SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1998
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number - 019893
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ALPHA PRO TECH, LTD.
(exact name of registrant as specified in its charter)
-------------------------
Delaware 63-1009183
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(State or other jurisdiction of (I.R.S. Employer Identification No.
incorporation or organization
Suite 112, 60 Centurian Drive
Markham, Ontario L3R 9R2
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Address of principal offices Zip Code
Registrant's telephone number including area code: 905-479-0654
Securities registered pursuant to Section 12(g) of the Act:
Common Shares Par Value $.01 Per Share
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
The number of registrants's Common Shares outstanding as of March 16, 1999 was
24,112,449.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 16, 1999 was $16,014,322 based on the average bid and
asked price on that date.
Documents incorporated by reference and the Part of the Form 10-K into which the
document is incorporated are as follows: Registrant's definitive proxy statement
for its 1999Annual Meeting of Stockholders, which will be filed with the
Securities and Exchange Commission on or before April 30, 1999 (incorporated by
reference under Part III).
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
or Regulation S-K (Sec. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.|X|
<PAGE>
PART I
ITEM 1. BUSINESS
General
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 its corporate domicile
from Canada to the State of Delaware in the United States and changed its name
to Alpha Pro Tech, Ltd. At that time, all of the Company's operating assets were
transferred to its wholly owned subsidiary, Alpha Pro Tech, Inc. 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.
Business
The Company develops, manufactures and markets disposable protective apparel and
consumer products for the cleanroom, food services, industrial, medical, dental
and consumer markets. The Company operates through three divisions: apparel;
mask and shield; and extended care. The Company's products are primarily sold
under the "Alpha Pro Tech" brand name, 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;
extended care products consisting of a line of mattress overlays, wheelchair
covers, geriatric chair surfaces, operating room table surfaces and pediatric
surfaces; and consumer products consisting of a line of pet bedding and pet
toys. The Company's products as classified above are grouped into three
segments. The Apparel segment consisting of disposable protective apparel and
food industry apparel; the Mask/Shield segment consisting of infection control
products; and the Extended Care Unreal Lambskin(R) segment consisting of
extended care products and consumer products.
The Company's current strategy is to not only grow its cleanroom business
through its exclusive agreement with VWR Scientific Products, but to refocus on
its other core businesses which include medical, dental and pet markets. As part
of its current strategy emphasis is being placed on developing innovative
products and processes which are expected to increase gross margins.
The Company will continue to pursue the food service industry with its
proprietary shoecover, which helps prevent employees from slipping and falling
on slippery surfaces, found in restaurants, supermarkets and food processing
facilities.
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The Company's products are used primarily in hospitals, clean rooms,
laboratories, industrial and dental offices and are distributed principally in
the United States through a network presently consisting of one purchasing
group, twelve major distributors, approximately 1,000 additional distributors,
approximately 9 independent sales representatives and a Company sales force of 7
people.
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), Irving Bronfman (a former director of the Company),
BFD Inc. (an Alabama corporation), 779177 Ontario Inc. (a corporation owned by
Messrs. Hoffman and Bronfman), and 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 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. 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, the Company
was involved in mining and exploration.
PRODUCTS
The Company's principal product groups and products include the following:
Disposable Protective Apparel
* Shoecovers
* Headcovers
* Gowns
* Coveralls
* Lab Coats
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Food Industry
* Automated Shoecovers
* Sleeve Protectors
* Aprons
Infection Control
* Face Masks
* Face Shields
Extended Care
* Unreal Lambswool
* Medi-Pads
* Hospital Pads
* Wheelchair accessories
* Bedrail Pads
* Knee and Elbow protectors
Consumer Products
* Pet Bedding
* Pet Toys
Disposable Protective Apparel
The Apparel division was established April 1, 1994, in connection with the
acquisition of the assets of Disposable Medical Products Inc. ("DMPI"). The
products manufactured include many different styles of shoecovers, headcovers,
gowns, coveralls, lab coats, and other miscellaneous products. These are
manufactured in Mexico.
Food Industry
Through the acquisition of Gem Nonwovens, Inc. a patented automated shoe cover
machine was acquired. This prototype machine has been replaced with an improved
new machine which in combination with a patent pending laminated material
allowed the Company to develop a shoecover that to date is being used and tested
by a number of restaurant chains with favorable results and is marketed on a non
exclusive basis by Chicopee, Inc. The balance of the food industry products are
manufactured by the apparel division.
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Masks and Face Shields
The facemasks come in a wide variety of filtration efficiencies and styles. The
Company's patented Positive Facial Lock(R) feature provides a custom fit to the
face to prevent blow-by for better protection. Combine this feature with the
Magic Arch (R), 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.
All of the face shields are made from an optical-grade polyester film, and have
a permanent anti-fog feature. This provides the wearer with extremely
lightweight, 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 chance of cross
infection between patients and saves hospitals the expense of sterilization
after every use.
Extended care
The Extended 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 can 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.
Markets
The Company's products are sold to the following markets: Infection Control
Products, (Masks and Shields) and disposable protective apparel are sold to the
Medical and Dental market and the Industrial and Cleanroom markets; Unreal
Lambswool and Medi-Pads are sold to the Extended Care market; Pet Bedding and
Pet Toys are sold to the Consumer market; and Automated Shoe Covers are sold to
the Food Industry, Medical, Industrial and Cleanroom market. The Company intends
to expand its marketing efforts for the Food Industry to include apparel, such
as sleeve protectors, aprons, coveralls and bus boy jackets as well as shields,
although no sales of such products to the food industry have been made to date.
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Distribution
The Company relies primarily on a network of independent distributors for the
sale of its products including the following:
* VWR Scientific
* Allegiance Healthcare
* McKesson General Medical Corp
* Medline Industries
* Blain Supply
* Owens and Minor
* Astra Pharmaceutical
* Johnson & Johnson Medical
* Henry Schein, Inc.
* The Stevens Company
* General Cage Corp
* Little Rapids
Of the twelve major distributors in the United States to the best of the
Company's knowledge, all sell competing products.
In 1996, the Company entered into an exclusive five year agreement to supply VWR
Scientific Products with eye and face shields, masks and disposable apparel for
sale to the Industrial/Cleanroom market place. The distribution calls for VWR to
purchase a minimum of $ 5 million during the first year to retain exclusive
distribution rights. This minimum figure has been attained for 1996, 1997 and
1998.
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 resulted in the termination of this exclusivity
in 1998.
Sales to VWR Scientific Products represented 50.7% of total sales for 1997, and
51.1% for 1998. The loss of this customer would have a material adverse effect
on the Company's business.
The Company does not generally have backlog orders, as orders are usually placed
for shipment within 30 days. The Company anticipates no problems in fulfilling
orders as they are placed.
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Manufacturing
The Company's mask production facility is located in a 27,0000 square foot
building at 903 West Center Street, Bldg. E, North Salt Lake, Utah.
A 25,000 square foot facility located at 615 North Parker Drive, Janesville,
Wisconsin is used for the manufacture of the Company's unreal lambskin products.
The Company's disposable protective apparel production is located in three
facilities, a 45,000 sq. ft. facility located at 1180 West Industrial Park Drive
in Nogales, Arizona which is used for cutting, warehousing and shipping, a
19,500 square foot facility at Kennedy Drive #6 in Sonora, 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 Mexico, which is used
for sewing.
The Company has a material coating and automated shoe cover facility of 36,000
square feet located at 2224 Cypress Street, 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 in the medical and dental markets is Kimberly Clark
of Fort Worth, Texas. Other large competitors would include Minnesota Mining and
Manufacturing Corporation (3M), Johnson & Johnson, Isolyser, Inc., American
Threshold and Maxium. The Company's major competitors in the industrial and
cleanroom market are Kimberly Clark,3M, Isolyser, Inc., Kappler USA, and
Allegiance Health Care. In the extended care market, Texten Corp., Glenoit Mills
and Hudson Industries are the principal competitors, and in the consumer
products market, principal competitors include Flexmat Corporation, Lazy Pet
Company and Dogloo, Inc. The Company has entered the food service market with a
new type of product, and expects competition from companies who provide floor
treatment and manufacturers of safety boots such as Weinbrenner, Inc. However,
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.
7
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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 marketing a Particulate Respirator that meets the new
O.S.H.A. respirator guidelines and which has been approved 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 States and
where appropriate in Canada and other foreign countries. At present, the Company
has 14 United States patents relating to its MEDS, Add-A-Mask, Coverall, 1/2
Coverall, Combo Cone, Combo, Positive Facial Lock and Shieldmate products and a
U.S. patent on the automated shoecover and the shoecover process. In addition
the Company has recently been issued a U.S. patent on a method to fold and put
on sterile garments. The Company also has a U.S. patent pending on a fluid
impervious and non-slip fabric for the Company's Aqua-Trak shoe cover. 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 8 to 17 years before expiry.
Trademarks
Many of the Company products are sold under various trademarks and trade names
including Alpha Pro Tech. 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.
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Employees
As of February 1, 1999, the Company had 446 employees, including twelve persons
at its head office in Markham, Ontario, Canada; 21 persons at its facemask
production facility in Salt Lake City, Utah and 18 persons at its Extended Care
production facility in Janesville, Wisconsin; 44 persons at its cutting,
warehouse and shipping facility in Nogales, Arizona; 48 persons at its shield
assembly and sewing operation in Nogales, Mexico; 278 at its sewing operation in
Benjamin Hill, Mexico; and 16 persons at its coating and automated shoe cover
facility in Valdosta, Georgia.
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 by May and the 1999 agreement was signed with
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.
ITEM 2. PROPERTIES
The Companies' Head Office is located at 60 Centurian Drive, Suite 112, Markham,
Ontario L3R 9R2. The approximate monthly costs are $ 2,500 under a lease
expiring January 31, 1999. Twelve (12) employees of the Company, including the
President, Alexander Millar, Chief Executive Officer, Sheldon Hoffman and Senior
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. The monthly rental is $ 5,935 for 27,000
square feet. This lease expires July 1, 2000 with successive 2-year renewal
options at rents based on the U.S. Consumer Price Index.
A second manufacturing facility is located at 615 North Parker Drive,
Janesville, Wisconsin. These premises of 25,000 square feet are leased for
$5,600 monthly. The lease expires August 15, 2002. The Company's line of
Extended Care products is manufactured in these facilities.
The Apparel division has its cutting operation, warehousing, and shipping
facility at 1140 West Industrial Park Drive, Nogales, Arizona. The monthly
rental is $ 15,476 for 45,000 square feet. This lease expires July 31, 1999.
Shield assembly and sewing is done at Kennedy Drive, # 6 in Sonora, Mexico. The
monthly rental is $ 6,500 for 19,500 square feet. This lease expires December
31, 2002. 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
expires June 23, 2004
The Coating Division has its facility at 2224 Cypress Street, Valdosta, Georgia.
The monthly rental is $ 4,500 for 36,000 square feet.
The Company believes that these arrangements are adequate for its present needs
and that other premises, if required, are readily available.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of security holders during the fourth quarter
of 1998.
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PART II
ITEM 5. 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
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1997 First Quarter 7/8 2-3/16
Second Quarter 1-15/32 1-1/2
Third Quarter 1-13/32 1-3/4
Fourth Quarter 1-1/2 1-17/32
1998 First Quarter 27/32 1-1/4
Second Quarter 11/16 15/16
Third Quarter 9/16 31/32
Fourth Quarter 15/32 13/16
1999 First Quarter 15/32 1-1/32
(thru 3/16/99)
1998 Such over the counter market quotations reflect interdealer prices,
without retail mark-up,. mark-down or commission, and ay not necessarily
represent actual transactions.
As at March 16, 1998 there were approximately 556 shareholders of record, and
approximately 3,500 beneficial owners.
Dividend Policy
The holders of the Company's Common Shares are entitled to receive such
dividends as may be declared by the board of 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.
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ITEM 6. SELECTED FINANCIAL DATA
Alpha Pro Tech, Ltd.
Selected Financial Data
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<TABLE>
<CAPTION>
Year Ended December 31,
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1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Historical Statement of
Operations Data
Sales $ 17,985,000 $ 17,823,000 $ 14,863,000 $ 13,031,000 $ 11,966,000
Gross profit 7,252,000 6,229,000 5,198,000 4,469,000 4,247,000
Selling, general and
administrative expenses 6,341,000 6,531,000 4,610,000 4,342,000 3,562,000
Interest expense 193,000 308,000 279,000 563,000 898,000
Impairment loss on intangible assets -- -- -- 4,922,000 --
Exchange of escrowed shares for
new shares -- -- 2,204,000 -- --
Other expenses 402,000 319,000 250,000 613,000 445,000
------------ ------------ ------------ ------------ ------------
Total expenses including
provision (benefit) for
income taxes 6,936,000 7,158,000 7,343,000 10,440,000 4,905,000
------------ ------------ ------------ ------------ ------------
Net income (loss) $ 316,000 $ (929,000) $ (2,145,000) $ (5,971,000) $ (658,000)
============ ============ ============ ============ ============
Basic and diluted net income
(loss) per share $ 0.01 $ (0.04) $ (0.12) $ (0.36) $ (0.05)
============ ============ ============ ============ ============
Per Share
Basic weighted average shares
outstanding 24,112,449 23,388,369 17,841,547 16,533,294 13,437,198
Diluted weighted average shares
outstanding 24,238,866 23,388,369 17,841,547 16,533,294 13,437,198
Historical Balance Sheet Data
Current assets $ 6,230,000 $ 7,411,000 $ 5,614,000 $ 4,860,000 $ 4,715,000
Total assets $ 8,938,000 $ 9,985,000 $ 7,481,000 $ 6,410,000 $ 11,192,000
Current liabilities $ 2,579,000 $ 3,799,000 $ 3,414,000 $ 3,166,000 $ 3,879,000
Long-term liabilities $ 406,000 $ 549,000 $ 217,000 $ 240,000 $ 1,154,000
Shareholders' equity $ 5,953,000 $ 5,637,000 $ 3,850,000 $ 3,004,000 $ 6,159,000
</TABLE>
(1) Includes the operations of Ludan Corporation which was acquired effective
April 1, 1995. See Note 12 in Notes to the Consolidated Financial
Statements.
(2) Includes the operations of Disposable Medical Products, Inc. which was
acquired on March 25, 1994. See Note 12 in Notes to the Consolidated
Financial Statements.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal 1998 compared to Fiscal 1997
Alpha Pro Tech, Ltd. ("Alpha" or the "Company") reported net income for the year
ended December 31, 1998 of $316,000 as compared to a net loss of $929,000 for
the year ended December 31, 1997, representing an improvement of $1,245,000 or
134.0%. The net income increase is attributable primarily to a significant
improvement in gross profit margin, a decrease in selling, general and
administrative expenses, and a decrease in net interest expense. The improvement
in gross profit margin is a result of the Company's strategic emphasis on
developing innovative products and improved manufacturing efficiency.
Sales Consolidated net sales for the year ended December 31, 1998 increased to
$17,985,000 from $17,823,000 in 1997, representing an increase of $162,000 or
0.9%.
Net sales for the Apparel Division for the year ended December 31, 1998 were
$11,685,000 as compared to $10,969,000 for the same period of 1997. The Apparel
Division sales increase of $716,000 or 6.5% was primarily due to increased sales
to the Company's largest distributor which are expected to grow as a result of
the Company's strategy to develop innovative solutions to meet this and other
customers' needs, as well as improvements in the Asian economy. Net sales to
this distributor were 51.1% and 50.7% of total consolidated net sales for 1998
and 1997, respectively.
Mask and eye shield sales decreased by 4.5%, to $4,158,000 in 1998 from
$4,354,000 in 1997. This decrease is primarily the result of a drop in medical &
dental mask sales, partially offset by increases in industrial mask sales. Sales
of mask and eye shields should strengthen in 1999 with the introduction of the
Medical Division and 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 14.3% to $2,142,000 in
1998 compared to $2,500,000 in the same period in 1997. The decrease in sales of
$358,000 is primarily the result of the discontinuation of a low margin rolled
good line, partially offset by increases in pet product sales and medical fleece
sales of $221,000.
In late 1997, Alpha restructured its business around a strategy of innovation
that has enabled it to develop custom products to meet its customers' needs in a
very timely manner. This approach is to satisfy customer requirements in a way
that the Company's larger competitors are unable to match.
Cost of Goods Sold Cost of goods sold decreased to $10,733,000 for the year
ended December 31,1998 from $11,594,000 for the same period in 1997. As a
percentage of net sales, cost of goods sold decreased to 59.7% in 1998 from
65.0% in 1997. Gross profit margin increased to 40.3% for the year ended
December 31, 1998 from 35.0% for the same period in 1997.
The improvement in gross profit margin to 40.3% from 35.0% is a result of the
Company's strategic emphasis on developing high gross profit products,
especially for its largest customer and improved manufacturing efficiency as a
result of recent capital expenditures. 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.
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Selling, General and Administrative Expenses Selling, general and administrative
expenses decreased by $190,000 to $6,341,000 for the year ended December 31,
1998 from $6,531,000 for the year ended December 31, 1997. As a percentage of
net sales, selling, general and administrative expenses decreased to 35.3% in
1998 from 36.6% in 1997. The decrease in selling, general and administrative
expenses primarily consists of decreased public company expenses of $91,000,
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 $115,000;
decreased bad debt expenses of $131,000; decreased general office and factory
expenses of $6,000; partially offset by increased payroll related costs of
$53,000; increased marketing, commissions and travel expenses of $55,000;
increased rent of $34,000; and increased telecommunications expense of $11,000.
Management expects selling, general and administrative expenses as a percentage
of net sales to decrease as sales increase.
Depreciation & Amortization Depreciation and amortization expense increased by
$83,000 to $402,000 for the year ended December 31, 1998 from $319,000 for the
same period in 1997. This increase is primarily attributable to an increase in
the purchase of equipment through capital leases.
Income (loss) from Operations Income from operations increased by $1,130,000 to
$509,000 for the year ended December 31, 1998 as compared to a loss from
operations of $621,000 for the year ended December 31, 1997. The increase in
income from operations is due to an increase in gross profit of $1,023,000 and a
decrease in selling, general and administrative expenses of $190,000, partially
offset by an increase in depreciation and amortization of $83,000.
Net Interest Net Interest expense decreased by $115,000 or 37.3%, to $193,000
for the year ended December 31, 1998 from $308,000 for the year ended December
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 and decreases in interest income. Interest income decreased by
$31,000, to $36,000 for 1998 from $67,000 in 1997.
In December 1997, the Company entered into a three-year $2,900,000 credit
facility, consisting of a line of credit of up to $2,500,000 and a term note of
$400,000, with an asset-based lender at prime plus 2% on the credit line and at
prime plus 2.25% on the term note. Alpha's previous credit facility was at prime
plus 5%.
Net Income (loss) Net income for the year ended December 31, 1998 was $316,000
compared to a net loss of $929,000 for the year ended December 31, 1997, an
improvement of $1,245,000 or 134.0%. The net income increase of $1,245,000 is
comprised of an increase in income from operations of $1,130,000 and a decrease
in interest expense of $115,000.
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 $32,000 was earned in 1998 as compared to nil in
1997.
13
<PAGE>
Fiscal 1997 compared to Fiscal 1996
Alpha reported a net loss for the year ended December 31, 1997 of $929,000 as
compared to a net loss of $2,145,000 for the year ended December 31, 1996,
representing an improvement of $1,216,000. The net loss is attributable
primarily to costs associated with Alpha's efforts to restructure into a more
customer-driven, innovative operation and with an unprofitable venture into
contract manufacturing of reusable apparel products that was discontinued in
August 1997.
Sales Consolidated net sales for the year ended December 31, 1997 increased to
$17,823,000 from $14,863,000 in 1996, representing an increase of $2,960,000 or
19.9%. Net sales for the Apparel Division for the year ended December 31, 1997
were $10,969,000 as compared to $7,475,000 for the same period of 1996. The
Apparel Division sales increase of $3,494,000 or 46.7% was primarily due to
increased sales to the Company's largest distributor which are expected to
continue to grow as a result of the Company's strategy to develop innovative
solutions to meet this and other customers' needs. Net sales to this distributor
were 50.7% and 42.9% of consolidated net sales for 1997 and 1996, respectively.
Mask and eye shield sales decreased by 13.5%, to $4,354,000 in 1997 from
$5,035,000 in 1996. This decrease is primarily the result of a drop in
shield/mask combination product sales. Sales from the Company's Extended Care
Unreal Lambskin(R) and other related products, which includes a line of pet
beds, increased by 6.2% to $2,500,000 in 1997 compared to $2,353,000 in the same
period in 1996. An increase in sales of Alpha's line of pet beds & related
products is primarily responsible for the increase.
Cost of Goods Sold Cost of goods sold increased to $11,594,000 for the year
ended December 31,1997 from $9,665,000 for the same period in 1996. As a
percentage of net sales, cost of goods sold remained flat at 65.0% for both 1997
and 1996. Gross profit margin also remained constant at 35.0% for the years
ended December 31, 1997 and 1996.
Selling, General and Administrative Expenses Selling, general and administrative
expenses increased by $1,921,000 to $6,531,000 for the year ended December 31,
1997 from $4,610,000 for the year ended December 31, 1996. As a percentage of
net sales, selling, general and administrative expenses increased to 36.6% in
1997 from 31.0% in 1996. The increase in selling, general and administrative
expenses primarily consists of increased payroll related costs of $886,000;
increased marketing, commissions and travel expenses of $560,000; increased
expense related to options/warrants issued for services of $98,000; increased
public company expenses of $96,000 including investor relations, annual report,
annual meeting costs and stock transfer costs and costs associated with SEC
reporting requirements; increased professional fee expenses of $104,000;
increased rent of $47,000; increased telecommunications expense of $41,000 and
increased general office and factory expenses of $79,000. Of the increases in
payroll related costs, $637,000 is due to increases in factory indirect expenses
of which the majority is attributable to the Apparel Division, which had an
increase in sales of 46.7%. As a percentage of Apparel Division sales, selling,
general and administrative expenses for the Apparel division decreased slightly
to 20.6% in 1997 as compared to 20.9% in 1996.
14
<PAGE>
Depreciation & Amortization Depreciation and amortization expense increased by
$65,000 to $319,000 for the year ended December 31, 1997 from $254,000 for the
same period in 1996. This increase is primarily attributable to an increase in
the purchase of equipment through capital leases and amortization of goodwill on
the acquisition of Ludan Corporation.
Net Interest Interest expense increased by $29,000, to $308,000 for the year
ended December 31, 1997 from $279,000 for the year ended December 31, 1996. The
increase in interest expense is due to interest on the additional capital leases
acquired. In December 1997, the Company entered into a three-year $2,900,000
credit facility, consisting of a line of credit of up to $2,500,000 and a term
note of $400,000, with an asset-based lender at prime plus 2% on the credit line
and at prime plus 2.25% on the term note. Alpha's previous credit facility was
at prime plus 5%.
Loss from Operations Loss from operations decreased by $1,249,000 to a loss of
$621,000 for the year ended December 31, 1997 as compared to a loss from
operations of $1,870,000 for the year ended December 31, 1996. The decreased
loss from operations of $1,249,000 is due to an increase in gross profit of
$1,031,000 ; a decrease of $2,204,000 on the 1996 non cash exchange of escrow
shares offset, by an increase in selling, general and administrative expenses of
$1,921,000; and an increase in depreciation and amortization of $65,000.
Net Loss The net loss for the year ended December 31, 1997 was $929,000 compared
to a net loss of $2,145,000 for the year ended December 31, 1996, an improvement
of $1,216,000. The net loss decrease of $1,216,000 is comprised primarily of a
decrease in loss from operations of $1,249,000 offset by an increase in interest
expense of $29,000.
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 or 1996.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company had cash of $43,000 and working capital of
$3,651,000. During the year ended December 31, 1998, cash decreased by $447,000
and accounts payable and accrued liabilities decreased by $1,179,000. The
decrease in the Company's cash is due to the reduction of accounts payable and
accrued liabilities. However, the Company's maximum credit limit from its asset
based lender increased by $388,000. 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 December 31, 1998, the unused line of credit was
$1,276,000.
Net cash provided by operations was $180,000 for the year ended December 31,
1998 compared to net cash used in operations of $1,702,000 for the same period
of 1997. The Company's generation of cash from operations for the year ended
December 31, 1998 is due primarily to net income before depeciation and
amortization, non-cash compensation expense and decreases in inventories,
restricted cash and prepaid and other assets, offset by increases in accounts
receivable and decreases in accounts payable and accrued liabilities.
The Company's investing activities have consisted primarily of expenditures for
fixed assets of $347,000 and increases in intangible assets of $43,000, for a
total of $380,000 for the year ended December 31, 1998.
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 year ended December 31, 1998, the Company's cash used in financing
resulted primarily from net decreases in the asset based loan of $115,000 and
decreases in capital leases of $122,000.
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 Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 131 (SFAS 131) "Disclosures About Segments of an
Enterprise and Related Information". 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. The new standard became effective for the Company for the year ended
December 31, 1998 and requires that comparative information from earlier years
be restated to conform to its requirements. See Note 11 of the Notes to the
Consolidated financial statements.
YEAR 2000 COMPLIANCE
16
<PAGE>
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
June 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 June 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 is initiating 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. 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 ("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
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
17
<PAGE>
Consolidated financial statements and the Report of Independent Accountants
thereon are set forth under Item 14 (a) (1) of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
NONE
PART III
The information pursuant to Items 10, 11, 12 and 13 is omitted from this report
(in accordance with Federal Instruction G for Form 10-K), since the Company is
filing with the Commission (by no later than April 30, 1998), a definitive proxy
statement pursuant to Regulation 14A, which involves the election of directors
at the annual shareholders' meeting of the Company which is expected to be held
in June, 1999.
18
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1 and 2 Financial Statements and Financial Statement Schedules
See Index to Financial Statements and Financial Statement Schedules appearing on
Page F-1 of this Form 10-K
(b) Exhibit Index
ITEM 16. 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 1994 *
(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) Article of Merger of BFD Industries, Inc., a Wyoming Corporation
and Alpha ProTech, 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 **
(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
(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
19
<PAGE>
(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.
- ----------
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
*** Incorporated by reference to Post-Effective Amendment No. 1 filed January
30, 1997 to Registration Statement on Form S-1 (File No,. 33-93894)
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has fully caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ALPHA PRO TECH, LTD.
Date: March 27, 1999 By: /s/ SHELDON HOFFMAN
-------------- -----------------------------------------
Sheldon Hoffman
Chief Executive Officer,
Principal Financial Officer
and Director
Date: March 27, 1999 By: /s/ LLOYD HOFFMAN
-------------- -----------------------------------------
Lloyd Hoffman
Senior Vice President, Controller and
Principal Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registration and
in the capacities indicated on March 27, 1999.
/s/ DONALD E. BENNETT, JR.
-------------------------------
Donald E. Bennett, Jr. Director
/s/ SHELDON HOFFMAN
-------------------------------
Sheldon Hoffman, Director
/s/ ROBERT H. ISALY
-------------------------------
Robert H. Isaly, Director
/s/ ALEXANDER W. MILLAR
-------------------------------
Alexander W. Millar, Director
/s/ DR. JOHN RITOTA
-------------------------------
Dr. John Ritota, Director
21
<PAGE>
Alpha Pro Tech, Ltd.
Consolidated Financial Statements
December 31, 1998, 1997 and 1996
<PAGE>
Alpha Pro Tech, Ltd.
Index to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Page
Consolidated Financial Statements:
Report of Independent Accountants..........................................F-2
Consolidated Balance Sheets at December 31, 1998 and 1997..................F-3
Consolidated Statements of Operations for the three years
in the period ended December 31, 1998....................................F-4
Consolidated Statements of Shareholders' Equity for the
three years in the period ended December 31, 1998........................F-5
Consolidated Statements of Cash Flows for the three years in the
period ended December 31, 1998...........................................F-6
Notes to Consolidated Financial Statements.................................F-8
Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts for the three years
ended December 31, 1998.................................................F-22
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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, 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.
/s/ PricewaterhouseCoopers LLP
Salt Lake City, Utah
February 26, 1999
F-2
<PAGE>
Alpha Pro Tech, Ltd.
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
1998 1997
------------ ------------
<S> <C> <C>
Assets
Current assets:
Cash $ 43,000 $ 490,000
Restricted cash 16,000 21,000
Accounts receivable, net of allowance for doubtful accounts
of $48,000 and $91,000, respectively 3,038,000 2,805,000
Inventories 2,999,000 3,697,000
Prepaid expenses and other current assets 134,000 398,000
------------ ------------
Total current assets 6,230,000 7,411,000
Property and equipment, net 2,125,000 2,084,000
Intangible assets, net 305,000 305,000
Notes receivable and other assets 278,000 185,000
------------ ------------
$ 8,938,000 $ 9,985,000
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 983,000 $ 2,142,000
Accrued liabilities 474,000 494,000
Notes payable, current portion 1,009,000 1,051,000
Capital leases, current portion 113,000 112,000
------------ ------------
Total current liabilities 2,579,000 3,799,000
Notes payable, less current portion 247,000 320,000
Capital leases, less current portion 159,000 229,000
------------ ------------
Total liabilities 2,985,000 4,348,000
------------ ------------
Commitments and contingencies (Notes 7 and 10)
Shareholders' Equity:
Common stock, $.01 par value, 50,000,000 shares authorized,
24,112,449 issued and outstanding at
December 31, 1998 and 1997 241,000 241,000
Additional paid-in capital 24,338,000 24,338,000
Accumulated deficit (18,626,000) (18,942,000)
------------ ------------
Total shareholders' equity 5,953,000 5,637,000
------------ ------------
$ 8,938,000 $ 9,985,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-3
<PAGE>
Alpha Pro Tech, Ltd.
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Sales $ 17,985,000 $ 17,823,000 $ 14,863,000
Cost of goods sold, excluding depreciation
and amortization 10,733,000 11,594,000 9,665,000
------------ ------------ ------------
7,252,000 6,229,000 5,198,000
Expenses:
Selling, general and administrative 6,341,000 6,531,000 4,610,000
Depreciation and amortization 402,000 319,000 254,000
Exchange of escrowed shares
for new shares (Note 8) -- -- 2,204,000
------------ ------------ ------------
Income (loss) from operations 509,000 (621,000) (1,870,000)
------------ ------------ ------------
Other expense
Interest, net 193,000 308,000 279,000
------------ ------------ ------------
193,000 308,000 279,000
------------ ------------ ------------
Income (loss) before minority interest in
consolidated subsidiary and provision
(benefit) for income taxes 316,000 (929,000) (2,149,000)
Minority interest in (income) loss of
consolidated subsidiary -- -- 4,000
Provision (benefit) for income taxes -- -- --
------------ ------------ ------------
Net income (loss) $ 316,000 $ (929,000) $ (2,145,000)
============ ============ ============
Basic income (loss) per share $ 0.01 $ (0.04) $ (0.12)
============ ============ ============
Diluted income (loss) per share $ 0.01 $ (0.04) $ (0.12)
============ ============ ============
Basic weighted average shares outstanding 24,112,449 23,388,369 17,841,547
============ ============ ============
Diluted weighted average shares outstanding 24,238,866 23,388,369 17,841,547
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-4
<PAGE>
Alpha Pro Tech, Ltd.
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated
Shares Stock Capital Deficit Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at
December 31, 1995 19,911,130 $ 199,000 $ 18,673,000 $(15,868,000) $ 3,004,000
Stock issued upon exercise
of options/warrants 844,333 8,000 711,000 -- 719,000
Options/warrants issued
for services -- -- 68,000 -- 68,000
Exchange of escrowed
shares -- -- 2,204,000 -- 2,204,000
Net loss -- -- -- (2,145,000) (2,145,000)
------------ ------------ ------------ ------------ ------------
Balance at
December 31, 1996 20,755,463 207,000 21,656,000 (18,013,000) 3,850,000
Stock issued upon exercise
of options/warrants 3,356,986 34,000 2,429,000 -- 2,463,000
Options/warrants issued
for services -- -- 253,000 -- 253,000
Net loss -- -- -- (929,000) (929,000)
------------ ------------ ------------ ------------ ------------
Balance at
December 31, 1997 24,112,449 241,000 24,338,000 (18,942,000) 5,637,000
Net income -- -- -- 316,000 316,000
------------ ------------ ------------ ------------ ------------
Balance at
December 31, 1998 24,112,449 $ 241,000 $ 24,338,000 $(18,626,000) $ 5,953,000
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-5
<PAGE>
Alpha Pro Tech, Ltd.
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 316,000 $ (929,000) $(2,145,000)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 402,000 319,000 254,000
Exchange of escrowed shares (Note 8) -- -- 2,204,000
Minority interest -- -- (4,000)
Amortization of securities issued for services 110,000 120,000 39,000
Changes in assets and liabilities:
Restricted cash 5,000 18,000 (3,000)
Accounts receivable (233,000) (635,000) (99,000)
Inventories 698,000 (755,000) (844,000)
Prepaid expenses and other assets 61,000 (229,000) 152,000
Accounts payable and accrued liabilities (1,179,000) 389,000 145,000
----------- ----------- -----------
Net cash provided by (used in) operating activities 180,000 (1,702,000) (301,000)
----------- ----------- -----------
Cash flows from investing activities:
Acquisition of businesses -- (70,000) (49,000)
Purchase of property and equipment (347,000) (481,000) (388,000)
Cost of intangible assets (43,000) (53,000) (20,000)
----------- ----------- -----------
Net cash used in investing activities (390,000) (604,000) (457,000)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock -- 2,463,000 719,000
Proceeds from related parties -- -- 124,000
Payments to related parties -- (19,000) (149,000)
Net proceeds from loans payable -- 1,936,000 136,000
Net repayments on notes payable (115,000) (1,788,000) (106,000)
Principal repayments on capital leases (122,000) (71,000) (35,000)
----------- ----------- -----------
Net cash (used in) provided by financing activities (237,000) 2,521,000 689,000
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<PAGE>
Alpha Pro Tech, Ltd.
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Increase (decrease) in cash $(447,000) $ 215,000 $ (69,000)
Cash, beginning of period 490,000 275,000 344,000
--------- --------- ---------
Cash, end of period $ 43,000 $ 490,000 $ 275,000
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 229,000 $ 375,000 $ 317,000
========= ========= =========
Cash paid for income taxes $ -- $ -- $ --
========= ========= =========
</TABLE>
Non-cash investing and financing activity:
1998
The Company incurred capital lease obligations for machinery and equipment
of $53,000.
1997
The Company incurred capital lease obligations for machinery and equipment
of $270,000.
1996
Effective June 1996, the Company acquired the remaining 20% minority
interest in Ludan Corporation for a $68,000 note payable.
The Company incurred capital lease obligations for machinery and equipment
of $105,000.
The accompanying notes are an integral part of these consolidated
financial statements.
F-7
<PAGE>
Alpha Pro Tech, Ltd.
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
(fleece) 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. 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 wholly-owned subsidiaries, Ludan Corporation (LC),
Disposable Medical Products, Inc. (DMPI) and DPI De Mexico (DPI). All
significant intercompany accounts and transactions have been eliminated.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method.
Property and equipment
Property and equipment is stated at cost less accumulated depreciation and
amortization and is depreciated and amortized using the straight-line
method over the shorter of the respective useful lives of the assets or
the related lease terms as follows:
Factory equipment 9-20 years
Office furniture and equipment 7 years
Leasehold improvements 4-6 years
Vehicles 5 years
Expenditures for renewals and betterments are capitalized; whereas costs
of maintenance and repairs are charged to operations in the period
incurred.
Intangible assets
The excess of purchase price over the estimated fair value of assets
acquired and liabilities assumed has been recorded as goodwill and is
being amortized using the straight-line method over 8 years. Patent rights
are recorded at cost and are amortized using the straight-line method over
their estimated useful lives of 8-17 years.
Long-lived assets
Impairment of long-lived assets is determined in accordance with Statement
of Financial Accounting Standards No. 121 ("SFAS 121"), "Accounting for
the Impairment of Long-Lived Assets and of Long-Lived Assets to be
Disposed Of". SFAS 121 requires that long-lived assets and certain
identifiable intangible assets be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of such
assets may not be recoverable. The Company had no impaired assets as of
December 31, 1998 or 1997.
Stock for services
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 measurement date and are expensed over
the period the services are rendered.
F-8
<PAGE>
Alpha Pro Tech, Ltd.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Revenue recognition
Sales are generally recognized when goods are shipped to customers. Sales
are reduced for anticipated sales returns and allowances.
Advertising
Advertising costs consist primarily of catalog preparation and printing
costs which are charged to expense when shipped. Catalog costs expensed in
1998, 1997 and 1996 were $37,000, $16,000 and $0, respectively.
Stock Based Compensation
As allowed by Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock-based Compensation," which recommends but does
not require a method based on the fair value of equity instruments awarded
to employees to account for stock-based compensation, the Company applies
the intrinsic value method prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees" to account for its stock-based
compensation. The company also provides pro forma disclosure in the notes
to the financial statements of the differences between the fair value
method and the intrinsic value method (Note 8).
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 (Note 9).
Net income (loss) per share
Net income (loss) per share "EPS" has been computed pursuant to the
provisions of Statement of Financial Accounting Standards No. 128 (SFAS
128), "Earnings Per Share" which became effective after December 15, 1997.
All periods prior to December 15, 1997 have been restated to conform with
the provisions SFAS 128.
The following table provides a reconciliation of both the net income
(loss) 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 Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Net income (loss) (Numerator) $ 316,000 $ (929,000) $ (2,145,000)
Shares (Denominator):
Basic weighted average shares outstanding 24,112,449 23,388,369 17,841,547
Add: Dilutive effect of stock options and warrants 126,417 -- --
------------ ------------ ------------
Diluted weighted average shares outstanding 24,238,866 23,388,369 17,841,547
============ ============ ============
Net income (loss) per share:
Basic $ 0.01 $ (0.04) $ (0.12)
Diluted $ 0.01 $ (0.04) $ (0.12)
</TABLE>
Potential common shares for 1997 and 1996 were anti-dilutive and
accordingly were excluded from
F-9
<PAGE>
Alpha Pro Tech, Ltd.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
the net income (loss) per share calculations.
Translation of foreign currencies
The Company has adopted the United States dollar as its functional
currency. 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. Transaction gains or
losses on foreign exchange are reflected in net income (loss) for the
periods presented and are immaterial in amount.
Segment Information
In 1998, the Company adopted SFAS No. 131 (SFAS 131), "Disclosures about
Segments of an Enterprise and Related Information." SFAS 131 supersedes
Statement of Financial Accounting Standards No. 14, "Financial Reporting
for Segments of a Business Enterprise," replacing the "industry segment"
approach with the "management" approach. The management approach
designates the internal organization that is used by management for making
operating decisions and assessing performance as the source of the
Company's reportable segments. SFAS 131 also requires disclosures about
products and services, geographic areas and major customers. The adoption
of SFAS 131 did not affect results of operations or financial position but
did affect the disclosure of segment information.
Use of estimates
The preparation of these consolidated 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 consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could
differ from these estimates.
Fair value of financial instruments
The fair value of financial instruments including cash, restricted cash,
accounts receivable, notes receivable, accounts payable and notes payable
approximate their respective book values at December 31, 1998 and 1997.
Reclassifications
Certain prior year amounts have been reclassified to conform to the
current year's basis of presentation.
F-10
<PAGE>
Alpha Pro Tech, Ltd.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
3. Inventories
Inventories consist of the following:
1998 1997
Raw materials $ 1,699,000 $ 1,741,000
Work in process 95,000 370,000
Finished goods 1,205,000 1,586,000
----------- -----------
$ 2,999,000 $ 3,697,000
=========== ===========
4. Property and equipment
Property and equipment consist of the following:
1998 1997
Machinery and equipment $ 2,854,000 $ 2,557,000
Office furniture and equipment 622,000 525,000
Leasehold improvements 96,000 90,000
----------- -----------
3,572,000 3,172,000
Less accumulated depreciation and
amortization (1,447,000) (1,088,000)
----------- -----------
$ 2,125,000 $ 2,084,000
=========== ===========
Included in the above amounts are the following assets under capital lease
obligations:
1998 1997
Machinery and equipment $ 419,000 $ 396,000
Office furniture and equipment 84,000 62,000
----------- -----------
503,000 458,000
Less accumulated amortization (172,000) (102,000)
----------- -----------
$ 331,000 $ 356,000
=========== ===========
F-11
<PAGE>
Alpha Pro Tech, Ltd.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
5. Intangible assets
Intangible assets consist of the following:
1998 1997
Goodwill $ 206,000 $ 206,000
Patents 136,000 107,000
Other 98,000 84,000
----------- -----------
440,000 397,000
Less accumulated amortization (135,000) (92,000)
----------- -----------
$ 305,000 $ 305,000
=========== ===========
6. Accrued liabilities
Accrued liabilities consist of the following:
1998 1997
Professional fees $ 105,000 $ 145,000
Payroll and payroll taxes 122,000 267,000
Other 247,000 82,000
----------- -----------
$ 474,000 $ 494,000
=========== ===========
7. Notes Payable
In December 1997, the Company, through its wholly owned subsidiary APT,
entered into a three-year credit facility with an asset-based lender.
Notes payable at December 31, 1998 represent outstanding amounts against
the facility. Pursuant to the terms of the credit agreement, the Company
has a line of credit for up to $2,500,000 based on eligible accounts
receivable and inventory, of which $929,000 was outstanding and $1,276,000
was available at December 31, 1998. The credit facility bears interest at
prime plus 2%, which totaled 9.75% at December 31, 1998 and is secured by
accounts receivable, inventory, trademarks, patents, property, and 66.67%
of the issued and outstanding shares of DPI.
The Company also has a $400,000 term note secured by equipment. The
Company's outstanding balance on this term note was $327,000 at December
31, 1998. The term note is due in monthly installments of $7,000 with
interest at prime plus 2.25%, which totaled 10% at December 31, 1998,
maturing July 1, 2003.
F-12
<PAGE>
Alpha Pro Tech, Ltd.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The Company paid $29,000 in loan origination fees to obtain the above
credit facilities. Under the terms of the agreement, the Company pays a
0.5% loan fee annually.
The Company used certain of the proceeds of its new facilities to repay
its previous asset-based loan. Under the terms of the previous facility,
the Company paid $63,000 and $84,000 in loan and unused line of credit
fees for the years ended December 31, 1997 and 1996, respectively.
Future maturities of notes payable are as follows:
1999 $ 1,009,000
2000 80,000
2001 80,000
2002 80,000
2003 7,000
-----------
$ 1,256,000
===========
8. Shareholders' Equity
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 shares
of common stock and the assumption of liabilities of $520,000 Canadian. Of
the shares issued, 3,150,000 were subject to an escrow agreement. On
December 30, 1996, all of the escrowed shares, except for 675,000 shares
which were canceled in connection with a legal settlement with a former
stockholder, were exchanged for new shares. The 2,475,000 new shares were
valued at fair market value on the date of the exchange which resulted in
a $2,204,000 charge to earnings that was recorded during the fourth
quarter of 1996. As a result of the related paid-in capital increase of
$2,204,000, the transaction resulted in no net change to stockholders
equity. The 2,475,000 shares held in escrow were canceled effective
December 30, 1996.
F-13
<PAGE>
Alpha Pro Tech, Ltd.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Warrant activity
Warrant activity for the three years ended December 31, 1998 is as
follows:
Exercise Price
Shares Per Warrant
Warrants outstanding, December 31, 1995 3,495,867 $0.75 to $1.75
Granted to employees 95,384 $1.03
Exercised (188,333) $0.75 to $1.25
Expired (90,000) $1.25
---------- --------------
Warrants outstanding, December 31, 1996 3,312,918 $0.75 to $1.75
Exercised (3,096,986) $0.75
Expired (96,884) $0.75 to $1.03
---------- --------------
Warrants outstanding, December 31, 1997 119,048 $1.75
Exercised --
Expired --
---------- --------------
Warrants outstanding, December 31, 1998 119,048 $1.75
---------- --------------
The warrants outstanding at December 31, 1998 are currently exerciseable,
and each warrant entitles the holder to purchase one common share for the
stated price. Such warrants expire July 1, 1999.
F-14
<PAGE>
Alpha Pro Tech, Ltd.
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, 1998, 3.6 million shares were
reserved for issuance under these plans and 3.5 million options have been
granted. The exercise price of the options is determined based on the fair
market value of the stock on the date of grant, and the options generally
vest immediately. Option activity for the three years ended December 31,
1998 is as follows:
Average
Exercise Price
Shares Per Option
Options outstanding, December 31, 1995 3,541,500 $0.98
Granted to employees 87,000 $1.12
Granted to consultants 10,000 $1.47
Exercised (656,000) $0.85
Canceled (393,500) $1.06
---------- ----------
Options outstanding, December 31, 1996 2,589,000 $1.01
Granted to employees 675,000 $0.99
Granted to consultants 610,000 $1.82
Exercised (260,000) $0.79
Canceled (216,000) $1.80
---------- ----------
Options outstanding, December 31, 1997 3,398,000 $1.13
Granted to employees 1,864,000 $0.80
Granted to consultants -- --
Exercised -- --
Canceled (2,268,000) $1.02
---------- ----------
Options outstanding, December 31, 1998 2,994,000 $1.00
---------- ----------
All options are fully exerciseable.
The following summarizes information about stock options outstanding at
December 31, 1998:
Options Outstanding
Average
Exercise Average Term
Price Shares Price Remaining
$0.50 to $0.75 1,153,000 $ 0.72 4.33
$0.76 to $0.99 851,000 $ 0.94 0.82
$1.00 to $1.50 865,000 $ 1.26 1.53
$1.51 to $2.75 125,000 $ 2.31 0.97
F-15
<PAGE>
Alpha Pro Tech, Ltd.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Had compensation expense for the Company's employee/director options been
determined based on the fair value of the options at the grant date, the
Company's pro forma net income (loss) and pro forma net income (loss) per
share would have been as follows:
For the Year Ended
1998 1997
Pro forma net income (loss) $ 10,000 ($1,183,000)
======== ===========
Pro forma basic income (loss) per share $ 0.00 ($ 0.05)
======== ===========
Pro forma diluted income (loss) per share $ 0.00 ($ 0.05)
======== ===========
For the purpose of the above pro forma disclosures, the fair value of each
employee/director stock option was estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted-average
assumptions:
1998 1997 1996
Risk-free interest rate 5.00% 6.15% 7.50%
Expected life 5 years 5 years 5 years
Expected volatility 70% 70% 70%
Expected dividend yield 0% 0% 0%
The weighted-average grant date fair values of employee/director options
granted during 1998, 1997 and 1996 were $0.27, $0.38 and $0.72,
respectively.
9. Income taxes
The provision (benefit) for income taxes consists of the following:
Year ended December 31,
1998 1997 1996
Current $ -- $ -- $ --
Deferred -- -- --
============ ============ ============
$ -- $ -- $ --
============ ============= ============
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.
F-16
<PAGE>
Alpha Pro Tech, Ltd.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Deferred tax assets (liabilities) are comprised of the following at
December 31.
1998 1997
Loss carryforwards
U.S $ 967,000 $ 2,428,000
Canada 734,000 1,379,000
Other 184,000 96,000
----------- -----------
Gross deferred tax assets 1,885,000 3,903,000
Depreciation and amortization (247,000) (166,000)
----------- -----------
Net 1,638,000 3,737,000
Valuation allowance (1,638,000) (3,737,000)
----------- -----------
$ -- $ --
=========== ===========
The provision for income taxes differs from the amount that would be
obtained by applying the United States statutory rate to the income (loss)
before income taxes as a result of the following:
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Recovery of income taxes based on United
States statutory rates (34%) $ 108,000 $(316,000) $(729,000)
Non-deductible meals and entertainment 11,000 43,000 24,000
Compensation expense for exchange of
escrowed shares for new shares 749,000
Increase (decrease) in valuation allowance (132,000) 301,000 (29,000)
Other 13,000 (28,000) (15,000)
--------- --------- ---------
$ -- $ -- $ --
========= ========= =========
</TABLE>
At December 31, 1998, 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 $3.1 million and
$2.1 million, respectively.
F-17
<PAGE>
Alpha Pro Tech, Ltd.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
For United States income tax purposes, these losses will expire as
follows:
2009 1,238,000
2010 584,000
2011 63,000
2012 --
2013 --
2014 --
2015 --
2016 --
2017 960,000
----------
$2,845,000
==========
For Canadian income tax purposes, these losses will expire as follows:
1999 $ 2,160,000
==========
In the event of changes in ownership, IRS regulations may limit net
operating losses available to the Company.
10. Lease Commitments and Obligations
The Company leases manufacturing facilities under non-cancelable operating
leases expiring between July 1999 and August 2002. The Company also leases
certain manufacturing and office equipment under capital leases expiring
between June 1999 and December 2002.
F-18
<PAGE>
Alpha Pro Tech, Ltd.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The following summarizes future minimum lease payments required under
capital and non-cancelable operating leases:
Capital Operating
Leases Leases
1999 $ 163,000 $ 179,000
2000 138,000 69,000
2001 22,000 67,000
2002 13,000 45,000
2003 - -
--------- ---------
Future minimum lease payments $ 336,000 $ 360,000
=========
Less amounts representing interest 64,000
---------
Present value of future minimum lease payments $ 272,000
Less amounts due within one year 113,000
---------
Amounts due after one year $ 159,000
=========
Total rent expense incurred by the Company under operating leases for the
years ended December 31, 1998, 1997 and 1996 was $654,000, $588,000 and
$599,000, respectively.
11. Activity of Business Segments
In 1998 the Company adopted SFAS 131. The prior year's segment information
has been restated to present the Company's reportable segments.
The Company classifies its businesses into three fundamental segments:
Apparel, consisting principally of disposable medical clothing such as
overalls, 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.
The accounting policies of the segments are the same as those described
previously under "Summary of Significant Accounting Policies." 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.
F-19
<PAGE>
Alpha Pro Tech, Ltd.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The following table shows net sales for each segment for the years ended
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Apparel $ 11,685,000 $ 10,969,000 $ 7,475,000
Mask and shield 4,158,000 4,354,000 5,035,000
Fleece 2,142,000 2,500,000 2,353,000
------------ ------------ ------------
Consolidated total net sales $ 17,985,000 $ 17,823,000 $ 14,863,000
============ ============ ============
</TABLE>
A reconciliation of total segment net income to total consolidated net
income for the years ended December 31, 1998, 1997 and 1996 is presented
below:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Apparel $ 1,746,000 $ 982,000 $ 270,000
Mask and Shield 1,116,000 958,000 548,000
Fleece 448,000 548,000 571,000
------------ ------------ ------------
Total segment net income (loss) 3,310,000 2,488,000 1,389,000
Unallocated corporate overhead expenses (2,994,000) (3,417,000) (3,534,000)
------------ ------------ ------------
Consolidated net income (loss) $ 316,000 $ (929,000) $ (2,145,000)
============ ============ ============
</TABLE>
F-20
<PAGE>
Alpha Pro Tech, Ltd.
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
The following reflects sales and long-lived asset information by
geographic area as of and for the years ended December 31, 1998, 1997 and
1996:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Sales by region
United States $ 17,393,000 $ 17,240,000 $ 14,284,000
International 592,000 583,000 579,000
------------ ------------ ------------
Consolidated total sales $ 17,985,000 $ 17,823,000 $ 14,863,000
============ ============ ============
Long-lived assets
United States $ 1,946,000 $ 1,911,000 $ 1,486,000
International 179,000 173,000 129,000
------------ ------------ ------------
Consolidated total long-lived assets $ 2,125,000 $ 2,084,000 $ 1,615,000
============ ============ ============
</TABLE>
Sales by region are based on the countries in which the customers are
located. The Company did not generate sales from any single foreign
country that was material to the Company's consolidated sales.
12. Acquisitions
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 the 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.
In June 1996, the Company acquired the remaining 20% interest in LC for a
$68,000 note payable, of which $49,000 was paid in 1996 and the $19,000
remaining was paid in 1997. The Company recorded an additional $58,000 of
goodwill which is being amortized over 8 years.
In connection with this purchase during 1997, the Company acquired
the remaining 3.2% of DPI's shares for $70,000. The Company recorded
$70,000 of goodwill in connection with the acquisition. Such goodwill is
being amortized over 8 years.
13. Major customer and concentration of credit risk The Company sells
significant amounts of product to a large distributor on credit terms. Net
sales to this distributor constituted 51.1%, 50.7% and 42.9% of total net
sales for 1998, 1997 and 1996, respectively. Trade receivables from this
distributor were 38.4% and 42.3% of total trade receivables as of December
31, 1998 and 1997, respectively. Management believes that adequate
provision has been made for risk of loss on all credit transactions.
F-21
<PAGE>
Alpha Pro Tech, Ltd. And Subsidiaries
Schedule II - Valuation and Qualifying Accounts
<TABLE>
Balance at Charged Charged Balance at
Beginning to Costs and to Other End of
Description of Period Expenses Accounts Deductions Period
<S> <C> <C> <C> <C> <C>
December 31, 1998
Deducted from
related asset account:
Allowance for
doubtful accounts $ 91,000 $ 7,000 $ -- $ 50,000 $ 48,000
=========== =========== ============= =========== ===========
Provision for
inventory $ 79,000 $ 67,000 $ -- $ -- $ 146,000
=========== =========== ============= =========== ===========
Valuation allowance
for income taxes $ 3,737,000 $ -- $(2,099,000) $ -- $ 1,638,000
=========== =========== ============= =========== ===========
December 31, 1997
Deducted from
related asset account:
Allowance for
doubtful accounts $ 122,000 $ 11,000 $ -- $ 42,000 $ 91,000
=========== =========== ============= =========== ===========
Provision for
inventory $ 42,000 $ 37,000 $ -- $ -- $ 79,000
=========== =========== ============= =========== ===========
Valuation allowance
for income taxes $ 3,455,000 $ -- $ 282,000 $ -- $ 3,737,000
=========== =========== ============= =========== ===========
December 31, 1996
Deducted from
related asset account:
Allowance for
doubtful accounts $ 61,000 $ 80,000 $ -- $ 19,000 $ 122,000
=========== =========== ============= =========== ===========
Provision for
inventory $ 32,000 $ 10,000 $ -- $ -- $ 42,000
=========== =========== ============= =========== ===========
Valuation allowance
for income taxes $ 4,138,000 $ -- $ -- $ 683,000 $ 3,455,000
=========== =========== ============= =========== ===========
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
=========== =========== ============= =========== ===========
</TABLE>
F-22
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet as at December 31, 1998 and December 31, 1997 and the
Statement of Operations for the years ended December 31, 1998, 1997 and 1996 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000884269
<NAME> Alpha Pro Tech, Ltd.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 59,000
<SECURITIES> 0
<RECEIVABLES> 3,086,000
<ALLOWANCES> 48,000
<INVENTORY> 2,999,000
<CURRENT-ASSETS> 6,230,000
<PP&E> 3,572,000
<DEPRECIATION> 1,447,000
<TOTAL-ASSETS> 8,938,000
<CURRENT-LIABILITIES> 2,579,000
<BONDS> 0
0
0
<COMMON> 241,000
<OTHER-SE> 24,338,000
<TOTAL-LIABILITY-AND-EQUITY> 8,938,000
<SALES> 17,985,000
<TOTAL-REVENUES> 17,985,000
<CGS> 10,733,000
<TOTAL-COSTS> 6,341,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 193,000
<INCOME-PRETAX> 316,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 316,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 316,000
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
