<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 September 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 NOVEMBER 1, 1999
Common stock, $.01 par value..... 24,112,449
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ALPHA PRO TECH, LTD.
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Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1 Consolidated Financial Statements (Unaudited) Page No.
<S> <C>
a) Consolidated Balance Sheet -
September 30, 1999 (unaudited) and December 31, 1998 1
b) Consolidated Statement of Operations
for the three and nine months ended September 30, 1999
and September 30, 1998 (unaudited) 2
c) Consolidated Statement of Shareholders' Equity
for the nine months ended September 30, 1999 (unaudited) 3
d) Consolidated Statement of Cash Flows for the nine months ended
September 30, 1999
and September 30, 1998 (unaudited) 4
e) Notes to Consolidated Financial Statements (unaudited) 5-8
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-11
SIGNATURES 12
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<TABLE>
<CAPTION>
ALPHA PRO TECH, LTD.
CONSOLIDATED BALANCE SHEET
- -------------------------------------------------------------------------------------------------------
SEPTEMBER 30, DECEMBER 31,
1999 1998
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 613,000 $ 43,000
Restricted cash 17,000 16,000
Accounts receivable, net of allowance for doubtful accounts of
$48,000 at September 30, 1999
and December 31, 1998 3,826,000 3,038,000
Inventories 3,173,000 2,999,000
Prepaid expenses and other current assets 215,000 134,000
-------------------- --------------------
Total current assets 7,844,000 6,230,000
Property and equipment, net 2,218,000 2,125,000
Intangible assets, net 292,000 305,000
Notes receivable and other assets 313,000 278,000
-------------------- --------------------
$ 10,667,000 $ 8,938,000
-------------------- --------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,700,000 $ 983,000
Accrued liabilities 520,000 474,000
Notes payable, current portion 1,295,000 1,009,000
Capital leases, current portion 110,000 113,000
-------------------- --------------------
Total current liabilities 3,625,000 2,579,000
Notes payable, less current portion 187,000 247,000
Capital leases, less current portion 106,000 159,000
-------------------- --------------------
Total liabilities 3,918,000 2,985,000
-------------------- --------------------
Shareholders' Equity:
Common stock, $.01 par value, 50,000,000 shares authorized,
24,112,449 shares issued and outstanding at
September 30, 1999 and December 31, 1998 241,000 241,000
Additional paid-in capital 24,342,000 24,338,000
Accumulated deficit (17,834,000) (18,626,000)
-------------------- --------------------
Total shareholders' equity 6,749,000 5,953,000
-------------------- --------------------
$ 10,667,000 $ 8,938,000
-------------------- --------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
1
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<TABLE>
<CAPTION>
Alpha Pro Tech, Ltd.
Consolidated Statement of Operations (Unaudited)
- ---------------------------------------------------------------------------------------------------
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Sales $ 5,176,000 $ 4,231,000 $14,888,000 $13,674,000
Cost of goods sold, excluding depreciation
and amortization 3,247,000 2,534,000 9,006,000 8,264,000
------------------ ------------------ ---------------- --------------
1,929,000 1,697,000 5,882,000 5,410,000
Expenses:
Selling, general and administrative 1,537,000 1,512,000 4,643,000 4,748,000
Depreciation and amortization 110,000 102,000 326,000 300,000
------------------ ------------------ ---------------- --------------
Income from operations 282,000 83,000 913,000 362,000
Interest, net 41,000 42,000 121,000 147,000
------------------ ------------------ ---------------- --------------
Income before provision for income taxes 241,000 41,000 792,000 215,000
Provision (benefit) for income taxes - - - -
------------------ ------------------ ---------------- --------------
Net income $ 241,000 $ 41,000 $ 792,000 $ 215,000
------------------ ------------------ ---------------- --------------
Basic income per share $ 0.01 $ 0.00 $ 0.03 $ 0.01
------------------ ------------------ ---------------- --------------
Diluted income per share $ 0.01 $ 0.00 $ 0.03 $ 0.01
------------------ ------------------ ---------------- --------------
Basic weighted average shares outstanding 24,112,449 24,112,449 24,112,449 24,112,449
------------------ ------------------ ---------------- --------------
Diluted weighted average shares outstanding 24,640,003 24,227,508 24,474,792 24,278,272
------------------ ------------------ ---------------- --------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
2
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<TABLE>
<CAPTION>
ALPHA PRO TECH, LTD.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED)
- ---------------------------------------------------------------------
ADDITIONAL
COMMON PAID-IN ACCUMULATED
SHARES STOCK CAPITAL DEFICIT TOTAL
--------------- ------------- ---------------- ----------------- ----------------
<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
Options/warrants issued
for services 4,000 4,000
Net Income 792,000 792,000
--------------- ------------- ---------------- ----------------- ----------------
Balance at
September 30, 1999 24,112,449 $241,000 $24,342,000 $(17,834,000) $6,749,000
--------------- ------------- ---------------- ----------------- ----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
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<TABLE>
<CAPTION>
ALPHA PRO TECH, LTD.
CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------------------------------------------------
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
1999 1998
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 792,000 $ 215,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 326,000 300,000
Changes in assets and liabilities:
Restricted cash (1,000) 4,000
Accounts receivable (788,000) 56,000
Inventories (174,000) 468,000
Prepaid expenses and other assets (77,000) 40,000
Accounts payable and accrued liabilities 762,000 (862,000)
------------------ -----------------
Net cash provided by operating activities 840,000 221,000
------------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (385,000) (295,000)
Cost of intangible assets (20,000) (33,000)
Purchase of other assets (35,000) (41,000)
------------------ -----------------
Net cash used in investing activities (440,000) (369,000)
------------------ -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds (payments) on notes payable 226,000 (65,000)
Principal repayments on capital leases (56,000) (42,000)
------------------ -----------------
Net cash provided by (used in) financing activities 170,000 (107,000)
Increase (decrease) in cash $ 570,000 $ (255,000)
Cash, beginning of period 43,000 490,000
------------------ -----------------
Cash, end of period $ 613,000 $ 235,000
------------------ -----------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
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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>
SEPTEMBER 30, DECEMBER 31,
1999 1998
<S> <C> <C>
Raw materials $ 1,687,000 $ 1,699,000
Work in process 176,000 95,000
Finished goods 1,310,000 1,205,000
----------------- ------------------
$ 3,173,000 $ 2,999,000
------------------- ------------------
------------------- ------------------
4. ACCRUED LIABILITIES
SEPTEMBER 30, 1999 DECEMBER 31, 1998
Professional fees $ 89,000 $ 105,000
Payroll and payroll taxes 241,000 122,000
Other 190,000 247,000
------------------- ------------------
$ 520,000 $ 474,000
------------------- ------------------
------------------- ------------------
</TABLE>
5
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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 NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net income (Numerator) $ 241,000 $ 41,000 $ 792,000 $ 215,000
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 527,554 115,059 362,343 165,823
--------------- --------------- -------------- --------------
Diluted weighted average shares outstanding 24,640,003 24,227,508 24,474,792 24,278,272
--------------- --------------- -------------- --------------
--------------- --------------- -------------- --------------
Net income per share:
Basic $ 0.01 $ 0.00 $ 0.03 $ 0.01
Diluted $ 0.01 $ 0.00 $ 0.03 $ 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
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ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- ------------------------------------------------------------------------------
7. ACTIVITY OF BUSINESS 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 nine
months ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Apparel $ 3,337,000 $ 2,646,000 $ 9,537,000 $ 8,997,000
Mask and shield 1,320,000 1,074,000 3,715,000 3,136,000
Fleece 519,000 511,000 1,636,000 1,541,000
----------------- --------------- --------------- --------------
Consolidated total net sales $ 5,176,000 $ 4,231,000 $ 14,888,000 $ 13,674,000
----------------- --------------- --------------- --------------
</TABLE>
A reconciliation of total segment net income to total consolidated net
income for the three and nine months ended September 30, 1999 and 1998 is
presented below:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER FOR THE NINE MONTHS ENDED
30, SEPTEMBER 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Apparel $ 645,000 $ 413,000 $ 1,840,000 $ 1,373,000
Mask and Shield 98,000 108,000 378,000 154,000
Fleece 86,000 34,000 351,000 305,000
---------------- ---------------- --------------- --------------
Total segment net income 829,000 555,000 2,569,000 1,832,000
Unallocated corporate overhead expenses (588,000) (514,000) (1,777,000) (1,617,000)
---------------- ---------------- --------------- --------------
Consolidated net income $ 241,000 $ 41,000 $ 792,000 $ 215,000
---------------- ---------------- --------------- --------------
</TABLE>
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1999, COMPARED TO THE THREE
MONTHS AND NINE MONTHS ENDED SEPTEMBER 30, 1998
Alpha Pro Tech, Ltd. ("Alpha" or the "Company") reported net income for the
three months ended September 30, 1999 of $241,000 as compared to net income of
$41,000 for the three months ended September 30, 1998, representing an
improvement of $200,000 or 487.8%. For the nine months ended September 30, 1999
net income rose to $792,000 from $215,000 for the same period in 1998,
representing an increase of $577,000 or 268.4%. The year to date net income
increase of $577,000 is attributable primarily to an increase in gross profit of
$472,000, a decrease in selling, general and administrative expenses of
$105,000, and a decrease in net interest expense of $26,000, partially offset by
an increase in depreciation and amortization of $26,000.
SALES Consolidated net sales for the three months ended September 30, 1999
increased to $5,176,000 from $4,231,000 for the comparable three months in 1998,
representing an increase of $945,000 or 22.3%.
Net sales for the Apparel Division for the three months ended September 30, 1999
were $3,337,000 as compared to $2,646,000 for the same period of 1998. The
Apparel Division sales increase of $691,000 or 26.1% was primarily due to
increased sales to the Company's largest distributor.
Mask and eye shield sales increased by $246,000 or 22.9% to $1,320,000 for the
third quarter of 1999 from $1,074,000 in the third quarter of 1998. This
increase is primarily the result of growth in industrial mask sales, partially
offset by a decline of sales in the dental distributor market. Sales of mask and
eye shields are expected to continue to strengthen in 1999 and 2000 with the
introduction of a new line of masks and eye shields by the newly created Medical
Division.
Sales from the Company's Extended Care Unreal Lambskin(R) and other related
products, which includes a line of pet beds, increased slightly by $8,000 or
1.6% to $519,000 in the third quarter of 1999 compared to $511,000 in the same
period in 1998. The increase in sales of $8,000 is primarily the result of
increases in sales of pet products, partially offset by decreased medical fleece
sales.
Consolidated sales were $14,888,000 and $13,674,000 for the nine months ended
September 30, 1999 and 1998 respectively, representing an increase of $1,214,000
or 8.9%. Net sales for the Apparel Division for the nine months ended September
30, 1999 were $9,537,000 as compared to $8,997,000 for the same period of 1998,
an increase of 6.0% which is primarily due to increased sales to the Company's
largest distributor. The Company's largest distributor has seen sales increases
for five consecutive quarters. The expectation is that growth should continue,
and as a result the Company's sales to this distributor should also remain
strong. Mask and eye shield sales increased by $579,000 or 18.5% to $3,715,000
for the nine months ended September 30, 1999 from $3,136,000 in the same period
of 1998. The increase is primarily the result of an improvement in 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 $95,000 or 6.2% to $1,636,000 for the nine months ended September 30, 1999
compared to $1,541,000 in the same period in 1998. The increase in sales is the
result of increases in medical and consumer fleece sales.
8
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COST OF GOODS SOLD Cost of goods sold increased to $3,247,000 for the three
months ended September 30,1999 from $2,534,000 for the same period in 1998. As a
percentage of net sales, cost of goods sold increased to 62.7% in 1999 from
59.9% in 1998. Gross profit margin decreased to 37.3% for the three months ended
September 30, 1999 from 40.1% for the same period in 1998.
For the nine months ended September 30, 1999 as compared to 1998, cost of goods
sold increased to $9,006,000 from $8,264,000. As a percentage of net sales for
the nine months, cost of goods remained constant at 60.5% from 60.4%. Therefore,
gross profit margin also remained constant at 39.5% from 39.6% for the nine
months ended September 30, 1999 and 1998, respectively.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative
expenses increased by $25,000 to $1,537,000 for the three months ended September
30, 1999 from $1,512,000 for the three months ended September 30, 1998. The
increase in selling, general and administrative expenses primarily consists of
increased payroll related costs of $85,000; increased professional fees of
$68,000; increased factory expenses of $15,000; partially offset by decreased
marketing, commissions and travel expenses of $129,000; decreased public company
expenses of $13,000, 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 29.7% in the third
quarter of 1999 from 35.7% in the same period of 1998. For the third consecutive
quarter, selling, general and administrative expenses have decreased as a
percentage of net sales.
Selling, general and administrative expenses decreased by $105,000 or 2.2%, to
$4,643,000 for the nine months ended September 30, 1999 from $4,748,000 for the
nine months ended September 30, 1998. The decrease in selling, general and
administrative expenses primarily consists of decreased public company expenses
of $108,000, 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 telecommunications expense
of $27,000 and decreased marketing, commissions and travel expenses of $272,000;
partially offset by increased payroll related costs of $149,000; increased
professional fee expenses of $58,000; and increased insurance, general office
and factory expenses of $82,000. As a percentage of net sales, selling, general
and administrative expenses decreased to 31.2% in the nine months ended
September 30, 1999 from 34.7% in the same period of 1998. 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
$8,000 to $110,000 for the three months ended September 30, 1999 from $102,000
for the same period in 1998 and increased by $26,000 to $326,000 from $300,000
for the nine months ended September 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 $199,000 to $282,000
for the three months ended September 30, 1999 as compared to income from
operations of $83,000 for the three months ended September 30, 1998. The
increase in income from operations is due to an increase in gross profit of
$232,000, partially offset by an increase in selling, general and administrative
expenses of $25,000 and an increase in depreciation and amortization of $8,000.
Income from operations increased by $551,000 to $913,000 for the nine months
ended September 30, 1999 as compared to income from operations of $362,000 for
the nine months ended September 30, 1998. The increase in income from operations
is due to an increase in gross profit of $472,000, and a decrease in selling,
general and administrative expenses of $105,000, partially offset by an increase
in depreciation and amortization expense of $26,000.
9
<PAGE>
NET INTEREST Net interest expense decreased by $1,000 or 2.4% to $41,000 for the
three months ended September 30, 1999 from $42,000 for the three months ended
September 30, 1998. Net interest expense decreased by $26,000 or 17.7% to
$121,000 for the nine months ended September 30, 1999 from $147,000 for the nine
months ended September 30, 1998.
NET INCOME Net income for the three months ended September 30, 1999 was $241,000
compared to net income of $41,000 for the three months ended September 30, 1998,
an improvement of $200,000 or 487.8% . The net income increase of $200,000 is
comprised of an increase in income from operations of $199,000 and a decrease in
interest expense of $1,000.
Net income for the nine months ended September 30, 1999 was $792,000 compared to
net income of $215,000 for the nine months ended September 30, 1998, an
improvement of $577,000 or 268.4%. The net income increase of $577,000 is
comprised of an increase in income from operations of $551,000 and a decrease in
interest expense of $26,000.
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 $88,000 has been accrued in 1999.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, the Company had cash of $613,000 and working capital
of $4,219,000. During the nine months ended September 30, 1999, cash increased
by $570,000 and accounts payable and accrued liabilities increased by $762,000.
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
September 30, 1999, the unused and available line of credit was $924,000.
Net cash provided by operations was $840,000 for the nine months ended September
30, 1999 compared to net cash provided by operations of $221,000 for the same
period of 1998. The Company's generation of cash from operations for the nine
months ended September 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 $385,000 and increases in intangible assets of $20,000.
The Company anticipates that its mask manufacturing capabilities are to be
further improved in 1999 at an estimated cost of $100,000. Depending on the
success of the automated shoe cover approximately $350,000 of additional
equipment could be required to expand the manufacturing capacity. The Company
intends to lease equipment whenever possible.
During the nine months ended September 30, 1999, the Company's cash provided by
financing activities resulted primarily from net proceeds from the asset based
loan of $226,000 and decreases in capital leases of $56,000.
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.
10
<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 completed the process of
modifying, upgrading and replacing major computer related systems that have been
identified as non-compliant. 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. The Company does not anticipant any problems
with application software and computer equipment.
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 has completed substantially all remediation and replacement of
general business equipment. 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 received written communications from the
majority of its critical external suppliers and has determined the status of
their efforts to become Year 2000 compliant. The extent to which the Company is
vulnerable as a result of potential supplier non-compliance appears to be
limited. The Company expects to complete this process by November 1999. 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.
11
<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.
DATE: NOVEMBER 5, 1999 BY: /s/ SHELDON HOFFMAN
-------------------------
SHELDON HOFFMAN
CHIEF EXECUTIVE OFFICER
CHIEF FINANCIAL OFFICER
PRINCIPAL FINANCIAL OFFICER
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1999 AND DECEMBER 31, 1998 AND
THE STATEMENT OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,
1999 AND SEPTEMBER 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000884269
<NAME> ALPHA PRO TECH LTD
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