ALPHA PRO TECH LTD — Interim / Quarterly Report 1997

Aug 14, 1997

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, 1997 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 August 13, 1997 ---------------- Common stock, $.01 par value..... 24,102,449 ALPHA PRO TECH, LTD. Table of Contents PART I. FINANCIAL INFORMATION ITEM 1 Consolidated Financial Statements (Unaudited) Page No. a) Balance Sheet - June 30, 1997 (Unaudited) and December 31, 1996 1 b) Statement of Operations for the unaudited three months and six months ended June 30, 1997 and June 30, 1996 2 c) Statement of Shareholder's Equity for the unaudited six months ended June 30, 1997 3 d) Statement of Cash Flows for the unaudited six months ended June 30, 1997 and June 30, 1996 4 e) Notes to Consolidated Financial Statements 5-6 ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations 7-10 Part II. OTHER INFORMATION ITEM 4 Submission of Matters to a Vote Security Holders 11 SIGNATURES 12 ALPHA PRO TECH, LTD. CONSOLIDATED BALANCE SHEET ___________ (UNAUDITED) JUNE 30, DECEMBER 31, 1997 1996 ASSETS Current Assets: Cash $ 1,344,000 $ 275,000 Marketable Securities-restricted 22,000 39,000 Accounts receivable, net of allowance for doubtful accounts of $118,000 and $122,000 2,764,000 2,170,000 Income taxes receivable 5,000 5,000 Inventories 3,115,000 2,942,000 Prepaid expenses and other assets 378,000 183,000 ------------ ----------- 7,628,000 5,614,000 Property and equipment, net of accumulated depreciation and amortization of $967,000 and $836,000 1,755,000 1,615,000 Intangible assets, net of accumulated amortization of $72,000 and $55,000 294,000 219,000 Other 31,000 33,000 ------------ ----------- $ 9,708,000 $7,481,000 ------------ ----------- ------------ ----------- LIABILITIES & SHAREHOLDER'S EQUITY Current Liabilities: Accounts payable $ 795,000 $ 1,600,000 Accrued liabilities 475,000 647,000 Due to related parties 19,000 19,000 Notes payable, current portion - 31,000 Loans payable, current portion 1,535,000 1,081,000 Capital leases, current portion 57,000 36,000 ------------ ----------- 2,881,000 3,414,000 Loans payable, less current portion 85,000 112,000 Capital leases, less current portion 155,000 105,000 ------------ ----------- 3,121,000 3,631,000 ------------ ----------- SHAREHOLDERS' EQUITY Common stock, $.01 par value, 50,000,000 shares authorized, 24,047,449 and 20,755,463 issued and outstanding at June 30, 1997 and December 31, 1996 240,000 207,000 Additional paid-in capital 24,279,000 21,656,000 Accumulated deficit (17,932,000) (18,013,000) ------------ ----------- 6,587,000 3,850,000 ------------ ----------- $ 9,708,000 $7,481,000 ------------ ----------- ------------ ----------- 1 ALPHA PRO TECH, LTD. CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED) ____________

2 ALPHA PRO TECH, LTD. CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (UNAUDITED) _______________

3 ALPHA PRO TECH, LTD. CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) _______________

• ---------------------- (1) Non - cash item: Options and warrants with fair values totalling $244,000 were issued to consultants for future services. This is reflected on the Cash Flow Statement as a deduction in common stock and prepaid expenses. 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, shoe cover, and apparel products, and woundcare products. Most of the Company's disposable apparel, mask and shield products, and woundcare products are distributed to medical, dental, industrial, and clean room markets, predominantly in the United States. 2. BASIS OF PRESENTATION The 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, 1996 in accounting principles and practices utilized in the presentation of these financial statements. 3. INVENTORIES JUNE 30, DECEMBER 31, 1997 1996 Raw Materials $1,540,000 $1,511,000 Work in process 145,000 76,000 Finished goods 1,430,000 1,355,000 ----------- ----------- $3,115,000 $2,942,000 ----------- ----------- 4. ACCRUED LIABILITIES JUNE 30, DECEMBER 31, 1997 1996 Professional fees $137,000 $286,000 Payroll and payroll taxes 290,000 203,000 Other 48,000 158,000 ----------- ----------- $475,000 $647,000 ----------- ----------- ----------- ----------- 5 ALPHA PRO TECH, LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) __________ 5. NOTES PAYABLE JUNE 30, DECEMBER 31, 1997 1996 Note payable due in monthly installments of $1,500, interest at 8.0%, maturing July 31, 1997 $ 9,000 Note payable due in monthly installments of $4,000, interest at 6%, with the remaining balance due March 31, 1997 14,000 Notes payable to related parties, interest at 20% payable quarterly, due on demand 8,000 -------- $ - $31,000 -------- -------- Less: Current portion $ - $31,000 -------- -------- Notes Payable, less current portion $ - $ - -------- -------- 6. NET INCOME/(LOSS) PER SHARE Net income/(loss) 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, 1997, as taxable income has been eliminated as a result of the utilization of net operating loss carry forwards. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997, COMPARED TO THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 Alpha Pro Tech, Ltd. ("Alpha" or the "Company") reported net income for the three months ended June 30, 1997 of $14,000 as compared to net income of $24,000 for the three months ended June 30, 1996, representing an decrease of $10,000 or 41.7%. For the six months ended June 30, 1997 net income rose to $81,000 from $70,000 for the same period in 1996, representing and increase of 15.7%. SALES Consolidated net sales for the three months ended June 30, 1997 increased to $4,491,000 from $3,873,000 in 1996, representing an increase of $618,000 or 16.0%. Net sales for the Apparel Division for the second quarter ended June 30, 1997 were $2,584,000 as compared to $1,893,000 for the same period of 1996. The Apparel Division sales increase of $691,0000 or 36.5% was primarily due to increased sales to its largest customer. Mask and eye shield sales decreased by 10.3%, to $1,260,000 for the second quarter of 1997 from $1,404,000 in the second quarter of 1996. This decrease is primarily the result of a drop in shield/mask combination product sales. Sales from the Company's Unreal Lambskin-Registered Trademark- and other related products which includes a line of pet beds increased by 12.3% to $647,000 in the second quarter of 1997 compared to $576,000 in the same period in 1996. An increase in sales of rolled Lambskin goods is primarily responsible for the increase. The Company's Unreal Lambskin-Registered Trademark- line of pet products is expected to improve in future quarters. Consolidated sales were $8,476,000 and $7,459,000 for the six months ended June 30, 1997 and 1996, respectively, representing an increase of $1,017,000 or 13.6%. The increase is attributable to an increase in apparel sales of 43.0% and an increase in Unreal Lambskin of 5.3%, offset by a decrease in mask and shield products of 16.1%. 7 COST OF GOODS SOLD Cost of goods sold increased to $2,772,000 for the three months ended June 30,1997 from $2,580,000 for the same period in 1996. As a percentage of net sales, cost of goods sold decreased to 61.7% from 66.6%. Gross profit margin increased to 38.3% for the three months ended June 30, 1997 from 33.4% for the three months ended June 30, 1996. For the six months ended June 30, 1997 as compared to 1996, cost of goods sold increased to $5,217,000 from $4,879,000. As a percentage of net sales for the six months, cost of goods sold decreased to 61.6% from 65.4%. Gross profit margin increased to 38.4% from 34.6% for the six months ended June 30, 1997 and 1996, respectively. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased by $407,000 to $1,561,000 for the three months ended June 30,1997 from $1,154,000 for the three months ended June 30, 1996. As a percentage of net sales, selling, general and administrative expenses increased to 34.8% in the second quarter of 1997 from 29.8% for the same period in 1996. The increase in selling, general and administrative expenses primarily consists of payroll related costs of $251,000; options/warrants issued for services charge of $40,000; public company expenses of $52,000 including investor relations, annual report and annual meeting costs, stock transfer costs, & costs associated with SEC reporting requirements; and travel expenses of $36,000. Of the $251,000 increase in payroll related costs, $204,000 is due to the Apparel Division which had an increase in sales of 36.5%. As a percentage of net Apparel Division sales, selling, general and administrative expenses for the Apparel division decreased to 18.4% for the second quarter of 1997 as compared to 19.9% in the second quarter of 1996. Selling, general and administrative expenses increased by $614,000 to $2,883,000 for the six months ended June 30,1997 from $2,269,000 for the six months ended June 30, 1996. As a percentage of net sales, selling, general and administrative expenses increased to 34.0% for the first two quarters of 1997 from 30.4% in the same period in 1996. The increase in selling, general and administrative expenses for the six months ended June 30, 1997 is due to payroll related costs, public company expenses and travel expenses as noted above. DEPRECIATION & AMORTIZATION Depreciation and amortization expense increased by $18,000, to $78,000 for the three months ended June 30, 1997 from $60,000 for the same period in 1996 and increased by $30,000 for the six months ended June 30, 1997 compared to 1996. This increase is primarily attributable to an increase in the purchase of equipment through capital leases and amortization of goodwill on the acquisition of Ludan Corporation. 8 NET INTEREST Interest expense increased by $7,000, or 11.9% to $66,000 for the second quarter of 1997 from $59,000 for the second quarter of 1996. Interest expense increased by $7,000, or 5.0% for the six months ended June 30, 1997 compared to 1996. The slight increase in interest expense is due to interest on the additional capital leases acquired. INCOME FROM OPERATIONS Income from operations remained flat at $80,000 for the three months ended June 30, 1997 as compared to $79,000 for the three months ended June 30, 1996. Income from operations increased by $35,000 to $228,000 for the six months ended June 30, 1997 compared to $193,000 for the same period in 1996. The increased income from operations for the six months is primarily due to an increase in gross profit offset by an increase in selling, general and administrative expenses and an increase in depreciation and amortization. NET INCOME Net Income for the three months ended June 30, 1997 was $14,000 compared to net income of $24,000 for the three months ended June 30, 1996, a decrease of $10,000 or 41.7%. The net income decrease is comprised primarily of no change in income from operations and a small increase in interest expense. Net income for the six months ended June 30, 1997 was $81,000 compared to $70,000 for the six months in 1996. The net income increase for the six months is comprised of an increase in income from operations offset by a slight increase in interest expense. The Company does not have any pension, profit sharing or similar plans established for its employees, however, the chief executive officer and president are entitled to a combined bonus equal to 10% of the pre-tax profits of the company. No bonus was earned in 1996 or 1997. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1997, the Company had cash of $1,344,000 and working capital of $4,747,000. During the six months ended June 30, 1997, cash increased by $1,069,000 and accounts payable and accrued liabilities decreased by $977,000. The improvement of the company's cash and working capital is primarily due to the exercise of warrants and options for a total equity infusion of $2,412,000. 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, 1997, the maximum line of credit available was $1,713,000 for accounts receivable, inventory and equipment. 9 Net cash used for operations was $1,449,000 for the six months ended June 30, 1997 compared to net cash provided of $262,000 for the same period of 1996. The Company's use of cash from operations for the six months ended June 30, 1997 have been due primarily to increases in accounts receivable, inventories, and a decrease in accounts payable and accrued liabilities offset by a decrease in marketable securities and prepaid and other assets. The Company is in the process of expanding its sewing operation in Mexico and anticipates that further additions to property and equipment for 1997 could be approximately $200,000. In addition it is anticipated that its mask manufacturing capabilities are to be improved at an estimated cost of $100,000. Depending on the success of the automated shoe cover approximately $350,000 of additional equipment could be required. The Company intends to lease equipment whenever possible. During the six months ended June 30, 1997, the Company's financing activities consisted primarily of the exercise of warrants and options, and increases in the asset based loan of $427,000 and capital leases of $71,000 offset by repayments of borrowings totaling $31,000 which resulted in the net cash provided by financing activities of $2,879,000. With the exercise of warrants and options, accounts payable and accrued liabilities were reduced significantly to a level that is expected to remain constant. Management believes that it has available cash and borrowings to finance all known financial commitments for at least 24 months. CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION The Private Securities Litigation Reform Act of 1995 ("Act) provides a safe harbor for forward-looking information made on behalf of the Company. All statements, other than statements of historical facts which address the Company's expectations of sources of capital or which express the Company's expectation for the future with respect to financial performance or operating strategies 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. 10 ALPHA PRO TECH, LTD. PART II - OTHER INFORMATION ______________ ITEM 4. Submission of Matters to a Vote Security Holders (a) Registrant held its Annual Meeting of Shareholders June 20, 1997. (b) The following persons were elected Directors pursuant to the votes indicated: NAME FOR AGAINST Sheldon Hoffman 18,820,326 109,072 Al Millar 18,788,424 140,972 Robert Isaly 18,821,124 108,272 John Ritota 18,821,124 108,272 Donald E. Bennett, Jr. 18,821,124 108,272 (c) To amend the Company's 1993 incentive stock option plan. FOR AGAINST ABSTAIN VOTE WITHHELD 17,358,575 715,986 201,219 653,616 (d) The only other matter to be voted upon was the ratification of the appointment of Price Waterhouse LLP as the Registrant's independent accountants as follows: FOR AGAINST ABSTAIN 18,814,405 69,805 45,186 11 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has dult caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Alpha Pro Tech, Ltd. DATE: AUGUST 13, 1997 BY: SHELDON HOFFMAN ------------------ ------------------------------ SHELDON HOFFMAN CHIEF EXECUTIVE OFFICER CHIEF FINANCIAL OFFICER 12