ALPHA PRO TECH LTD — Interim / Quarterly Report 1996

Aug 9, 1996

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM 10-Q -------------------------- Quarterly Report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the Quarter Ended June 30, 1996 Commission File No. 0-19893 --------------------------- Alpha Pro Tech, Ltd. (formerly BFD INDUSTRIES, INC.) ---------------------------------------------------- (exact name of registrant as specified in its charter) Delaware, U.S.A. 63-1009183 - - ---------------- ---------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation) Suite 112, 60 Centurian Drive, Markham, Ontario, Canada L3R 9R2 - - ------------------------ ------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (905) 479-0654 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 3 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of July 30, 1996 Common Stock, $.01 par value 20,495,463 ALPHA PRO TECH, LTD. TABLE OF CONTENTS PART I. FINANCIAL INFORMATION ITEM 1 Consolidated Financial Statements (Unaudited) PAGE NO. a) Balance Sheet- June 30, 1996 (Unaudited) and December 31, 1995 1 b) Statement of Operations for the unaudited three months and six months ended June 30, 1996 and June 30, 1995. 2 c) Statement of Shareholder's Equity for the unaudited six months ended June 30, 1996 3 d) Statement of Cash Flows for the unaudited six months ended June 30, 1996 and June 30, 1995 4 e) Notes to Consolidated Financial Statements (unaudited) 5 - 7 ITEM 2 Management's Discussion and Analysis of Financial 8 - 10 Condition and Results of Operations Part II. OTHER INFORMATION 11 SIGNATURES 12 Alpha Pro Tech, Ltd. Consolidated Balance Sheets (Unaudited) - - -------------------------------------------------------------------------

The accompanying notes are an integral part of these financial statements. 1 Alpha Pro Tech, Ltd. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) - - --------------------------------------------------------------------------------

2 Alpha Pro Tech, Ltd. Consolidated Statement of Shareholders' Equity (Unaudited) - - --------------------------------------------------------------------------------

3 Alpha Pro Tech, Ltd. Consolidated Statements of Cash Flows (Unaudited) - - --------------------------------------------------------------------------------

4 Alpha Pro Tech, Ltd. Notes to Consolidated Financial Statements (Unaudited) - - -------------------------------------------------------------------------------- 1. THE COMPANY Alpha Pro Tech, Ltd. (the Company) manufactures and distributes a variety of disposable mask, shield, and apparel products, and woundcare products. Most of the Company's products are distributed to medical, dental, industrial, and clean room markets, predominantly in the United States. 2. BASIS OF PRESENTATION The unaudited interim financial statements reflect all adjustments which are in the opinion of management necessary for a fair presentation of the results for the interim period presented. All such adjustments made are of a normal recurring nature. There have been no significant changes since December 31, 1995 in accounting principles and practices utilized in the presentation of these financial statements. 3. INVENTORIES JUNE 30, DECEMBER 31, 1996 1995 Raw materials $1,352,000 $1,308,000 Work in process 72,000 140,000 Finished goods 717,000 650,000 ---------- ---------- 2,141,000 $2,098,000 ---------- ---------- ---------- ---------- 4. ACCRUED LIABILITIES JUNE 30, DECEMBER 31, 1996 1995 Professional fees $331,000 $439,000 Payroll and payroll taxes 260,000 185,000 Other 151,000 127,000 Ludan Acquisition (Note 8) 68,000 - ---------- ---------- $810,000 $751,000 ---------- ---------- ---------- ---------- 5 Alpha Pro Tech, Ltd. Notes to Consolidated Financial Statements (Unaudited) - - -------------------------------------------------------------------------------- 5. NOTES PAYABLE JUNE 30, DECEMBER 31, 1996 1995 Note payable due in monthly installments of $4,900, interest at 7.5%, maturing July 31, 1996 $17,000 $41,000 Note payable due in monthly installments of $1,500, interest at 8.0%, maturing July 31, 1997 16,000 26,000 Notes payable due in monthly installments of $4,000 due May 31, 1997 38,000 62,000 Notes payable to related parties, interest at 15% payable quarterly, due on demand 24,000 Notes payable to related parties, interest at 20% payable quarterly, due on demand 33,000 33,000 ------- ------- 128,000 162,000 ------- ------- Less: Current portion 128,000 152,000 ------- ------- Notes Payable, less current portion $ - $10,000 ------- ------- ------- ------- 6. NET INCOME PER SHARE Net income per share of common stock is based on the weighted average number of shares of common stock outstanding during the quarter. Common stock equivalents have been excluded from the earnings per share calculation as no material dilutive effect would result. 7. PROVISION FOR INCOME TAX No provision for income tax has been recorded in the Statement of Operations for the six months ended June 30, 1996, as taxable income has been eliminated as a result of the utilization of net operating loss carry forwards. 6 8. ACQUISITION OF LUDAN CORPORATION On June 30, 1996, the Company acquired the outstanding 20% interest in Ludan Corporation from the minority shareholder for $68,000. The Company paid $49,000 of the purchase price in July 1996 and the remaining $19,000 is due in March 1997. The Company recorded $58,000 of goodwill in connection with this acquisition. 7 ALPHA PRO TECH, LTD. ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Three months and six months ended June 30, 1996, compared to June 30, 1995 SALES: Consolidated net sales were $3,873,000 and $3,157,000 for the three months ended June 30, 1996 and 1995, representing an increase of $716,000 or 22.7%. Net sales for the Apparel Division for the three months ended June 30, 1996 were $1,893,000 as compared to $1,097,000 for the three months ended June 30, 1995. The Apparel Division sales increase of $796,000 or 72.6% was primarily due to increased sales to its largest customer. Mask and eye shield sales were $1,404,000 for the second quarter ended June 30, 1996 as compared to $1,360,000 for the same quarter for 1995. Mask and eye shield sales are expected to continue to be relatively flat through 1996. Sales from the Company's Unreal Lambskin-Registered Trademark- and other related products decreased by 17.7% to $576,000 for the three months ended June 30, 1996 from $700,000 for the three months ended June 30, 1995. The Company's Unreal Lambskin-Registered Trademark- line of products has been updated with an expectation of increased sales in the future. Consolidated sales were $7,459,000 and $6,716,000 for the six months ended June 30, 1996 and 1995, respectively representing an increase of 11.1%. The increase is attributable to an increase in apparel sales of 60.4%, offset by a decrease in mask and shield products of 4.8% and a decrease in Unreal Lambskin-Registered Trademark- of 25.7%. COST OF GOODS SOLD: Cost of goods sold increased to $2,580,000, for the three months ended June 30, 1996 from $1,913,000 for the three months ended June 30, 1995. As a percentage of net sales, cost of goods sold increased to 66.6% from 60.6%. For the six months ended June 30, 1996 as compared to 1995, cost of goods sold increased to $4,879,000 from $4,160,000. As a percentage of net sales for the six months, cost of goods sold increased to 65.4% from 61.9%. Gross profit margin decreased to 34.6% from 38.1% for the six months ended June 30, 1996 and 1995 respectively. The Company's gross profit margin has been negatively impacted during the six months ended June 30, 1996 due to costs incurred to open a new manufacturing facility in Nogales, Mexico which started operations in January 1996. The Company expects gross profit to improve as productivity increases in the new Nogales, Mexico facility. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: Selling, general and administrative expenses increased by $191,000 to $1,154,000 for the three months ended June 30, 1996, from $963,000 for the three months ended June 30, 1995. As a percentage of net sales, the ratio decreased to 29.8% in the second quarter 1996 from 30.5% in the second quarter 1995. The increase in selling, general and administrative expenses is primarily in the areas of the Apparel Division costs of $71,000; marketing $21,000; public company expenses $19,000 and travel expenses $30,000. Although Apparel Division selling, general and administrative costs increased $71,000, as a percentage of net Apparel Division sales, selling, general and administrative expenses decreased to 17.5% for the second quarter 1996 compared to 24.4% for the second quarter 1995. Selling, general and administrative expenses increased by $345,000 to $2,269,000 for the six months ended June 30, 1996 from $1,924,000 for the six months ended June 30, 1995. As a percentage of net sales, the selling, general and administrative expenses increased to 30.4% in 1996 from 28.6% in 1995. 8 DEPRECIATION & AMORTIZATION: Depreciation and amortization expense decreased by $93,000, to $60,000 for the three months ended June 30, 1996 from $153,000 for the same period in 1995, and decreased by $181,000 for the six months ended June 30, 1996 compared to 1995. This decrease is primarily attributable to the 1995 year end decision to write off of the remaining intangible assets resulting from the acquisition of its wholly-owned subsidiary, Alpha ProTech, Inc. during the fourth quarter 1995. INTEREST: Interest expense decreased by $57,000, or 49.1%, to $59,000 for the second quarter 1996 from $116,000 for the second quarter 1995. Interest expense decreased by 55.7% for the six months ended June 30, 1996 compared to 1995. These decreases are due to the Company obtaining asset based financing at lower interest rates effective March 31, 1995, as well as due to $830,000 of notes payable being converted to common stock during the second quarter 1995. INCOME FROM OPERATIONS: Income from operations decreased by $49,000 to $79,000 for the three months ended June 30, 1996, from $128,000 for the three months ended June 30, 1995. Income from operations decreased by $140,000 for the six months ended June 30, 1996 compared to the same period in 1995. These decreases are due to an increase in selling, general, administrative expenses offset by a decrease in depreciation and amortization and a small improvement in gross profit. NET INCOME: Net Income for the three months ended June 30, 1996 was $24,000 compared to $6,000 for the three months ended June 30, 1996, an increase of $18,000. Net income for the six months ended June 30, 1996 was $70,000 compared to $15,000 for the six months in 1995. The net income increase of $55,000 is comprised of a decrease in interest, other expenses and minority interest of $195,000 offset by decreased income from operations of $140,000. Net income as a percentage of sales increased to 0.9% in the first six months of 1996 compared to 0.02% in the same period 1995. LIQUIDITY AND CAPITAL RESOURCES: As of June 30, 1996 the Company had cash of $824,000 and working capital of $2,102,000. The company currently has a secured asset based lender's line of credit of $3,000,000 based upon the level of eligible accounts receivable, inventory, and equipment, which expires in March 1998. At June 30, 1996, the maximum line of credit available was $1,214,000 for accounts receivable, inventory, and equipment, of which, $1,066,000 has been used. Net cash provided by operations was $262,000 for the six months ended June 30, 1996, compared to $928,000 used for operations for the same period in 1995. The Company's cash provided by operations for the six months ended June 30, 1996 have been due primarily to decreases in income tax receivable and increases in accounts payable and accrued liabilities, partially offset by increases in accounts receivable, inventories, and other assets. The Company's investing activities have consisted primarily of expenditures for fixed assets for the food service business, acquisition of businesses and the purchase of patents related to the food service business which totalled $248,000 for the six months ended June 30, 1996, and $503,000 for the same period in 1995. The Company has no significant capital commitments, but currently anticipates that additions to property and equipment for the balance of 1996 could be approximately $150,000, depending on the Company's success in the food industry. This expenditure will be dependent upon the Company's ability in raising funds through the exercise of options and warrants. 9 The Company also intends to seek out low cost acquisitions of businesses and/or assets that are consistent with its strategic plan which will also depend on the Company's ability to raise capital through the exercise of options and warrants. For the six months ended June 30, 1996 the Company's financing activities consisted primarily of raising $520,000 through the exercise of options and warrants. The Company expects to continue to raise funds through the exercise of options and warrants. The Company believes that it has adequate resources through its existing credit facility, working capital, and expected cash provided by operations and through the anticipated exercise of outstanding options and warrants to meet future cash requirements for at least a twelve month period. 10 Alpha Pro Tech, Ltd. PART II-OTHER INFORMATION - - ---------------------------------------------------------------------------- ITEM 4. Submission of Matters to Vote Security Holders (a) Registrant held its Annual Meeting of Shareholders June 21, 1996. (b) The following persons were elected Directors pursuant to the votes indicated: NAME FOR AGAINST Sheldon Hoffman 14,860,800 96,807 Al Millar 14,888,000 76,807 Robert Isaly 14,882,200 76,607 John Ritota 14,882,200 76,607 Donald E. Bennett Jr. 14,881,200 83,607 (c) To amend the Company's 1993 incentive stock option plan so as to increase the number of shares available under the plan. FOR AGAINST ABSTAIN VOTE WITHELD 14,491,656 421,144 44,007 8,000 (d) The only other matter to be voted upon was the ratification of the appointment of Price Waterhouse LLP as the Registrant's independent accounts as follows: FOR AGAINST ABSTAIN 14,905,657 33,200 25,950 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Alpha Pro Tech, Ltd. DATE: BY: /s/Sheldon Hoffman ------------------------------ SHELDON HOFFMAN Chief Executive Officer Chief Financial Officer