceeds (payments) on loans payable 247,000 35,000
Net proceeds (payments)on notes payable -- (24,000)
Net proceeds (payments) on capital leases 20,000 88,000
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Net Cash provided by financing activities 267,000 2,290,000
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Increase (decrease) in cash during the period (188,000) 1,338,000
Cash, beginning of period $ 490,000 $ 275,000
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Cash, end of period $ 302,000 $ 1,613,000
----------- -----------
4
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Alpha Pro Tech, Ltd.
Notes to Consolidated Financial Statements (Unaudited)
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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. 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.
2. Basis of Presentation
The unaudited interim financial statements reflect all adjustments which
are in the opinion of management necessary for a fair presentation of the
results for the interim period presented. All such adjustments made are of
a normal recurring nature.
There have been no significant changes since December 31, 1997 in
accounting principles and practices utilized in the presentation of these
financial statements.
3. Inventories
March 31, December 31,
1998 1997
Raw Materials $1,635,000 $1,741,000
Work in process 486,000 370,000
Finished goods 1,547,000 1,586,000
---------- ----------
$3,668,000 $3,697,000
========== ==========
4. Accrued liabilities
March 31, December 31,
1998 1997
Professional fees $195,000 $145,000
Payroll and payroll taxes 250,000 267,000
Other 144,000 82,000
-------- --------
$589,000 $494,000
======== ========
5
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Alpha Pro Tech, Ltd.
Notes to Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
5. Basic and Diluted Net Income/(loss) per share
Basic and diluted net income/(loss) per share of common stock is based on
the weighted average number of shares of common stock outstanding during
the quarter. Potential common stock have been excluded from the diluted
per share calculation for 1998 as exercise price of all outstanding
options and warrants are greater than the weighted averae market price per
share for the quarter.
6. Provision for Income Tax
No provision for income tax has been recorded in the Statement of
Operations for the three months ended March 31, 1998, as taxable income
has been eliminated as a result of the utilization of net operating loss
carry forwards.
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three Months ended March 31, 1998, compared to the three months ended March 31,
1997
Alpha Pro Tech, Ltd. ("Alpha" or the "Company") reported net income for the
three months ended March 31, 1998 of $83,000 as compared to net income of
$66,000 for the three months ended March 31, 1997 representing an improvement of
$17,000 or 25.8%.
Sales Consolidated net sales for the three months ended March 31, 1998 increased
to $4,742,000 from $3,985,000 in 1997, representing an increase of $757,000 or
19.0%. Net sales for the Apparel Division for the first quarter ended March 31,
1998 were $3,160,000 as compared to $2,280,000 for the same period of 1997. The
Apparel Division sales increase of $880,000 or 38.6% was primarily due to
increased sales to the Company's largest distributor which is expected to
continue growing as a result of the Company's strategy toward developing
innovative solutions to meet this and other customers needs. Mask and eye shield
sales decreased by $83,000 or 7.7%, to $995,000 for the first quarter of 1998
from $1,078,000 in the first quarter of 1997. Sales of these products should
strengthen in the second half of 1998 with the introduction of a new line of
masks and shields. Sales from the Company's Extended Care Unreal Lambskin(R) and
other related products which includes a line of pet beds decreased by $40,000 or
6.4%, to $587,000 in the first quarter of 1998 compared to $627,000 in the same
period in 1997. The decrease in sales is primarily a result of the
discontinuation of a low margin rolled good line, which was partially offset by
an increase in medical fleece sale. A small decrease in Alpha's line of pet beds
& related products was also responsible for the decrease. The Company's line of
pet products is expected to improve in the future.
Alpha has recently restructured its business around a new strategy of innovation
that will enable it to develop custom products to meet its customers needs in a
very timely manner. This new approach is to satisfy customer requirements in a
way that the Company's larger competitors are unable to match.
The Company has a profit sharing agreement with its largest distributor. Goods
shipped at cost to this distributor are to fill orders already received from the
distributor's end users. Revenue for goods shipped to this distributor which
includes goods shipped at cost as well as the Company's share of the profits,
are recognized at the time the goods are shipped.
Cost of Goods Sold Cost of goods sold increased to $2,846,000 for the three
months ended March 31,1997 from $2,445,000 for the same period in 1997. As a
percentage of
7
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net sales, cost of goods sold decreased to 60.0% in 1998 from 61.4% in 1997.
Gross profit margin increased to 40.0% for the three months ended March 31, 1998
from 38.6% for the three months ended March 31, 1997. The improvement in gross
profit is a result of the Company's new strategic emphasis of developing
innovative high gross profit products, especially for its largest customer, and
also on improved manufacturing efficiency as a result of recent capital
expenditures. Management expects gross profit margin to continue to remain
strong through its strategic emphasis of developing innovative products and
processes but, there can be no assurance that these margin improvements will be
sustained.
Selling, General and Administrative Expenses Selling, general and administrative
expenses increased by $338,000 to $1,661,000 for the three months ended March
31, 1998 from $1,323,000 for the three months ended March 31, 1997. As a
percentage of net sales, selling, general and administrative expenses increased
35.0% in 1998 from 33.2% in 1997. The increase in selling, general and
administrative expenses primarily consists of increased payroll related costs of
$112,000; increased marketing, commissions and travel expenses of $104,000;
increased public company expenses of $42,000 including investor relations,
options/warrants issued for services; stock transfer costs, and costs associated
with SEC reporting requirements; and increased general office and factory
expenses of $26,000.
The $112,000 increase in payroll related costs, is primarily comprised of a
$9,000 decrease in administrative salaries and a $125,000 increase in factory
indirect expenses of which the majority is attributable to the Apparel Division
which had an increase in sales of 38.6%. As a percentage of Apparel Division
sales, selling, general and administrative expenses for the Apparel Division
decreased to 19.9% for the first quarter of 1998 as compared to 21.8% in the
first quarter of 1997.
Marketing, commissions and travel expenses, which increased $104,000 in the
first quarter of 1998 as compared to the same period in 1997, increased as a
percentage of net sales to 6.6% from 5.2%. These expenses are as a result of
additional focus being placed on customers other than the Company's largest
customer.
Selling, general and administrative expenses as a percentage of net sales was
35.0% in the first quarter of 1998 as compared to 36.6% for all of fiscal 1997.
Management expects selling, general and administrative expenses as a percentage
of net sales to continue to decrease as sales increase.
Depreciation & Amortization Depreciation and amortization expense increased by
$28,000 to $98,000 for the three months March 31, 1998 from $70,000 for the same
period in 1997. This increase is primarily attributable to an increase in the
purchase of
8
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equipment through capital leases.
Net Interest Interest expense decreased by $27,000 or 33.3%, to $54,000 for the
three months ended March 31, 1998 from $81,000 for the three months ended March
31, 1997. The decrease in net interest expense is due to a decrease in the cost
of capital partially offset by increases in interest on additional capital
leases acquired. In December 1997, the Company entered into a new three-year
$2,900,000 credit facility with an asset-based lendor at prime plus 2%. Alpha's
previous credit facility was at prime plus 5%.
Income from Operations Income from operations decreased by $10,000 to $137,000
for the three months ended March 31, 1998 from $147,000 for the three months
ended March 31, 1997. The decreased income from operations is primarily due to
an increase of gross profit of $356,000 offset by an increase in selling,
general and administrative expenses of $338,000 and an increase in depreciation
and amortization of $28,000.
Net Income Net income for the three months ended March 31, 1998 was $83,000
compared to a net income of $66,000 for the three months ended March 31, 1997,
an improvement of $17,000 or 25.8%. The net income increase of $17,000 is
comprised primarily of a decrease in income from operations of $10,000 offset by
a decrease in interest expense of $27,000.
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 1997.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1998, the Company had cash of $302,000 and working capital of
9
<PAGE>
$3,647,000. For the three months ended March 31, 1998, cash decreased by
$188,000 and accounts payable and accrued liabilities decreased by $472,000. The
Company currently has a secured asset based lender's line of credit of
$2,900,000, based upon the level of eligible accounts receivable, inventory and
equipment which expires in December 2000. At March 31, 1998, the maximum line of
credit was $2,305,000 for accounts receivable, inventory and equipment of which
$687,000 remained available.
Net cash used for operations was $316,000 for the three months ended March 31,
1998 and $783,000 for the same period of 1997. The Company's use of cash from
operations for the three months ended March 31, 1998 is due primarily to
increase in accounts receivable and a decrease in accounts payable offset by
decreases in inventories and prepaid expenses and other assets.
The Company's investing activities have consisted primarily of expenditures for
fixed assets and intangible assets of $143,000 offset by $4,000 for the sale of
marketable securites for a total of $139,000 for the three months ended March
31, 1998.
The Company anticipates that its mask manufacturing capabilities are to be
improved based on customer demands at an estimated cost of $225,000. Depending
on the success of the automated shoe cover approximately $350,000 of additional
equipment could be required. The Company intends to lease equipment whenever
possible.
During the three months ended March 31,1998, the Company's financing activities
consisted primarily of increases in the asset based loan of $247,000 and capital
leases of $20,000 resulting in the net cash provided by financing activities of
$267,000.
Management believes that it has available cash and borrowings to finance all
known financial commitments for at least 12 months.
NEW ACCOUNTING STANDARDS
The financial accounting standards board has issued statement of financial
accounting standards (SFAS) No. 128, "Earnings Per Share," which became
effective after December 15, 1997. SFAS 128 requires the computation of "basic"
earnings per share, which utilizes the weighted average number of common shares
outstanding without
10
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regard to potential common shares, and "diluted" earnings per share, which
includes all such shares if dilutive.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 ("Act) provides a safe
harbor for forward-looking information made on behalf of the Company. All
statements, other than statements of historical facts which address the
Company's expectations of sources of capital or which express the Company's
expectation for the future with respect to financial performance or operating
strategies can be identified as forward-looking statements. Such statements made
by the Company are based on knowledge of the environment in which it operates,
but because of the factors previously listed, as well as other factors beyond
the control of the Company, actual results may differ materially from the
expectations expressed in the forward-looking statements.
11
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SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has dult caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Alpha Pro Tech, Ltd.
DATE: May 6, 1998 BY: /s/ Sheldon Hoffman
-------------------------- --------------------------------
SHELDON HOFFMAN
CHIEF EXECUTIVE OFFICER
CHIEF FINANCIAL OFFICER
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as of March 31, 1998 and December 31, 1997 and
the Statement of Operations for the three months ended March 31, 1998 and
March 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 302,000
<SECURITIES> 17,000
<RECEIVABLES> 3,002,000
<ALLOWANCES> 84,000
<INVENTORY> 3,668,000
<CURRENT-ASSETS> 7,242,000
<PP&E> 3,300,000
<DEPRECIATION> 1,176,000
<TOTAL-ASSETS> 9,863,000
<CURRENT-LIABILITIES> 3,595,000
<BONDS> 0
0
0
<COMMON> 241,000
<OTHER-SE> 24,338,000
<TOTAL-LIABILITY-AND-EQUITY> 9,863,000
<SALES> 4,742,000
<TOTAL-REVENUES> 4,742,000
<CGS> 2,846,000
<TOTAL-COSTS> 2,846,000
<OTHER-EXPENSES> 1,759,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,000
<INCOME-PRETAX> 83,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 83,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 83,000
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
