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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, 1999
{ } 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
(State or other jurisdiction of (I.R.S. Employer Identification No.
incorporation or organization
Suite 112, 60 Centurian Drive
MARKHAM, ONTARIO L3R 9R2
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
(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 registrant's Common Shares outstanding as of February 16, 2000 was
24,079,949.
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 16, 2000 was
$37,913,379 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, 2000 (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
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PART I
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 in this report, 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, which speak as of the
date of this report.
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, and face shields; infection
control products consisting of a line of face masks and face 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-Registered Trademark-
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 focus on
its other core businesses which include medical, dental and pet markets. The
Company also intends to distribute to the industrial safety market. As part of
its current strategy emphasis is being placed on developing innovative products
and processes which are expected to increase gross margins.
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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.
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 2 purchasing groups,
9 major distributors, approximately 800 additional distributors, approximately
12 independent sales representatives and a Company sales and marketing force of
11 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 Lambskin
* 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 shoecover
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 by
McDonald's Corporation through a Supply Agreement and is being tested by a
number of other restaurant chains with favorable results. 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-Registered Trademark- feature
provides a custom fit to the face to prevent blow-by for better protection.
Combine this feature with the Magic Arch-Registered Trademark-, 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
Lambskin-Registered Trademark- pressure sore and bed patient monitoring
system product lines. The Unreal Lambskin-Registered Trademark- 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
Lambskin-Registered Trademark- 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 Lambskin and Medi-Pads are sold to the Extended Care market; Pet
Bedding and Pet Toys are sold to the Consumer market; and automated
shoecovers are sold to the Food Industry, Medical, Industrial and Cleanroom
market. The Company has expanded its marketing efforts for the Food Industry
to include apparel, such as sleeve protectors and aprons as well as shields.
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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 HBOC
* Medline Industries
* Blain Supply
* Owens and Minor
* Durr/Bergin Brunswig Medical
* Johnson & Johnson Medical
* Henry Schein, Inc.
Of the nine 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
agreement calls for VWR to purchase a minimum of $5 million in each of the
years of the contract to retain exclusive distribution rights. This minimum
figure has been attained for 1996 through 1999. In early 2000, the Company
extended its exclusive agreement through 2002 with a minimum annual
requirement of $10 million for VWR to retain exclusive distribution rights.
Sales to VWR Scientific Products represented 57.8% of total sales for 1999,
51.1% for 1998 and 50.7% for 1997. 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 to manufacture the Company's Unreal Lambskin products.
The Company's disposable protective apparel production is located in three
facilities, a 40,000 sq. ft. facility located at 1287 Fairway 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 shoecover 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
two-to-three month supply of product.
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.
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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 shoecover. 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 7 to 16 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, 2000, the Company had 528 employees, including 17 persons at
its head office in Markham, Ontario, Canada; 34 persons at its facemask
production facility in Salt Lake City, Utah and 20 persons at its Extended Care
production facility in Janesville, Wisconsin; 39 persons at its cutting,
warehouse and shipping facility in Nogales, Arizona; 56 persons at its shield
assembly and sewing operation in Nogales, Mexico; 331 at its sewing operation in
Benjamin Hill, Mexico; and 20 persons at its coating and automated shoecover
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 $3,800 under a lease expiring
February 28, 2002. Seventeen (17) 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 $6,810 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
$7,000 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 1287 Fairway Drive, Nogales, Arizona. The monthly rental is $9,000
for 40,000 square feet. This lease expires November 30, 2002. 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 June 30, 2002. Sewing is
done at Ave. Abelardo L. Rodriguez Y. Novena, Benjamin Hill, Sonora, Mexico. The
monthly rental is $7,200 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 1999.
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PART II
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF SECURITIES
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:
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LOW HIGH
<S> <C> <C> <C>
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
Second Quarter 5/8 15/16
Third Quarter 3/4 1
Fourth Quarter 11/16 15/16
2000 First Quarter 3/4 1-7/8
(Thru 2/16/00)
</TABLE>
Such over the counter market quotations reflect interdealer prices,
without retail mark-up,. mark-down or commission, and may not
necessarily represent actual transactions.
As at February 16, 2000 there were 511 shareholders of record, and approximately
2,800 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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YEAR ENDED DECEMBER 31,
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1999 1998 1997 (1) 1996 (1) 1995 (1)
<S> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS DATA
Sales $20,235,000 $17,985,000 $ 17,823,000 $ 14,863,000 $ 13,031,000
Gross profit 7,985,000 7,252,000 6,229,000 5,198,000 4,469,000
Selling, general and administrative
expenses 6,352,000 6,341,000 6,531,000 4,610,000 4,342,000
Interest expense, net 124,000 193,000 308,000 279,000 563,000
Impairment loss on intangible assets - - - - 4,922,000
Exchange of escrowed shares for new
shares - - - 2,204,000 -
Other expenses 380,000 402,000 319,000 250,000 613,000
----------- ----------- ------------ ------------ ------------
Total expenses including provision
for income taxes 6,856,000 6,936,000 7,158,000 7,343,000 10,440,000
----------- ----------- ------------ ------------ ------------
Net income (loss) $ 1,129,000 $ 316,000 $ (929,000) $ (2,145,000) $ (5,971,000)
=========== =========== ============ ============ ============
Basic and diluted net income (loss)
per share $ 0.05 $ 0.01 $ (0.04) $ (0.12) $ (0.36)
=========== =========== ============ ============ ============
Basic weighted average shares
outstanding 24,110,722 24,112,449 23,388,369 17,841,547 16,533,294
Diluted weighted average shares
outstanding 24,450,382 24,238,866 23,388,369 17,841,547 16,533,294
HISTORICAL BALANCE SHEET DATA
Current assets $ 7,158,000 $ 6,230,000 $ 7,411,000 $ 5,614,000 $ 4,860,000
Total assets $10,048,000 $ 8,938,000 $ 9,985,000 $ 7,481,000 $ 6,410,000
Current liabilities $ 2,783,000 $ 2,579,000 $ 3,799,000 $ 3,414,000 $ 3,166,000
Long-term liabilities $ 203,000 $ 406,000 $ 549,000 $ 217,000 $ 240,000
Shareholders' equity $ 7,062,000 $ 5,953,000 $ 5,637,000 $ 3,850,000 $ 3,004,000
</TABLE>
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(1) Includes the operations of Ludan Corporation which was acquired effective
April 1, 1995. See Note 12 in Notes to the Consolidated Financial
Statements.
ITEM 7. 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 year
ended December 31, 1999 of $1,129,000 as compared to net income of $316,000 for
the year ended December 31, 1998, representing an improvement of $813,000 or
257.3%. The net income increase of $813,000 is attributable primarily to an
increase in gross profit of $733,000, due to a 12.5% increase in sales, a
decrease in depreciation and amortization of $40,000, a decrease in net interest
expense of $69,000, partially offset by an increase in selling, general and
administrative expenses of $11,000 and an increase in provision for incomes
taxes of $18,000. Management expects sales and net income to continue to improve
in 2000.
SALES Consolidated net sales for the year ended December 31, 1999 increased to
$20,235,000 from $17,985,000 in 1998, representing an increase of $2,250,000 or
12.5%.
Net sales for the Apparel Division for the year ended December 31, 1999 were
$12,883,000 as compared to $11,685,000 for the same period of 1998. The Apparel
Division sales increase of $1,198,000 or 10.3% was primarily due to increased
sales to the Company's largest distributor. This distributor has reported sales
increases of the Company's products for six consecutive quarters. Management's
expectation is that growth should continue, and as a result the Company's sales
to this distributor should also remain strong. Net sales to this distributor
were 57.8% and 51.1% of total consolidated net sales for 1999 and 1998,
respectively.
Mask and eye shield sales increased by $915,000 or 22.0% to $5,073,000 in 1999
from $4,158,000 in 1998. This increase is primarily the result of growth in
industrial mask sales, and to a lesser extent medical mask sales, partially
offset by a decline of sales in the dental distributor market. The industrial
mask sales increase is primarily the result of sales to the Company's largest
distributor. As a result of the introduction of the Medical Division in 1999,
medical mask sales improved 8.1% in 1999 and sales are expected to continue to
strengthen in 2000 as more new medical masks are introduced to the market.
Sales from the Company's Extended Care Unreal Lambskin-Registered Trademark-
and other related products, which includes a line of pet beds, increased by
$137,000 or 6.4% to $2,279,000 in 1999 compared to $2,142,000 in the same
period in 1998. The increase in sales of $137,000 is primarily the result of
increased pet product sales and to a lesser extent to medical fleece sales.
In 1999, the Company implemented a pet products telemarketing campaign and
feels that sales should strengthen in 2000 as a result.
In 1999, sales for all three divisions of the Company improved over the previous
year, as compared to 1998 in which only one division, the Apparel Division,
improved over the prior year. Management feels
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that the Company is well positioned to continue to grow in its current markets
as well as the new Food Service market.
COST OF GOODS SOLD Cost of goods sold increased to $12,250,000 for the year
ended December 31,1999 from $10,733,000 for the same period in 1998. As a
percentage of net sales, cost of goods sold increased to 60.5% in 1999 from
59.7% in 1998. Gross profit margin decreased to 39.5% for the year ended
December 31, 1999 from 40.3% for the same period in 1998.
The decline in gross profit margin to 39.5% from 40.3% is a result of mask
manufacturing inefficiencies due to the growth of the mask sales. These
inefficiencies will be remedied in 2000 with the addition of new manufacturing
equipment that was built in 1999 and will be put into production in 2000.
Management expects gross profit margin to improve, but there can be no assurance
that the Company's margin improvements will be sustained.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative
expenses increased by a modest $11,000 to $6,352,000 for the year ended December
31, 1999 from $6,341,000 for the year ended December 31, 1998. As a percentage
of net sales, selling, general and administrative expenses decreased to 31.4% in
1999 from 35.3% in 1998. The increase in selling, general and administrative
expenses primarily consists of increased payroll related costs of $342,000;
increased professional fees of $28,000; increased rent expense of $19,000;
increased factory expenses of $42,000 and increased general office and insurance
expenses of $62,000. This is partially offset by decreased marketing,
commissions, and travel expenses of $359,000; decreased public company expenses
of $102,000, including investor relations, options/warrants issued for services,
annual report and annual meeting costs, stock transfer costs, and costs
associated with SEC reporting requirements; and decreased telecommunication
expenses of $21,000. Management expects selling, general and administrative
expenses as a percentage of net sales to decrease as sales increase.
DEPRECIATION & AMORTIZATION Depreciation and amortization expense decreased by
$40,000 to $362,000 for the year ended December 31, 1999 from $402,000 for the
same period in 1998. This decrease is primarily attributable to assets in the
mask division being fully depreciated.
INCOME FROM OPERATIONS Income from operations increased by $762,000 or 149.7%,
to $1,271,000 for the year ended December 31, 1999 as compared to income from
operations of $509,000 for the year ended December 31, 1998. The increase in
income from operations is due to an increase in gross profit of $733,000, a
decrease in depreciation and amortization of $40,000, partially offset by a
modest increase in selling, general and administrative expenses of $11,000.
NET INTEREST Net interest expense decreased by $69,000 or 35.8% to $124,000 for
the year ended December 31, 1999 from $193,000 for the year ended December 31,
1998. The decrease in net interest expense is due to lower borrowings, decreased
interest on capital leases and increased interest income. Interest income
increased by $3,000, to $39,000 for 1999 from $36,000 in 1998. The Company has
extended until December 31, 2001, its $2,900,000 credit facility with an
asset-based lender, consisting of a line of credit of up to $2,500,000 and a
term note of $400,000, with interest at prime plus 1.75% on the credit line and
at prime plus 2.25% on the term note.
13
<PAGE>
PROVISION FOR INCOME TAX Provision for income tax consists of the Company's
alternative minimum taxable (AMT) income. Net operating losses (NOLs) from prior
years were utilized during 1999 to offset all other income tax expense.
NET INCOME Net income for the year ended December 31, 1999 was $1,129,000
compared to net income of $316,000 for the year ended December 31, 1998, an
improvement of $813,000 or 257.3%. The net income increase of $813,000 is
comprised of an increase in income from operations of $762,000 and a decrease in
interest expense of $69,000, partially offset by an increase in provision for
income taxes of $18,000.
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 $125,000 was earned in 1999 as compared to
$32,000 in 1998.
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
and 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-Registered Trademark-
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.
14
<PAGE>
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.
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
15
<PAGE>
$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.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had cash of $785,000 and working capital of
$4,375,000. During the year ended December 31, 1999, cash increased by $742,000
and accounts payable and accrued liabilities increased by $437,000. The increase
in the Company's cash is due to income from operations and an increase in
accounts payable and accrued liabilities, offset by capital expenditures of
$453,000 and a reduction in borrowings from its asset-based lender. The
Company's net borrowings from its asset-based lender decreased by $335,000. 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 that expires in December 2001. At December 31, 1999,
the unused line of credit from its asset-based lender was $1,269,000.
Net cash provided by operations was $1,677,000 for the year ended December 31,
1999 compared to $180,000 for the same period of 1998. The Company's generation
of cash from operations for the year ended December 31, 1999 is due primarily to
net income, decreases in inventory and an increase in accounts payable and
accrued liabilities, offset by increases in accounts receivable, restricted cash
and prepaid and other assets.
The Company's investing activities have consisted primarily of expenditures for
fixed assets of $453,000 and increases in intangible assets of $26,000 for a
total of $479,000 for the year ended December 31, 1999.
16
<PAGE>
The Company anticipates that its mask manufacturing capabilities are to be
further improved in 2000 at an estimated cost of $150,000. Depending on the
success of the automated shoecover approximately $500,000 of additional
equipment could be required. The Company intends to lease equipment whenever
possible.
During the year ended December 31, 1999, the Company's cash used in financing
resulted primarily from net decreases in the asset-based loan of $335,000,
decreases in capital leases of $101,000 and the buy-back of 32,500 of the
Company's common share at a cost of $24,000. The Company announced in December
1999 that it was authorized to buy-back up to $500,000 of its own shares. As of
February 16, 2000, it has bought back 42,500 common shares at a cost of $35,000.
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.
YEAR 2000
We met our Year 2000 project objectives and completed the project prior to
year-end. We have not experienced any disruption in our operations as a result
of non-compliance of vendors, financial institutions, or other third parties or
external systems. At this time, the possibility of a third-party risk arising,
which could have a material risk on the company, is not reasonably likely to
occur. In 1998 we developed a Year 2000 program to identify, evaluate, test,
upgrade, or replace each of our computer based systems in connection with Year
2000 readiness. We completed the process of modifying, upgrading, remediating
and replacing major computer related systems that were identified as potentially
non-compliant in June 1999. In 1999 we requested letters of compliance from
critical external suppliers to determine the status of their efforts to become
Year 2000 compliant. Total costs associated with our Year 2000 project were
funded with operating cash flow and approximated $50,000, of which approximately
$20,000 was incurred in 1998 and approximately $30,000 was incurred in 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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
17
<PAGE>
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, 2000), 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 , 2000.
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 Pro Tech, 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
19
<PAGE>
(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
(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.
(p) Financial Data Schedule ****
- --------------------------------------------------
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)
**** Filed herewith
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: February 28, 2000 By: S/SHELDON HOFFMAN
----------------- -----------------
Sheldon Hoffman
Chief Executive Officer,
Principal Financial Officer
and Director
Date: February 28, 2000 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 February 28, 2000.
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, 1999, 1998 AND 1997
<PAGE>
ALPHA PRO TECH, LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Consolidated Financial Statements:
Report of Independent Accountants..........................................................................F-2
Consolidated Balance Sheets at December 31, 1999 and 1998..................................................F-3
Consolidated Statements of Operations for the three years
in the period ended December 31, 1999....................................................................F-4
Consolidated Statements of Shareholders' Equity for the
three years in the period ended December 31, 1999........................................................F-5
Consolidated Statements of Cash Flows for the three years in the
period ended December 31, 1999...........................................................................F-6
Notes to Consolidated Financial Statements.................................................................F-7
Financial Statement Schedules:
Schedule II - Valuation and Qualifying Accounts for the three years in the
period ended December 31, 1999..........................................................................F-19
</TABLE>
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 accompanying
index present fairly, in all material respects, the financial position of Alpha
Pro Tech, Ltd. and its subsidiaries at December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, 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 25, 2000
F-2
<PAGE>
ALPHA PRO TECH, LTD.
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DECEMBER 31,
1999 1998
------------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 785,000 $ 43,000
Restricted cash 18,000 16,000
Accounts receivable, net of allowance for doubtful accounts
of $40,000 and $48,000, respectively 3,252,000 3,038,000
Inventories 2,957,000 2,999,000
Prepaid expenses and other current assets 146,000 134,000
------------------- -----------------
Total current assets 7,158,000 6,230,000
Property and equipment, net 2,260,000 2,125,000
Intangible assets, net 287,000 305,000
Notes receivable and other assets 343,000 278,000
------------------- -----------------
$10,048,000 $ 8,938,000
=================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,284,000 $ 983,000
Accrued liabilities 610,000 474,000
Notes payable, current portion 754,000 1,009,000
Capital leases, current portion 135,000 113,000
------------------- -----------------
Total current liabilities 2,783,000 2,579,000
Notes payable, less current portion 167,000 247,000
Capital leases, less current portion 36,000 159,000
------------------- -----------------
Total liabilities 2,986,000 2,985,000
------------------- -----------------
Commitments and contingencies (Notes 7 and 10)
Shareholders' Equity:
Common stock, $.01 par value, 50,000,000 shares authorized,
24,079,949 and 24,112,449 issued and outstanding at
December 31, 1999 and 1998, respectively 241,000 241,000
Additional paid-in capital 24,318,000 24,338,000
Accumulated deficit (17,497,000) (18,626,000)
------------------- -----------------
Total shareholders' equity 7,062,000 5,953,000
------------------- -----------------
$10,048,000 $ 8,938,000
=================== =================
</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,
1999 1998 1997
----------------- ---------------- ----------------
<S> <C> <C> <C>
Sales $20,235,000 $17,985,000 $17,823,000
Cost of goods sold, excluding depreciation
and amortization 12,250,000 10,733,000 11,594,000
----------------- ---------------- ----------------
7,985,000 7,252,000 6,229,000
Expenses:
Selling, general and administrative 6,352,000 6,341,000 6,531,000
Depreciation and amortization 362,000 402,000 319,000
----------------- ---------------- ----------------
Income (loss) from operations 1,271,000 509,000 (621,000)
----------------- ---------------- ----------------
Other expense
Interest, net 124,000 193,000 308,000
----------------- ---------------- ----------------
124,000 193,000 308,000
----------------- ---------------- ----------------
Income (loss) before provision
for income taxes 1,147,000 316,000 (929,000)
Provision for income taxes 18,000 - -
----------------- ---------------- ----------------
Net income (loss) $ 1,129,000 $ 316,000 $ (929,000)
================= ================ ================
Basic income (loss) per share $ 0.05 $ 0.01 $ (0.04)
================= ================ ================
Diluted income (loss) per share $ 0.05 $ 0.01 $ (0.04)
================= ================ ================
Basic weighted average shares outstanding 24,110,722 24,112,449 23,388,369
================= ================ ================
Diluted weighted average shares outstanding 24,450,382 24,238,866 23,388,369
================= ================ ================
</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, 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
Warrants issued for services - - 4,000 - 4,000
Shares repurchased/cancelled (32,500) - (24,000) - (24,000)
Net income - - - 1,129,000 1,129,000
-------------- ------------ -------------- ----------------- ----------------
Balance at
December 31, 1999 24,079,949 $241,000 $ 24,318,000 $ (17,497,000) $ 7,062,000
============== ============ ============== ================= ================
</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,
1999 1998 1997
------------------ ----------------- -----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,129,000 $ 316,000 $ (929,000)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 362,000 402,000 319,000
Amortization of securities issued for services 25,000 110,000 120,000
Changes in assets and liabilities:
Restricted cash (2,000) 5,000 18,000
Accounts receivable (214,000) (233,000) (635,000)
Inventories 42,000 698,000 (755,000)
Prepaid expenses and other assets (102,000) 61,000 (229,000)
Accounts payable and accrued liabilities 437,000 (1,179,000) 389,000
------------------ ----------------- -----------------
Net cash provided by (used in) operating activities 1,677,000 180,000 (1,702,000)
------------------ ----------------- -----------------
Cash flows from investing activities:
Acquisition of businesses - - (70,000)
Purchase of property and equipment (453,000) (347,000) (481,000)
Cost of intangible assets (26,000) (43,000) (53,000)
------------------ ----------------- -----------------
Net cash used in investing activities (479,000) (390,000) (604,000)
------------------ ----------------- -----------------
Cash flows from financing activities:
Proceeds from issuance of common stock - - 2,463,000
Payments to related parties - - (19,000)
Proceeds from loans payable 20,232,000 18,131,000 1,936,000
Repayments on loans payable (20,567,000) (18,246,000) (1,788,000)
Principal repayments on capital leases (101,000) (122,000) (71,000)
Other (20,000) - -
------------------ ----------------- -----------------
Net cash provided by (used in) financing activities (456,000) (237,000) 2,521,000
------------------ ----------------- -----------------
Increase (decrease) in cash $ 742,000 $ (447,000) $ 215,000
Cash, beginning of period 43,000 490,000 275,000
------------------ ----------------- -----------------
Cash, end of period $ 785,000 $ 43,000 $ 490,000
================== ================= =================
Supplemental disclosure of cash flow information:
Cash paid for interest $ 163,000 $ 229,000 $ 375,000
================== ================= =================
Cash paid for income taxes $ - $ - $ -
================== ================= =================
</TABLE>
NON-CASH INVESTING AND FINANCING ACTIVITY:
1999
The company incurred capital lease obligations for machinery and equipment of
$56,000
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.
The accompanying notes are an integral part of these consolidated
financial statements.
F-6
<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, shoecover 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 subsidiary, 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. Provision is made for slow-moving,
obsolete or unusable inventory.
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
and trademarks 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, 1999 or
1998.
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-7
<PAGE>
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
REVENUE RECOGNITION
Sales are 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
1999, 1998 and 1997 were $12,000, $37,000 and $16,000, 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,
1999 1998 1997
<S> <C> <C> <C>
Net income (loss) (Numerator) $1,129,000 $ 316,000 $ (929,000)
Shares (Denominator):
Basic weighted average shares outstanding 24,110,722 24,112,449 23,388,369
Add: Dilutive effect of stock options and warrants 339,660 126,417 -
--------------- --------------- ---------------
Diluted weighted average shares outstanding 24,450,382 24,238,866 23,388,369
--------------- --------------- ---------------
Net income (loss) per share:
Basic $ 0.05 $ 0.01 $ (0.04)
Diluted $ 0.05 $ 0.01 $ (0.04)
</TABLE>
Potential common shares for 1997 were anti-dilutive and accordingly were
excluded from the net income (loss) per share calculation.
F-8
<PAGE>
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
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, 1999 and 1998.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Raw materials $ 1,656,000 $1,699,000
Work in process 123,000 95,000
Finished goods 1,178,000 1,205,000
---------------- ----------------
$ 2,957,000 $2,999,000
================ ================
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Machinery and equipment $ 3,138,000 $ 2,854,000
Office furniture and equipment 470,000 622,000
Leasehold improvements 75,000 96,000
---------------- ----------------
3,683,000 3,572,000
Less accumulated depreciation and amortization (1,423,000) (1,447,000)
---------------- ----------------
$ 2,260,000 $ 2,125,000
================ ================
</TABLE>
F-9
<PAGE>
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Included in the above amounts are the following assets under capital lease
obligations:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Machinery and equipment $ 458,000 $ 419,000
Office furniture and equipment 84,000 84,000
---------------- ----------------
542,000 503,000
Less accumulated amortization (224,000) (172,000)
---------------- ----------------
$ 318,000 $ 331,000
================ ================
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Goodwill $ 206,000 $ 206,000
Patents and trademarks 162,000 136,000
Other 98,000 98,000
----------------- -----------------
466,000 440,000
Less accumulated amortization (179,000) (135,000)
----------------- -----------------
$ 287,000 $ 305,000
================= =================
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Professional fees $ 90,000 $ 105,000
Payroll and payroll taxes 169,000 122,000
Other 351,000 247,000
----------------- ----------------
$ 610,000 $ 474,000
================= =================
</TABLE>
F-10
<PAGE>
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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. The
facility has been subsequently extended until December 31, 2001. Notes
payable at December 31, 1999 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 $674,000 was outstanding and $1,269,000 was
available at December 31, 1999. The credit facility bears interest at
prime plus 1.75%, which totaled 10.25% at December 31, 1999 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 $247,000 at December
31, 1999. The term note is due in monthly installments of $7,000 with
interest at prime plus 2.25%, which totaled 10.75% at December 31, 1999,
maturing July 1, 2003. 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 such facility to repay its
previous asset-based loan. Under the terms of the previous facility, the
Company paid $63,000 in loan and unused line of credit fees for the year
ended December 31, 1997.
Future maturities of notes payable are as follows:
2000 $ 754,000
2001 80,000
2002 80,000
2003 7,000
---------------
$ 921,000
===============
F-11
<PAGE>
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
8. SHAREHOLDERS' EQUITY
WARRANT ACTIVITY
Warrant activity for the three years ended December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
EXERCISE PRICE
SHARES PER WARRANT
<S> <C> <C>
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
Exercised - -
Expired - -
------------------ ---------------------
Warrants outstanding, December 31, 1999 119,048 $1.75
------------------ ---------------------
</TABLE>
The warrants outstanding at December 31, 1999 are currently exercisable,
and each warrant entitles the holder to purchase one common share for the
stated price. Such warrants expire July 1, 2004.
F-12
<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, 1999, 4.5 million shares were
reserved for issuance under these plans and 3.7 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, 1999 is as follows:
<TABLE>
<CAPTION>
AVERAGE
EXERCISE PRICE
SHARES PER OPTION
<S> <C> <C>
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
Granted to employees 695,000 $0.57
Granted to consultants - -
Exercised - -
Canceled (266,000) $1.43
---------------- ---------------
Options outstanding, December 31, 1999 3,423,000 $0.88
---------------- ---------------
</TABLE>
All options are fully exercisable.
The following summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
AVERAGE
EXERCISE AVERAGE TERM
PRICE SHARES PRICE REMAINING
<S> <C> <C> <C>
$0.50 to $0.75 1,748,000 $ 0.65 3.77
$0.76 to $0.99 820,000 $ 0.94 2.55
$1.00 to $1.50 830,000 $ 1.26 1.88
$1.51 to $2.75 25,000 $ 2.03 0.65
</TABLE>
F-13
<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 and pro forma net income per share would
have been as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
1999 1998
<S> <C> <C>
Pro forma net income (loss) $1,021,000 $10,000
-------------- ------------
Pro forma basic income (loss) per share $0.04 $0.00
-------------- ------------
Pro forma diluted income (loss) per share $0.04 $0.00
-------------- ------------
</TABLE>
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:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Risk-free interest rate 6.00% 5.00% 6.15%
Expected life 5 years 5 years 5 years
Expected volatility 70% 70% 70%
Expected dividend yield 0% 0% 0%
</TABLE>
The weighted-average grant date fair values of employee/director options
granted during 1999, 1998 and 1997 were $0.22, $0.27 and $0.38
respectively.
9. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1999 1998 1997
<S> <C> <C> <C>
Current $ 21,000 $ - $ -
Deferred (3,000) - -
------------ ----------- ------------
$ 18,000 $ - $ -
------------ ----------- ------------
</TABLE>
F-14
<PAGE>
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
Deferred tax assets (liabilities) are comprised of the following at
December 31.
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Loss carryforwards
U.S. $ 522,000 $ 967,000 $ 2,428,000
Canada 738,000 734,000 1,379,000
Inventory obsolescence 85,000 - -
AMT credits 16,000 - -
Other 101,000 184,000 96,000
--------------- --------------- ---------------
Gross deferred tax assets 1,462,000 1,885,000 3,903,000
Depreciation and amortization (113,000) (247,000) (166,000)
State income taxes (35,000) - -
Other (33,000) - -
--------------- --------------- ---------------
Net 1,281,000 1,638,000 3,737,000
Valuation allowance (1,278,000) (1,638,000) (3,737,000)
--------------- --------------- ---------------
$ 3,000 $ - $ -
--------------- --------------- ---------------
</TABLE>
The provision for income tax for 1999 consists primarily of the Company's
inability to utilize net operating loss carryforwards to entirely offset
alternative minimum taxable (AMT) income. Net operating losses (NOLs) from
prior years were utilized during 1999 to offset all other income tax
expense. The deferred tax asset valuation allowance has been determined
pursuant to the provisions of SFAS 109, including the Company's estimation
of future taxable income. Such valuation allowance is adequate to reduce
the total deferred tax asset to an amount that will, more likely than not,
be realized.
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,
1999 1998 1997
<S> <C> <C> <C>
Income taxes based on US
statutory rates (34%) $ 384,000 $ 108,000 $ (316,000)
Non-deductible meals and entertainment 11,000 11,000 43,000
Increase (decrease) in valuation allowance (360,000) (132,000) 301,000
Other (17,000) 13,000 (28,000)
---------------- --------------- ---------------
$ 18,000 $ - $ -
---------------- --------------- ---------------
</TABLE>
At December 31, 1999, the Company has net operating loss carryforwards for
United States and Canadian tax purposes available to reduce future United
States and Canadian taxable income amounting to approximately $1.2 million
and $2.2 million, respectively.
F-15
<PAGE>
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
For United States income tax purposes, these losses will expire as follows:
<TABLE>
<S> <C>
2010 $ 207,000
2011 63,000
2017 960,000
----------------
$ 1,230,000
----------------
</TABLE>
For Canadian income tax purposes, these losses will expire as follows:
<TABLE>
<S> <C>
2000 $ 2,172,000
----------------
</TABLE>
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 2000 and November 2002. The Company also
leases certain manufacturing and office equipment under capital leases
expiring between October 2000 and December 2002.
The following summarizes future minimum lease payments required under
capital and non-cancelable operating leases:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
2000 $ 150,000 $ 265,000
2001 29,000 282,000
2002 10,000 216,000
-------------- -------------
Future minimum lease payments 189,000 $ 763,000
-------------
-------------
Less amounts representing interest 18,000
--------------
Present value of future minimum lease payments 171,000
Less amounts due within one year 135,000
--------------
Amounts due after one year $ 36,000
--------------
--------------
</TABLE>
Total rent expense incurred by the Company under operating leases for the
years ended December 31, 1999, 1998 and 1997 was $619,000, $654,000 and
$588,000, respectively.
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 $125,000 was earned in 1999 as compared
to $32,000 in 1998.
F-16
<PAGE>
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
11. ACTIVITY OF BUSINESS SEGMENTS
In 1998 the Company adopted SFAS 131. Segment information for 1997 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 shoecovers
(including the Aqua Track and spunbond shoecovers); 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.
The following table shows net sales for each segment for the years ended
December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Apparel $12,883,000 $11,685,000 $ 10,969,000
Mask and shield 5,073,000 4,158,000 4,354,000
Fleece 2,279,000 2,142,000 2,500,000
--------------- ---------------- ----------------
Consolidated total net sales $20,235,000 $17,985,000 $ 17,823,000
--------------- ---------------- ----------------
</TABLE>
A reconciliation of total segment net income to total consolidated net
income (loss) for the years ended December 31, 1999, 1998 and 1997 is
presented below:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Apparel $ 2,393,000 $1,746,000 $ 982,000
Mask and Shield 1,371,000 1,116,000 958,000
Fleece 499,000 448,000 548,000
---------------- ---------------- ---------------
Total segment net income 4,263,000 3,310,000 2,488,000
Unallocated corporate overhead expenses (3,134,000) (2,994,000) (3,417,000)
---------------- ---------------- ---------------
Consolidated net income (loss) $ 1,129,000 $ 316,000 $ (929,000)
---------------- ---------------- ---------------
</TABLE>
F-17
<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, 1999, 1998 and
1997:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Sales by region
United States $19,563,000 $17,393,000 $17,240,000
International 672,000 592,000 583,000
---------------- --------------- ----------------
Consolidated total sales $20,235,000 $17,985,000 $17,823,000
---------------- --------------- ----------------
---------------- --------------- ----------------
Long-lived assets
United States $2,068,000 $1,946,000 $1,911,000
International 192,000 179,000 173,000
---------------- --------------- ----------------
Consolidated total long-lived assets $2,260,000 $2,125,000 $2,084,000
---------------- --------------- ----------------
---------------- --------------- ----------------
</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 (LC), 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 were 57.8%, 51.1% and 50.7% of
total net revenue for 1999, 1998 and 1997, respectively. Trade receivables
from this distributor were 43.1% and 38.4% of total trade receivables for
1999 and 1998, respectively. Management believes that adequate provision
has been made for risk of loss on all credit transactions.
F-18
<PAGE>
ALPHA PRO TECH, LTD. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
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, 1999
Deducted from
related asset account:
Allowance for
doubtful accounts $ 48,000 $ 6,000 $ - $ (14,000) $ 40,000
--------------- --------------- ---------------- ---------------- ----------------
Provision for
inventory $ 146,000 $ 116,000 $ - $ - $ 262,000
--------------- --------------- ---------------- ---------------- ----------------
Valuation allowance
for income taxes $1,638,000 $ - $ (360,000) $ - $1,278,000
--------------- --------------- ---------------- ---------------- ----------------
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
--------------- --------------- ---------------- ---------------- ----------------
</TABLE>
F-19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000884269
<NAME> ALPHA PRO TECH. LTD
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<CASH> 803 59 0
<SECURITIES> 0 0 0
<RECEIVABLES> 3292 3086 0
<ALLOWANCES> 40 48 0
<INVENTORY> 2957 2999 0
<CURRENT-ASSETS> 7158 6230 0
<PP&E> 3683 3572 0
<DEPRECIATION> 1423 1447 0
<TOTAL-ASSETS> 10,048 8938 0
<CURRENT-LIABILITIES> 2783 2579 0
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 241 241 0
<OTHER-SE> 24,318 24,318 0
<TOTAL-LIABILITY-AND-EQUITY> 10,048 8,938 0
<SALES> 20,235 17,985 17,823
<TOTAL-REVENUES> 20,235 17,985 17,823
<CGS> 12,250 10,733 11,594
<TOTAL-COSTS> 6,714 6,743 6,850
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 124 193 308
<INCOME-PRETAX> 1,147 316 (929)
<INCOME-TAX> 18 0 0
<INCOME-CONTINUING> 1,129 316 (929)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 1,129 316 (929)
<EPS-BASIC> 0.05 0.01 (0.04)
<EPS-DILUTED> 0.05 0.01 (0.04)
</TABLE>
