<PAGE>
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 June 30, 1999 COMMISSION FILE NO. 0-19893
ALPHA PRO TECH, LTD.
(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 JULY 28, 1999
Common stock, $.01 par value..... 24,112,449
<PAGE>
ALPHA PRO TECH, LTD.
Table of Contents
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1 Consolidated Financial Statements (Unaudited) Page No.
<S> <C> <S>
a) Consolidated Balance Sheet -
June 30, 1999 (unaudited) and December 31, 1998 1
b) Consolidated Statement of Operations for the three and six
months ended June 30, 1999
and June 30, 1998 (unaudited) 2
c) Consolidated Statement of Shareholders' Equity
for the six months ended June 30, 1999 (unaudited) 3
d) Consolidated Statement of Cash Flows for the six months ended
June 30, 1999
and June 30, 1998 (unaudited) 4
e) Notes to Consolidated Financial Statements 5-8
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
PART II. OTHER INFORMATION
ITEM 4 Submission of Matters to a Vote Security Holders 14
SIGNATURES 15
</TABLE>
<PAGE>
ALPHA PRO TECH, LTD.
CONSOLIDATED BALANCE SHEET
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
(UNAUDITED)
ASSETS
Current assets:
<S> <C> <C>
Cash $ 469,000 $ 43,000
Restricted cash 17,000 16,000
Accounts receivable, net of allowance for doubtful accounts
of $48,000 at June 30, 1999 and December 31, 1998 3,768,000 3,038,000
Inventories 3,284,000 2,999,000
Prepaid expenses and other current assets 243,000 134,000
-------------------- ------------------
Total current assets 7,781,000 6,230,000
Property and equipment, net 2,100,000 2,125,000
Intangible assets, net 293,000 305,000
Notes receivable and other assets 272,000 278,000
-------------------- ------------------
$ 10,446,000 $ 8,938,000
-------------------- ------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,773,000 $ 983,000
Accrued liabilities 522,000 474,000
Notes payable, current portion 1,222,000 1,009,000
Capital leases, current portion 108,000 113,000
-------------------- ------------------
Total current liabilities 3,625,000 2,579,000
Notes payable, less current portion 207,000 247,000
Capital leases, less current portion 110,000 159,000
-------------------- ------------------
Total liabilities 3,942,000 2,985,000
-------------------- ------------------
Shareholders' Equity:
Common stock, $.01 par value, 50,000,000 shares authorized,
24,112,449 shares issued and outstanding at
June 30, 1999 and December 31, 1998 241,000 241,000
Additional paid-in capital 24,338,000 24,338,000
Accumulated deficit (18,075,000) (18,626,000)
-------------------- ------------------
Total shareholders' equity 6,504,000 5,953,000
-------------------- ------------------
$ 10,446,000 $ 8,938,000
-------------------- ------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
<PAGE>
Alpha Pro Tech, Ltd.
Consolidated Statement of Operations (Unaudited)
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Sales $ 5,222,000 $ 4,701,000 $ 9,712,000 $ 9,443,000
Cost of goods sold, excluding depreciation
and amortization 3,164,000 2,884,000 5,759,000 5,730,000
---------------- ---------------- ----------------- --------------
2,058,000 1,817,000 3,953,000 3,713,000
Expenses:
Selling, general and administrative 1,631,000 1,575,000 3,106,000 3,236,000
Depreciation and amortization 108,000 100,000 216,000 198,000
---------------- ---------------- ----------------- --------------
Income from operations 319,000 142,000 631,000 279,000
Interest, net 39,000 51,000 80,000 105,000
---------------- ---------------- ----------------- --------------
Income before provision
for income taxes 280,000 91,000 551,000 174,000
Provision (benefit) for income taxes -- -- -- --
---------------- ---------------- ----------------- --------------
Net income $ 280,000 $ 91,000 $ 551,000 $ 174,000
---------------- ---------------- ----------------- --------------
---------------- ---------------- ----------------- --------------
Basic income per share $ 0.01 $ 0.00 $ 0.02 $ 0.01
---------------- ---------------- ----------------- --------------
Diluted income per share $ 0.01 $ 0.00 $ 0.02 $ 0.01
---------------- ---------------- ----------------- --------------
Basic weighted average shares outstanding 24,112,449 24,112,449 24,112,449 24,112,449
---------------- ---------------- ----------------- --------------
Diluted weighted average shares outstanding 24,405,106 24,249,657 24,392,187 24,303,654
---------------- ---------------- ----------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
<PAGE>
ALPHA PRO TECH, LTD.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES COMMON STOCK ADDITIONAL ACCUMULATED TOTAL
PAID-IN CAPITAL DEFICIT
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1998 24,112,449 $ 241,000 $ 24,338,000 $ (18,626,000) $ 5,953,000
Net income -- -- -- 551,000 551,000
-------------- ------------------ -------------------- ----------------- ----------------
Balance at
June 30, 1999 24,112,449 $ 241,000 $ 24,338,000 $ (18,075,000) $ 6,504,000
-------------- ------------------ -------------------- ----------------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
ALPHA PRO TECH, LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- ---------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 551,000 $ 174,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 216,000 198,000
Changes in assets and liabilities:
Restricted cash
(1,000) 4,000
Accounts receivable (730,000) 54,000
Inventories (285,000) 319,000
Prepaid expenses and other assets (109,000) 30,000
Accounts payable and accrued liabilities 837,000 (753,000)
--------------- ---------------
Net cash provided by operating activities 479,000 26,000
--------------- ---------------
Cash flows from investing activities:
Purchase of property and equipment (168,000) (211,000)
Cost of intangible assets (10,000) (30,000)
(Proceeds) purchase of other assets 6,000 (11,000)
--------------- ---------------
Net cash used in investing activities (172,000) (252,000)
--------------- ---------------
Cash flows from financing activities:
Net proceeds (payments) on loans payable 173,000 (140,000)
Principal repayments on capital leases (54,000) (13,000)
--------------- ---------------
Net cash provided by (used in) financing activities 119,000 (153,000)
--------------- ---------------
Increase (decrease) in cash $ 426,000 $ (379,000)
Cash, beginning of period $ 43,000 490,000
Cash, end of period $ 469,000 $ 111,000
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
<PAGE>
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ---------------------------------------------------------------------
1. THE COMPANY
Alpha Pro Tech, Ltd. (the Company) manufactures and distributes a variety
of disposable mask, shield, shoe cover, 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 accompanying financial statements are unaudited but, in the opinion of
management, contain all the adjustments (consisting of those of a normal
recurring nature) considered necessary to present fairly the financial
position and the results of operations and cash flows for the periods
presented in conformity with generally accepted accounting principles
applicable to interim periods. The accompanying financial statements should
be read in conjunction with the audited consolidated financial statements of
the Company for the year ended December 31, 1998.
There have been no significant changes since December 31, 1998 in
accounting principles and practices utilized in the presentation of these
financial statements.
3. INVENTORIES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
<S> <C> <C>
Raw materials $ 1,691,000 $ 1,699,000
Work in process 298,000 95,000
Finished goods 1,295,000 1,205,000
---------------- -----------------
$ 3,284,000 $ 2,999,000
---------------- -----------------
---------------- -----------------
</TABLE>
4. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
<S> <C> <C>
Professional fees $ 83,000 $ 105,000
Payroll and payroll taxes 277,000 122,000
Other 162,000 247,000
---------------- ------------------
$ 522,000 $ 474,000
---------------- ------------------
---------------- ------------------
</TABLE>
5
<PAGE>
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ---------------------------------------------------------------------
5. BASIC AND DILUTED NET INCOME PER SHARE
Net income per share "EPS" has been computed pursuant to the provisons of
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
Per Share".
The following table provides a reconciliation of both the net income and the
number of shares used in the computations of "basic" EPS, which utilizes the
weighted average number of shares outstanding without regard to potential
shares, and "diluted" EPS, which includes all such shares.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income (Numerator) $ 280,000 $ 91,000 $ 551,000 $ 174,000
Shares (Denominator):
Basic weighted average shares outstanding 24,112,449 24,112,449 24,112,449 24,112,449
Add: Dilutive effect of stock options and warrants 292,657 137,208 279,738 191,205
--------------- --------------- -------------- ---------------
Diluted weighted average shares outstanding 24,405,106 24,249,657 24,392,187 24,303,654
--------------- --------------- -------------- ---------------
--------------- --------------- -------------- ---------------
Net income per share:
Basic $ 0.01 $ 0.00 $ 0.02 $ 0.01
Diluted $ 0.01 $ 0.00 $ 0.02 $ 0.01
</TABLE>
6. PROVISION FOR INCOME TAX
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. At December 31, 1998 the Company had net
operating loss (NOL) carryforwards of approximately $5,005,000. No provision
(benefit) for income taxes has been recorded in the consolidated statements
of operations as a result of the Company's net operating loss carryforwards
and the fact that the Company's history of recurring losses makes the
realization of the benefit of such losses uncertain.
6
<PAGE>
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
7. ACTIVITY OF BUSINESS SEGMENTS
In 1998 the Company adopted Statement of Fianancial Accounting Standards
No. 131 (SFAS 131) "Disclosures About Segments of an Enterprise and Related
Information". In accordance with SFAS 131, the prior year's segment
information has been restated to present comparable information concerning
the Company's reportable segments.
The Company classifies its businesses into three fundamental segments:
Apparel, consisting principally of disposable medical clothing such as
coveralls, frocks, lab coats, hoods, bouffant caps, and shoe covers
(including the Aqua Track and spunbond shoe covers); Mask and eye shields,
consisting principally of medical , dental and industrial masks and eye
shields; and Extended Care Unreal Lambskin(R), consisting principally of
fleece and other related products which includes a line of pet beds.
Segment data excludes charges allocated to head office and corporate
sales/marketing departments. The Company evaluates the performance of its
segments and allocates resources to them based primarily on net sales and
gross margin.
The following table shows net sales for each segment for the three and six
months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Apparel $ 3,497,000 $ 3,192,000 $6,200,000 $6,358,000
Mask and shield 1,267,000 1,066,000 2,395,000 2,056,000
Fleece 458,000 443,000 1,117,000 1,029,000
----------------- --------------- -------------- ---------------
Consolidated total net sales $ 5,222,000 $ 4,701,000 $9,712,000 $9,443,000
----------------- --------------- -------------- ---------------
----------------- --------------- -------------- ---------------
</TABLE>
7
<PAGE>
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- --------------------------------------------------------------------------------
A reconciliation of total segment net income to total consolidated net
income for the three and six months ended June 30, 1999 and 1998 is
presented below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS
JUNE 30, ENDED JUNE 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Apparel $ 687,000 $ 461,000 $1,195,000 $ 964,000
Mask and Shield 128,000 94,000 280,000 46,000
Fleece 105,000 92,000 265,000 272,000
---------------- ---------------- --------------- --------------
Total segment net income 920,000 647,000 1,740,000 1,282,000
Unallocated corporate overhead expenses (640,000) (556,000) (1,189,000) (1,108,000)
---------------- ---------------- --------------- --------------
Consolidated net income $ 280,000 $ 91,000 $ 551,000 $ 174,000
---------------- ---------------- --------------- --------------
---------------- ---------------- --------------- --------------
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 1999 COMPARED TO FISCAL 1998
Alpha Pro Tech, Ltd. ("Alpha" or the "Company") reported net income for the
three months ended June 30, 1999 of $280,000 as compared to net income of
$91,000 for the three months ended June 30, 1998, representing an improvement of
$189,000 or 207.7%. For the six months ended June 30, 1999 net income rose to
$551,000 from $174,000 for the same period in 1998, representing an increase of
$377,000 or 216.7%. The year to date net income increase of $377,000 is
attributable primarily to an increase in gross profit of $240,000, a decrease in
selling, general and administrative expenses of $130,000, and a decrease in net
interest expense of $25,000, partially offset by an increase in depreciation and
amortization of $18,000.
SALES Consolidated net sales for the three months ended June 30, 1999 increased
to $5,222,000 from $4,701,000 for the comparable three months in 1998,
representing an increase of $521,000 or 11.1%.
Net sales for the Apparel Division for the three months ended June 30, 1999 were
$3,497,000 as compared to $3,192,000 for the same period of 1998. The Apparel
Division sales increase of $305,000 or 9.6% was primarily due to increased sales
to the Company's largest distributor.
Mask and eye shield sales increased by $201,000 or 18.9% to $1,267,000 for the
second quarter of 1999 from $1,066,000 in the second quarter of 1998. This
increase is primarily the result of an improvement in medical & industrial mask
sales, partially offset by decreases in dental mask sales. Sales of mask and eye
shields have increased for the second consecutive quarter and should continue to
strengthen in 1999 with the introduction of the Medical Division and the
introduction of a new line of masks and eye shields.
Sales from the Company's Extended Care Unreal Lambskin(R) and other related
products, which includes a line of pet beds, increased slightly by $15,000 or
3.4% to $458,000 in the second quarter of 1999 compared to $443,000 in the same
period in 1998. The increase in sales of $15,000 is primarily the result of
increases in sales of pet products.
Consolidated sales were $9,712,000 and $9,443,000 for the six months ended June
30, 1999 and 1998 respectively, representing an increase of $269,000 or 2.8%.
Net sales for the Apparel Division for the six months ended June 30, 1999 were
$6,200,000 as compared to $6,359,000 for the same period of 1998, a decrease of
2.5% which is primarily due to decreased sales to the Company's largest
distributor. The Company's largest distributor has seen sales increases for four
consecutive quarters and sales are expected to stay strong for the balance of
1999 and the Company's sales should also be strong. Mask and eye shield sales
increased by $339,000 or 16.5% to $2,395,000 for the six months ended June 30,
1999 from $2,056,000 in the same period of 1998. The increase is primarily the
result of an improvement in medical & industrial mask sales, partially offset by
decreases in dental mask sales. Sales from the Company's Extended Care Unreal
Lambskin(R) and other related products increased by $89,000 or 8.7% to
$1,117,000 for the six months ended June 30, 1999 compared to $1,029,000 in the
same period in 1998. The increase in sales is primarily the result of increases
in medical fleece sales.
9
<PAGE>
COST OF GOODS SOLD Cost of goods sold increased to $3,164,000 for the three
months ended June 30,1999 from $2,884,000 for the same period in 1998. As a
percentage of net sales, cost of goods sold decreased to 60.6% in 1999 from
61.3% in 1998. Gross profit margin increased to 39.4% for the three months
ended June 30, 1999 from 38.7% for the same period in 1998.
For the six months ended June 30, 1999 as compared to 1998, cost of goods sold
increased slightly to $5,759,000 from $5,730,000. As a percentage of net sales
for the six months, cost of goods decreased to 59.3% from 60.7%. Gross profit
margin increased to 40.7% from 39.3% for the six months ended June 30, 1999 and
1998, respectively.
The improvement in gross profit margin to 40.7% from 39.3% is a result of the
Company's strategic emphasis on developing innovative products, especially for
its largest customer, and improved manufacturing processes and efficiency.
Management expects gross profit margin to continue to remain strong, but there
can be no assurance that the Company's margin improvements will be sustained.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative
expenses increased by $56,000 to $1,631,000 for the three months ended June 30,
1999 from $1,575,000 for the three months ended June 30, 1998. The increase in
selling, general and administrative expenses primarily consists of increased
payroll related costs of $45,000; increased rent of $19,000; increased
professional fees of $17,000; increased insurance, general office and factory
expenses of $78,000; partially offset by decreased marketing, commissions and
travel expenses of $59,000; decreased public company expenses of $33,000,
including investor relations, options/warrants issued for services, annual
report and annual meeting costs, stock transfer costs, and costs associated with
SEC reporting requirements. As a percentage of net sales, selling, general and
administrative expenses decreased to 31.2% in the second quarter of 1999 from
33.5% in the same period of 1998. For the second consecutive quarter, selling,
general and administrative expenses have decreased as a percentage of net sales.
Selling, general and administrative expenses decreased by $130,000 or 4.0%, to
$3,106,000 for the six months ended June 30, 1999 from $3,236,000 for the six
months ended June 30, 1998. The decrease in selling, general and administrative
expenses primarily consists of decreased public company expenses of $96,000,
including investor relations, options/warrants issued for services, annual
report and annual meeting costs, stock transfer costs, and costs associated with
SEC reporting requirements; decreased professional fee expenses of $10,000;
decreased telecommunications expense of $26,000 and decreased marketing,
commissions and travel expenses of $143,000; partially offset by increased
payroll related costs of $63,000; increased rent of $18,000; and increased
insurance, general office and factory expenses of $72,000. As a percentage of
net sales, selling, general and administrative expenses decreased to 32.0% in
the six months ended June 30, 1999 from 34.3% in the same period of 1998.
Management expects selling, general and administrative expenses as a percentage
of net sales to decrease as sales increase.
10
<PAGE>
DEPRECIATION & AMORTIZATION Depreciation and amortization expense increased by
$8,000 to $108,000 for the three months ended June 30, 1999 from $100,000 for
the same period in 1998 and increased by $18,000 to $216,000 from $198,000 for
the six months ended June 30, 1999 compared to 1998. This increase is primarily
attributable to an increase in the purchase of equipment through capital leases.
INCOME FROM OPERATIONS Income from operations increased by $177,000 to $319,000
for the three months ended June 30, 1999 as compared to income from operations
of $142,000 for the three months ended June 30, 1998. The increase in income
from operations is due to an increase in gross profit of $241,000, partially
offset by an increase in selling, general and administrative expenses of $56,000
and an increase in depreciation and amortization of $8,000.
Income from operations increased by $352,000 to $631,000 for the six months
ended June 30, 1999 as compared to income from operations of $279,000 for the
six months ended June 30, 1998. The increase in income from operations is due to
an increase in gross profit of $240,000, and a decrease in selling, general and
administrative expenses of $130,000, partially offset by an increase in
depreciation and amortization of $18,000.
NET INTEREST Net Interest expense decreased by $12,000 or 23.5% to $39,000 for
the three months ended June 30, 1999 from $51,000 for the three months ended
June 30, 1998. Net Interest expense decreased by $25,000 or 23.8% to $80,000 for
the six months ended June 30, 1999 from $105,000 for the six months ended June
30, 1998. The decrease in net interest expense is due to a decrease in the cost
of capital partially offset by a decrease in interest income. Interest income
decreased by $3,000 to $17,000 for the six months ended June 30, 1999 from
$20,000 in the same period in 1998.
NET INCOME Net income for the three months ended June 30, 1999 was $280,000
compared to net income of $91,000 for the three months ended June 30, 1998, an
improvement of $189,000 or 207.7% . The net income increase of $189,000 is
comprised of an increase in income from operations of $177,000 and a decrease in
interest expense of $12,000.
Net income for the six months ended June 30, 1999 was $551,000 compared to net
income of $174,000 for the six months ended June 30, 1998, an improvement of
$377,000 or 216.7% . The net income increase of $377,000 is comprised of an
increase in income from operations of $352,000 and a decrease in interest
expense of $25,000.
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. A bonus of $61,000 has been accrued in 1999.
11
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had cash of $469,000 and working capital of
$4,157,000. During the six months ended June 30, 1999, cash increased by
$426,000 and accounts payable and accrued liabilities increased by $837,000. The
Company currently has an asset based lender's line of credit of up to $2,500,000
and a term note of $400,000 which expires in December 2000. At June 30, 1999,
the unused and available line of credit was $1,148,000.
Net cash provided by operations was $479,000 for the six months ended June 30,
1999 compared to net cash provided by operations of $26,000 for the same period
of 1998. The Company's generation of cash from operations for the six months
ended June 30, 1999 is due primarily to net income before depreciation and
amortization, and increases in accounts payable and accrued liabilities,
partially offset by increases in accounts receivable, inventory, restricted cash
and in prepaid expenses and other assets.
The Company's investing activities have consisted primarily of expenditures for
fixed assets of $168,000 and increases in intangible assets of $10,000.
The Company anticipates that its mask manufacturing capabilities are to be
further improved in 1999 at an estimated cost of $150,000. 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 six months ended June 30, 1999, the Company's cash provided by
financing activities resulted primarily from net proceeds from the asset based
loan of $173,000 and decreases in capital leases of $54,000.
The Company believes that cash generated from operations, its current cash
balance, and the funds available under its asset based borrowings will be
sufficient to satisfy the Company's projected working capital and planned
capital expenditures for at least 12 months.
NEW ACCOUNTING STANDARDS
The Company has adopted SFAS 131, "Disclosures About Segments of an Enterprise
and Related Information." The new standard became effective for the Company for
the year ended December 31, 1998 and requires that comparative information from
earlier periods be restated to conform to its requirements. SFAS 131 establishes
standards for disclosures about operating segments in annual financial
statements and selected information in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. See Note 7 of the Notes to Consolidated
financial statements.
12
<PAGE>
YEAR 2000 COMPLIANCE
The Year 2000 problem concerns the inability of computer systems, equipment or
software to properly recognize and process date-sensitive information beyond
January 1, 2000.
The Company has assessed its Year 2000 risk in three categories: application
software and computer equipment, other general business equipment, and
compliance by suppliers.
APPLICATION SOFTWARE AND COMPUTER EQUIPMENT The company believes that it has
identified substantially all of the major computer equipment, software
applications and related equipment used in its internal operations that must be
modified, upgraded or replaced to minimize the possibility of a material
disruption to its business operations. The Company has commenced the process of
modifying, upgrading and replacing major computer related systems that have been
identified as potentially non-compliant and expects to complete this process by
October 1999. The Company has purchased and implemented a Year 2000 compliant
upgrade to its financial accounting software at a cost of less than $20,000.
This system upgrade is considered to be critical to continuing operations into
the new millenium.
OTHER GENERAL BUSINESS EQUIPMENT In addition to computers and related systems,
the operation of office equipment, such as fax machines, photocopiers, telephone
systems and other business equipment may be affected by the Year 2000 problem.
The Company's objective is to complete substantially all remediation and
replacement of general business equipment by September 1999. Management does not
anticipate any material adverse effect on the Company's business or operational
results related to its general business equipment.
COMPLIANCE BY SUPPLIERS The Company has initiated communications with critical
external suppliers to determine the status of their efforts to become Year 2000
compliant and to determine the extent to which the Company is vulnerable as a
result of potential supplier non-compliance. The Company expects to complete
this process by October 1999. Evaluations of critical suppliers will be followed
by the development of contingency plans. To the extent that supplier responses
to Year 2000 readiness surveys are unsatisfactory, the Company intends to change
suppliers to those who have demonstrated Year 2000 readiness. However, there can
be no assurance that the Company will be successful in finding such
alternatives.
Management believes that the Company has and is devoting the necessary resources
to identify and resolve any significant Year 2000 issues in a timely manner. The
Company does not foresee significant risks associated with its Year 2000
compliance at this time. The total cost of the Year 2000 project is expected to
be less than $50,000. The Company has not developed a comprehensive contingency
plan. However, the Company will continue to monitor the need for such a plan
based upon the results of the aforementioned Year 2000 assessments.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 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 expectations for the future
with respect to financial performance or operating strategies, including
statements with respect to year 2000 compliance, 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.
13
<PAGE>
ALPHA PRO TECH, LTD.
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 4. Submission of Matters to a Vote Security Holders
(a) Registrant held its Annual Meeting of Shareholders June 18,
1999.
(b) The following persons were elected Directors pursuant to the
votes indicated:
NAME FOR VOTES WITHHELD
Sheldon Hoffman 19,399,640 124,211
Al Millar 19,399,390 124,461
Robert Isaly 19,399,640 124,211
John Ritota 19,399,640 124,211
Donald E. Bennett, Jr. 19,399,640 124,211
(c) Shareholders voted to amend the Registrant's 1993 Incentive
Stock Option Plan so as to increase the number of shares
available under the Plan as follows:
FOR AGAINST ABSTAIN
18,587,301 557,544 379,006
(d) The only other matter to be voted upon was the ratification of
the appointment of Pricewaterhouse Coopers LLP as the
Registrant's independent accountants as follows:
FOR AGAINST ABSTAIN
19,471,401 32,800 19,650
14
<PAGE>
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.
AUGUST 9, 1999
DATE: BY: /s/ SHELDON HOFFMAN
--------------- ---------------------------------
SHELDON HOFFMAN
CHIEF EXECUTIVE OFFICER
CHIEF FINANCIAL OFFICER
PRINCIPAL FINANCIAL OFFICER
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from The
Consolidated Balance Sheet as of June 30, 1999 and December 31, 1998 and the
Statement of Operations for the three and six months ended June 30, 1999 and
June 30, 1998 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<CIK> 0000884269
<NAME> ALPHA PRO TECH LTD.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> APR-01-1999 JAN-01-1999
<PERIOD-END> JUN-30-1999 JUN-30-1999
<CASH> 486 486
<SECURITIES> 0 0
<RECEIVABLES> 3,816 3,816
<ALLOWANCES> 48 48
<INVENTORY> 3,284 3,284
<CURRENT-ASSETS> 7,781 7,781
<PP&E> 3,739 3,739
<DEPRECIATION> 1,639 1,639
<TOTAL-ASSETS> 10,446 10,446
<CURRENT-LIABILITIES> 3,625 3,625
<BONDS> 0 0
0 0
0 0
<COMMON> 241 241
<OTHER-SE> 24,338 24,338
<TOTAL-LIABILITY-AND-EQUITY> 10,446 10,446
<SALES> 5,222 9,712
<TOTAL-REVENUES> 5,222 9,712
<CGS> 3,164 5,759
<TOTAL-COSTS> 1,739 3,322
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 39 80
<INCOME-PRETAX> 280 551
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 280 551
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 280 551
<EPS-BASIC> .01 .02
<EPS-DILUTED> .01 .02
</TABLE>
