SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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Quarterly Report pursuant to section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarter Ended March 31, 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 May 7, 1999
Common stock, $.01 par value..... 24,112,449
<PAGE>
Alpha Pro Tech, Ltd.
Table of Contents
PART I. FINANCIAL INFORMATION
ITEM 1 Consolidated Financial Statements (Unaudited) Page No.
a) Consolidated Balance Sheet -
March 31, 1999 (unaudited) and December 31, 1998 1
b) Consolidated Statement of Operations
for the three months ended March 31, 1999
and March 31, 1998 (unaudited) 2
c) Consolidated Statement of Shareholder's Equity
for the three months ended March 31, 1999 (unaudited) 3
d) Consolidated Statement of Cash Flows
for the three months ended March 31, 1999
and March 31, 1998 (unaudited) 4
e) Notes to Consolidated Financial Statements 5-7
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
SIGNATURES 12
<PAGE>
Alpha Pro Tech, Ltd.
Consolidated Balance Sheet
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<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash $ 363,000 $ 43,000
Restricted cash 17,000 16,000
Accounts receivable, net of allowance for
doubtful accounts of $48,000 at March 31,
1999 and December 31, 1998 3,209,000 3,038,000
Inventories 3,448,000 2,999,000
Prepaid expenses and other current assets 128,000 134,000
------------ ------------
Total current assets 7,165,000 6,230,000
Property and equipment, net 2,097,000 2,125,000
Intangible assets, net 301,000 305,000
Notes receivable and other assets 279,000 278,000
------------ ------------
$ 9,842,000 $ 8,938,000
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,386,000 $ 983,000
Accrued liabilities 492,000 474,000
Notes payable, current portion 1,267,000 1,009,000
Capital leases, current portion 112,000 113,000
------------ ------------
Total current liabilities 3,257,000 2,579,000
Loans payable, less current portion 227,000 247,000
Capital leases, less current portion 133,000 159,000
------------ ------------
Total liabilities 3,617,000 2,985,000
------------ ------------
Shareholders' equity:
Common stock, $.01 par value, 50,000,000
shares authorized, 24,112,449
issued and outstanding at March 31, 1999
and December 31, 1998 241,000 241,000
Additional paid-in capital 24,338,000 24,338,000
Accumulated deficit (18,354,000) (18,626,000)
------------ ------------
Total shareholders' equity 6,225,000 5,953,000
------------ ------------
$ 9,842,000 $ 8,938,000
============ ============
</TABLE>
1
<PAGE>
Alpha Pro Tech, Ltd.
Consolidated Statement of Operations (Unaudited)
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<TABLE>
<CAPTION>
For the three months ended March 31,
1999 1998
<S> <C> <C>
Sales $ 4,489,000 $ 4,742,000
Cost of goods sold, excluding
depreciation and amortization 2,596,000 2,846,000
----------- -----------
1,893,000 1,896,000
Expenses:
Selling, general and administrative 1,473,000 1,661,000
Depreciation and amortization 107,000 98,000
----------- -----------
Income from operations 313,000 137,000
Interest 41,000 54,000
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Income before provision for income taxes 272,000 83,000
Provision for income taxes 0 0
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Net income $ 272,000 $ 83,000
=========== ===========
Basic income per share $ 0.01 $ 0.00
----------- -----------
Diluted income per share $ 0.01 $ 0.00
----------- -----------
Basic weighted average shares
outstanding 24,112,449 24,112,449
----------- -----------
Diluted weighted average shares
outstanding 24,379,268 24,357,651
----------- -----------
</TABLE>
2
<PAGE>
Alpha Pro Tech, Ltd.
Consolidated Statement of Shareholders' Equity (Unaudited)
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<TABLE>
<CAPTION>
Common Additional Accumulated
Shares Stock Paid-in 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
Net income 272,000 272,000
---------- ------------ ------------ ------------ ------------
Balance at
March 31, 1999 24,112,449 $ 241,000 $ 24,338,000 $(18,354,000) $ 6,225,000
========== ============ ============ ============ ============
</TABLE>
3
<PAGE>
Alpha Pro Tech, Ltd.
Consolidated Statement of Cash Flows (Unaudited)
- --------------------------------------------------------------------------------
For the three months ended
March 31,
1999 1998
Cash Flows From Operating Activities:
Net income $ 272,000 $ 83,000
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 107,000 98,000
Changes in assets and liabilities:
Restricted cash (1,000) 4,000
Accounts receivable (171,000) (113,000)
Inventories (449,000) 29,000
Prepaid expenses and other assets 6,000 59,000
Accounts payable and accrued liabilities 421,000 (472,000)
--------- ---------
Net cash provided by (used in) operating
activities: 185,000 (312,000)
--------- ---------
Cash Flows From Investing Activities:
Purchase of property and equipment (68,000) (128,000)
cost of intangible assets (7,000) (15,000)
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Net cash used in investing activities (75,000) (143,000)
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Cash Flows From Financing Activities:
Net proceeds from loans payable 237,000 247,000
Net (payments) proceeds on capital leases (27,000) 20,000
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Net cash provided by financing activities 210,000 267,000
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Increase (decrease) in cash during the period 320,000 (188,000)
Cash, beginning of period $ 43,000 $ 490,000
Cash, end of period $ 363,000 $ 302,000
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4
<PAGE>
Alpha Pro Tech, Ltd.
Notes to Consolidated Financial Statements (Unaudited)
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1. The Company
Alpha Pro Tech, Ltd. (the Company) manufactures and distributes a variety
of disposable mask, shield, shoe cover, 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 unaudited interim financial statements reflect all
adjustments which are, in the opinion of management, necessary for the
fair presentation of the financial position of the Company as of March 31,
1999 and the results of its operations and cash flows for the three months
ended March 31, 1999 and 1998, in conformity with generally accepted
acccounting principles for interim financial statements. All such
adjustments made are of a normal recurring nature.
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 March 31, December 31,
1999 1998
Raw materials $1,836,000 $1,699,000
Work in process 275,000 95,000
Finished goods 1,337,000 1,205,000
---------- ----------
$3,448,000 $2,999,000
========== ==========
4. Accrued Liabilities March 31, December 31,
1999 1998
Professional fees $ 134,000 $ 105,000
Payroll and payroll taxes 195,000 122,000
Other 163,000 247,000
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$ 492,000 $ 474,000
========== ==========
5
<PAGE>
Alpha Pro Tech, Ltd.
Notes to Consolidated Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
5. Basic and Diluted Net Income Per Share
Net income per share "EPS" has been computed pursuant to the provisons of
Statement of Financial Accounting Standards No. 128 (SFAS 128), "Earnings
Per Share".
The following table provides a reconciliation of both the net income and
the number of shares used in the computations of "basic" EPS, which
utilizes the weighted average number of shares outstanding without regard
to potential shares, and "diluted" EPS, which includes all such shares.
<TABLE>
<CAPTION>
For the Three Months Ended March 31,
1999 1998
<S> <C> <C>
Net income (Numerator) $ 272,000 $ 83,000
Shares (Denominator):
Basic weighted average shares outstanding 24,112,449 24,112,449
Add: Dilutive effect of stock options and warrants 266,819 245,202
----------- -----------
Diluted weighted average shares outstanding 24,379,268 24,357,651
=========== ===========
Net income per share:
Basic $ 0.01 $ 0.00
Diluted $ 0.01 $ 0.00
</TABLE>
6. Provision for Income Tax
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes". This statement requires an asset and liability approach for
accounting for income taxes. At December 31, 1998 the Company had net
operating loss (NOL) carryforwards of approximately $5,005,000. No
provision (benefit) for income taxes has been recorded in the consolidated
statements of operations as a result of the Company's net operating loss
carryforwards and the fact that the Company's history of recurring losses
makes the realization of the benefit of such losses uncertain.
6
<PAGE>
Alpha Pro Tech, Ltd.
Notes to Consolidated Financial Statements (Unaudited)
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7. Activity of Business Segments
In 1998 the Company adopted Statement of Fianancial Accounting Standards
No. 131 (SFAS 131) "Disclosures About Segments of an Enterprise and
Related Information". In accordance with SFAS 131, the prior year's
segment information has been restated to present comparable information
concerning the Company's reportable segments.
The Company classifies its businesses into three fundamental segments:
Apparel, consisting principally of disposable medical clothing such as
coveralls, frocks, lab coats, hoods, bouffant caps, and shoe covers
(including the Aqua Track and spunbound 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 months
ended March 31, 1999 and 1998:
For the three months ended
March 31, 1999 March 31, 1998
Apparel $2,703,000 $3,160,000
Mask and shield 1,127,000 995,000
Fleece 659,000 587,000
---------- ----------
Consolidated sales $4,489,000 $4,742,000
========== ==========
A reconciliation of total segment net income to total consolidated net
income for the three months ended March 31, 1999 and 1998 is presented
below:
For the three months ended
March 31, 1999 March 31, 1998
Apparel $ 508,000 $ 502,000
Mask and shield 152,000 (48,000)
Fleece 160,000 181,000
---------- ----------
Total segment net income 820,000 635,000
Unallocated corporate
overhead expenses (548,000) (552,000)
---------- ----------
Consolidated net income $ 272,000 $ 83,000
========== ==========
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal 1999 compared to Fiscal 1998
Alpha Pro Tech, Ltd. ("Alpha" or the "Company") reported net income for the
three months ended March 31, 1999 of $272,000 as compared to net income of
$83,000 for the three months ended March 31, 1998, representing an improvement
of $189,000 or 227.7%. The net income increase is attributable primarily to a
decrease in selling, general and administrative expenses and a decrease in net
interest expense.
Sales Consolidated net sales for the three months ended March 31, 1999 decreased
to $4,489,000 from $4,742,000 for the comparable three months in 1998,
representing a decrease of $253,000 or 5.3%.
Net sales for the Apparel Division for the three months ended March 31, 1999
were $2,703,000 as compared to $3,160,000 for the same period of 1998. The
Apparel Division sales decrease of $457,000 or 14.5% was primarily due to
decreased sales to the Company's largest distributor in the first two months of
1999. Sales have strengthened since and are expected to stay strong for the
balance of 1999.
Mask and eye shield sales increased by $132,000 or 13.3% to $1,127,000 for the
first quarter of 1999 from $995,000 in the first quarter of 1998. This increase
is primarily the result of an improvement in medical & industrial mask sales,
partially offset by decreases in dental mask sales. Sales of mask and eye
shields should continue to strengthen in 1999 with the introduction of the
Medical Division and the introduction of a new line of masks and eye shields.
Sales from the Company's Extended Care Unreal Lambskin(R) and other related
products, which includes a line of pet beds, increased by $72,000 or 12.3% to
$659,000 in the first quarter of 1999 compared to $587,000 in the same period in
1998. The increase in sales of $72,000 is primarily the result of increases in
medical fleece sales of $221,000.
Cost of Goods Sold Cost of goods sold decreased to $2,596,000 for the three
months ended March 31,1999 from $2,846,000 for the same period in 1998. As a
percentage of net sales, cost of goods sold decreased to 57.8% in 1999 from
60.0% in 1998. Gross profit margin increased to 42.2% for the three months ended
March 31, 1999 from 40.0% for the same period in 1998.
The improvement in gross profit margin to 42.2% from 40.0% is a result of the
Company's strategic emphasis on developing innovative products, especially for
its largest customer, and improved manufacturing processes and efficiency.
Management expects gross profit margin to continue to remain strong, but there
can be no assurance that the Company's margin improvements will be sustained.
8
<PAGE>
Selling, General and Administrative Expenses Selling, general and administrative
expenses decreased by $188,000 to $1,473,000 for the three months ended March
31, 1999 from $1,661,000 for the three months ended March 31, 1998. As a
percentage of net sales, selling, general and administrative expenses decreased
to 32.8% in 1999 from 35.0% in 1998. The decrease in selling, general and
administrative expenses primarily consists of decreased public company expenses
of $63,000, 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 $28,000; decreased general office and factory expenses of $19,000; decreased
marketing, commissions and travel expenses of $86,000; and decreased
telecommunications expense of $18,000; partially offset by increased payroll
related costs of $20,000. 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
$9,000 to $107,000 for the three months ended March 31, 1999 from $98,000 for
the same period in 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 $176,000 to $313,000
for the three months ended March 31, 1999 as compared to income from operations
of $137,000 for the three months ended March 31, 1998. The increase in income
from operations is due to a a decrease in selling, general and administrative
expenses of $188,000, partially offset by a decrease in gross profit of $3,000
and an increase in depreciation and amortization of $9,000.
Net Interest Net Interest expense decreased by $13,000 or 24.1% to $41,000 for
the three months ended March 31, 1999 from $54,000 for the three months ended
March 31, 1998. The decrease in net interest expense is due to a decrease in
required borrowings offset by decreases in interest income. Interest income
decreased by $4,000 to $8,000 for the three months ended March 31, 1999 from
$12,000 in the same period in 1998.
Net Income Net income for the three months ended March 31, 1999 was $272,000
compared to net income of $83,000 for the three months ended March 31, 1998, an
improvement of $189,000 or 227.7% . The net income increase of $189,000 is
comprised of an increase in income from operations of $176,000 and a decrease in
interest expense of $13,000.
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 $30,000 has been accrued in 1999.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, the Company had cash of $363,000 and working capital of
$3,908,000. During the three months ended March 31, 1999, cash increased by
$320,000 and accounts payable and accrued liabilities increased by $421,000. 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 March 31, 1999,
the unused and available line of credit was $1,055,000.
Net cash provided by operations was $185,000 for the three months ended March
31, 1999 compared to net cash used in operations of $312,000 for the same period
of 1998. The Company's generation of cash from operations for the three months
ended March 31, 1999 is due primarily to net income before depreciation and
amortization, increases in accounts payable and accrued liabilities and
decreases in prepaid expenses and other assets, partially offset by increases in
accounts receivable, inventory and restricted cash.
The Company's investing activities have consisted primarily of expenditures for
fixed assets of $68,000 and increases in intangible assets of $7,000, for a
total of $75,000 for the three months ended March 31, 1999.
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 three months ended March 31, 1999, the Company's cash provided by
financing activities resulted primarily from net proceeds from the asset based
loan of $237,000 and decreases in capital leases of $27,000.
The Company believes that cash generated from operations, its current cash
balance, and the funds available under its asset based borrowings will be
sufficient to satisfy the Company's projected working capital and planned
capital expenditures for at least 12 months.
NEW ACCOUNTING STANDARDS
The Company has adopted SFAS 131 "Disclosures About Segments of an Enterprise
and Related Information." The new standard became effective for the Company for
the year ended December 31, 1998 and requires that comparative information from
earlier periods be restated to conform to its requirements. SFAS 131 establishes
standards for disclosures about operating segments in annual financial
statements and selected information in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. See Note 7 of the Notes to Consolidated
financial statements.
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 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 additon 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 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: May 12, 1999 BY: Sheldon Hoffman
------------ ------------------------------
SHELDON HOFFMAN
CHIEF EXECUTIVE OFFICER
CHIEF FINANCIAL OFFICER
PRINCIPAL FINANCIAL OFFICER
12
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Consolidated Balance sheet as of March 31, 1999 and December 31, 1998 and
the statement of operations for the three months ended March 31, 1999 and March
31, 1998.
</LEGEND>
<CIK> 0000884269
<NAME> Alpha Pro Tech, Ltd
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 380
<SECURITIES> 0
<RECEIVABLES> 3,257
<ALLOWANCES> 48
<INVENTORY> 3,448
<CURRENT-ASSETS> 7,165
<PP&E> 3,639
<DEPRECIATION> 1,542
<TOTAL-ASSETS> 9,842
<CURRENT-LIABILITIES> 3,257
<BONDS> 0
0
0
<COMMON> 241
<OTHER-SE> 24,338
<TOTAL-LIABILITY-AND-EQUITY> 9,842
<SALES> 4,489
<TOTAL-REVENUES> 4,489
<CGS> 2,596
<TOTAL-COSTS> 1,580
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41
<INCOME-PRETAX> 272
<INCOME-TAX> 0
<INCOME-CONTINUING> 272
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 272
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
