SEC Info  
    Home      Search      My Interests      Help      Sign In      Please Sign In

Alpha Pro Tech Ltd – ‘10-Q’ for 9/30/19

On:  Wednesday, 11/6/19, at 11:52am ET   ·   For:  9/30/19   ·   Accession #:  1437749-19-21693   ·   File #:  1-15725

Previous ‘10-Q’:  ‘10-Q’ on 8/6/19 for 6/30/19   ·   Next:  ‘10-Q’ on 5/7/20 for 3/31/20   ·   Latest:  ‘10-Q’ on 11/8/23 for 9/30/23

Find Words in Filings emoji
 
  in    Show  and   Hints

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

11/06/19  Alpha Pro Tech Ltd                10-Q        9/30/19   59:3.2M                                   RDG Filings/FA

Quarterly Report   —   Form 10-Q   —   Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    420K 
 2: EX-31.1     Certification -- §302 - SOA'02                      HTML     27K 
 3: EX-31.2     Certification -- §302 - SOA'02                      HTML     26K 
 4: EX-32.1     Certification -- §906 - SOA'02                      HTML     21K 
 5: EX-32.2     Certification -- §906 - SOA'02                      HTML     21K 
54: R1          Document And Entity Information                     HTML     49K 
25: R2          Condensed Consolidated Balance Sheets (Current      HTML    103K 
                Period Unaudited)                                                
20: R3          Condensed Consolidated Balance Sheets (Current      HTML     28K 
                Period Unaudited) (Parentheticals)                               
33: R4          Condensed Consolidated Statements of Income         HTML     78K 
                (Unaudited)                                                      
53: R5          Condensed Consolidated Statements of Shareholders'  HTML     82K 
                Equity (Unaudited)                                               
24: R6          Condensed Consolidated Statements of Cash Flows     HTML     84K 
                (Unaudited)                                                      
19: R7          Supplemental Disclosure of Non-cash Financing       HTML     23K 
                Activities                                                       
34: R8          Note 1 - The Company                                HTML     25K 
52: R9          Note 2 - Basis of Presentation and Revenue          HTML     30K 
                Recognition Policy                                               
30: R10         Note 3 - Stock-based Compensation                   HTML     42K 
15: R11         Note 4 - Investments                                HTML     28K 
41: R12         Note 5 - Recent Accounting Pronouncements           HTML     32K 
47: R13         Note 6 - Inventories                                HTML     32K 
31: R14         Note 7 - Equity Investment in Unconsolidated        HTML     34K 
                Affiliate                                                        
16: R15         Note 8 - Accrued Liabilities                        HTML     30K 
42: R16         Note 9 - Basic and Diluted Earnings Per Common      HTML     50K 
                Share                                                            
48: R17         Note 10 - Activity of Business Segments             HTML     75K 
32: R18         Note 11 - Financial Information about Geographic    HTML     48K 
                Areas                                                            
14: R19         Note 12 - Related Party Transactions                HTML     23K 
36: R20         Note 13 - Leases                                    HTML     35K 
55: R21         Note 14 - Subsequent Events                         HTML     23K 
22: R22         Note 3 - Stock-based Compensation (Tables)          HTML     36K 
17: R23         Note 6 - Inventories (Tables)                       HTML     32K 
37: R24         Note 8 - Accrued Liabilities (Tables)               HTML     28K 
56: R25         Note 9 - Basic and Diluted Earnings Per Common      HTML     48K 
                Share (Tables)                                                   
23: R26         Note 10 - Activity of Business Segments (Tables)    HTML     75K 
18: R27         Note 11 - Financial Information about Geographic    HTML     45K 
                Areas (Tables)                                                   
35: R28         Note 13 - Leases (Tables)                           HTML     30K 
57: R29         Supplemental Disclosure of Non-cash Financing       HTML     24K 
                Activities (Details Textual)                                     
51: R30         Note 3 - Stock-based Compensation (Details          HTML     31K 
                Textual)                                                         
44: R31         Note 3 - Stock-based Compensation - Stock Option    HTML     45K 
                Activity (Details)                                               
13: R32         Note 4 - Investments (Details Textual)              HTML     29K 
29: R33         Note 5 - Recent Accounting Pronouncements (Details  HTML     26K 
                Textual)                                                         
50: R34         Note 6 - Inventories - Inventories (Details)        HTML     30K 
43: R35         Note 7 - Equity Investment in Unconsolidated        HTML     69K 
                Affiliate (Details Textual)                                      
12: R36         Note 8 - Accrued Liabilities - Accrued Liabilities  HTML     27K 
                (Details)                                                        
28: R37         Note 9 - Basic and Diluted Earnings Per Common      HTML     48K 
                Share - Reconciliation of Net Income and Number of               
                Shares Used in Computations of Basic and Diluted                 
                EPS (Details)                                                    
49: R38         Note 10 - Activity of Business Segments (Details    HTML     19K 
                Textual)                                                         
45: R39         Note 10 - Activity of Business Segments -           HTML     26K 
                Consolidated Net Sales (Details)                                 
59: R40         Note 10 - Activity of Business Segments -           HTML     36K 
                Reconciliation of Total Segment Income to Total                  
                Consolidated Net Income (Details)                                
39: R41         Note 10 - Activity of Business Segments -           HTML     26K 
                Consolidated Net Property and Equipment, Goodwill                
                and Intangible Assets (Details)                                  
21: R42         Note 11 - Financial Information about Geographic    HTML     37K 
                Areas - Consolidated Net Sales and Long-lived                    
                Asset Information by Geographic Area (Details)                   
27: R43         Note 12 - Related Party Transactions (Details       HTML     20K 
                Textual)                                                         
58: R44         Note 13 - Leases (Details Textual)                  HTML     31K 
38: R45         Note 13 - Leases - Future Minimum Lease Payment     HTML     37K 
                (Details)                                                        
40: XML         IDEA XML File -- Filing Summary                      XML    105K 
26: EXCEL       IDEA Workbook of Financial Reports                  XLSX     45K 
 6: EX-101.INS  XBRL Instance -- apt-20190930                        XML    880K 
 8: EX-101.CAL  XBRL Calculations -- apt-20190930_cal                XML    104K 
 9: EX-101.DEF  XBRL Definitions -- apt-20190930_def                 XML    632K 
10: EX-101.LAB  XBRL Labels -- apt-20190930_lab                      XML    484K 
11: EX-101.PRE  XBRL Presentations -- apt-20190930_pre               XML    672K 
 7: EX-101.SCH  XBRL Schema -- apt-20190930                          XSD    112K 
46: ZIP         XBRL Zipped Folder -- 0001437749-19-021693-xbrl      Zip     74K 


‘10-Q’   —   Quarterly Report


This is an HTML Document rendered as filed.  [ Alternative Formats ]



 C:  <>  <> 
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2019

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from      to      .

 

 Commission File No. 01-15725

 

Alpha Pro Tech, Ltd.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware, U.S.A.

63-1009183

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

   

60 Centurian Drive, Suite 112

Markham, Ontario, Canada

L3R 9R2
(Address of Principal Executive Offices) (Zip Code)

 

Registrant’s telephone number, including area code: (905) 479-0654

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value

APT

NYSE American

 

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 ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐    Accelerated filer ☐   Non-accelerated filer ☐   Smaller reporting company ☒    Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class   Outstanding November 1, 2019
Common Stock, $0.01 par value   13,021,171 shares

 

 

 

 

 

Alpha Pro Tech, Ltd.

 

Index

 

PART I. FINANCIAL INFORMATION  
     
ITEM 1. Financial Statements page
     
  Condensed Consolidated Balance Sheets (Unaudited) 1
     
  Condensed Consolidated Statements of Income (Unaudited) 2
     
  Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) 3
     
 

Condensed Consolidated Statements of Cash Flows (Unaudited)

4

     
 

Notes to Condensed Consolidated Financial Statements (Unaudited)

5

     
ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 13
     
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 22
     
ITEM 4. Controls and Procedures 22
     
PART II. OTHER INFORMATION    
     
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
     
ITEM 6. Exhibits 24
     
SIGNATURES 25
     
EXHIBITS   

 

 

 

 

 

Alpha Pro Tech, Ltd.

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets (Unaudited)


 

   

September 30,

   

December 31,

 
   

2019

    2018 (1)  

Assets

               

Current assets:

               

Cash

  $ 5,106,000     $ 7,007,000  

Investments

    348,000       258,000  

Accounts receivable, net of allowance for doubtful accounts of $58,000 and $64,000 as of September 30, 2019 and December 31, 2018

    5,414,000       4,935,000  

Accounts receivable, related party

    755,000       383,000  

Inventories

    11,255,000       9,878,000  

Right-of-use assets

    682,000       -  

Prepaid expenses

    3,144,000       3,999,000  

Total current assets

    26,704,000       26,460,000  
                 

Property and equipment, net

    4,002,000       3,244,000  

Goodwill

    55,000       55,000  

Definite-lived intangible assets, net

    13,000       16,000  

Right-of-use assets, net of current portion

    2,239,000       -  

Equity investment in unconsolidated affiliate

    4,851,000       4,480,000  

Total assets

  $ 37,864,000     $ 34,255,000  
                 

Liabilities and Shareholders' Equity

               

Current liabilities:

               

Accounts payable

  $ 674,000     $ 578,000  

Accrued liabilities

    844,000       1,342,000  

Lease liabilities

    670,000       -  

Total current liabilities

    2,188,000       1,920,000  
                 

Lease liabilities, net of current portion

    2,292,000       -  

Deferred income tax liabilities, net

    141,000       141,000  

Total liabilities

    4,621,000       2,061,000  

Commitments

               

Shareholders' equity:

               

Common stock, $.01 par value: 50,000,000 shares authorized; 13,004,507 and 13,502,684 shares outstanding as of September 30, 2019 and December 31, 2018, respectively

    130,000       135,000  

Additional paid-in capital

    1,058,000       2,669,000  

Retained earnings

    32,055,000       29,390,000  

Total shareholders' equity

    33,243,000       32,194,000  

Total liabilities and shareholders' equity

  $ 37,864,000     $ 34,255,000  

 

(1) The condensed consolidated balance sheet as of December 31, 2018 has been prepared using information from the audited consolidated balance sheet as of that date.

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

 

1

 

 

 

Alpha Pro Tech, Ltd.

 

Condensed Consolidated Statements of Income (Unaudited)


 

   

For the Three Months Ended

   

For the Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2019

   

2018

   

2019

   

2018

 
                                 

Net sales

  $ 12,027,000     $ 12,104,000     $ 35,745,000     $ 35,655,000  
                                 

Cost of goods sold, excluding depreciation and amortization

    7,807,000       7,519,000       22,616,000       21,896,000  

Gross profit

    4,220,000       4,585,000       13,129,000       13,759,000  
                                 

Operating expenses:

                               

Selling, general and administrative

    3,172,000       2,676,000       10,108,000       10,024,000  

Depreciation and amortization

    142,000       140,000       410,000       430,000  

Total operating expenses

    3,314,000       2,816,000       10,518,000       10,454,000  
                                 

Income from operations

    906,000       1,769,000       2,611,000       3,305,000  
                                 

Other income:

                               

Equity in income of unconsolidated affiliate

    10,000       103,000       371,000       393,000  

Gain (loss) on marketable securities

    (387,000 )     25,000       223,000       (40,000 )

Interest income, net

    18,000       1,000       52,000       2,000  

Total other income (loss)

    (359,000 )     129,000       646,000       355,000  
                                 

Income before provision for income taxes

    547,000       1,898,000       3,257,000       3,660,000  
                                 

Provision for income taxes

    110,000       359,000       592,000       653,000  
                                 

Net income

  $ 437,000     $ 1,539,000     $ 2,665,000     $ 3,007,000  
                                 

Basic earnings per common share

  $ 0.03     $ 0.11     $ 0.20     $ 0.21  
                                 

Diluted earnings per common share

  $ 0.03     $ 0.11     $ 0.20     $ 0.21  
                                 

Basic weighted average common shares outstanding

    13,056,173       13,795,007       13,209,598       14,031,518  
                                 

Diluted weighted average common shares outstanding

    13,075,692       13,853,619       13,238,026       14,076,033  

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

 

2

 

 

 

Alpha Pro Tech, Ltd.

 

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)


 

For the Nine Months Ended September 30, 2019

                   

Additional

                 
   

Common Stock

   

Paid-in

   

Retained

         
   

Shares

   

Amount

   

Capital

   

Earnings

   

Total

 

Balance as of December 31, 2018

    13,502,684     $ 135,000     $ 2,669,000     $ 29,390,000     $ 32,194,000  

Net income

    -       -       -       1,218,000       1,218,000  

Common stock repurchased and retired

    (255,000 )     (2,000 )     (1,006,000 )     -       (1,008,000 )

Stock-based compensation expense

    -       -       122,000       -       122,000  

Options exercised

    33,334       -       60,000       -       60,000  

Balance as of March 31, 2019

    13,281,018     $ 133,000     $ 1,845,000     $ 30,608,000     $ 32,586,000  

Net income

    -       -       -       1,010,000       1,010,000  

Common stock repurchased and retired

    (172,000 )     (2,000 )     (626,000 )     -       (628,000 )

Stock-based compensation expense

    -       -       138,000       -       138,000  

Options exercised

    -       -       -       -       -  

Balance as of June 30, 2019

    13,109,018     $ 131,000     $ 1,357,000     $ 31,618,000     $ 33,106,000  

Net income

    -       -       -       437,000       437,000  

Common stock repurchased and retired

    (121,010 )     (1,000 )     (427,000 )     -       (428,000 )

Stock-based compensation expense

    -       -       93,000       -       93,000  

Options exercised

    16,499       -       35,000       -       35,000  

Balance as of September 30, 2019

    13,004,507       130,000       1,058,000       32,055,000       33,243,000  

 

For the Nine Months Ended September 30, 2018

                           

Accumulated

                 
                   

Additional

   

Other

                 
   

Common Stock

   

Paid-in

   

Comprehensive

   

Retained

         
   

Shares

   

Amount

   

Capital

   

Loss

   

Earnings

   

Total

 

Balance as of December 31, 2017

    14,290,749     $ 143,000     $ 5,415,000     $ (458,000 )   $ 26,223,000     $ 31,323,000  

Net income

                            -       508,000       508,000  

Cumulative-effect adjustment of change in accounting for unrealized loss on marketable securities

    -       -       -       458,000       (458,000 )     -  

Common stock repurchased and retired

    (153,000 )     (1,000 )     (575,000 )     -       -       (576,000 )

Stock-based compensation expense

            -       78,000       -       -       78,000  

Options exercised

    50,000       -       77,000       -       -       77,000  

Balance as of March 31, 2018

    14,187,749     $ 142,000     $ 4,995,000     $ -     $ 26,273,000     $ 31,410,000  

Net income

    -       -       -       -       959,000       959,000  

Common stock repurchased and retired

    (300,000 )     (4,000 )     (1,037,000 )     -       -       (1,041,000 )

Stock-based compensation expense

    -       -       118,000       -       -       118,000  

Options exercised

    21,667       1,000       42,000       -       -       43,000  

Balance as of June 30, 2018

    13,909,416     $ 139,000     $ 4,118,000     $ -     $ 27,232,000     $ 31,489,000  

Net income

    -       -       -       -       1,540,000       1,540,000  

Common stock repurchased and retired

    (340,000 )     (3,000 )     (1,208,000 )     -       -       (1,211,000 )

Stock-based compensation expense

    -       -       116,000       -       -       116,000  

Options exercised

    60,167       -       104,000       -       -       104,000  

Balance as of September 30, 2018

    13,629,583     $ 136,000     $ 3,130,000     $ -     $ 28,772,000     $ 32,038,000  

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

 

3

 

 

 

Alpha Pro Tech, Ltd.

 

Condensed Consolidated Statements of Cash Flows (Unaudited)


 

   

For the Nine Months Ended

September 30,

 
   

2019

   

2018

 

Cash Flows From Operating Activities:

               

Net income

  $ 2,665,000     $ 3,007,000  

Adjustments to reconcile net income to net cash used in operating activities:

               

Stock-based compensation

    353,000       312,000  

Depreciation and amortization

    410,000       430,000  

Gain (loss) on marketable securities

    (223,000 )     40,000  

Equity in income of unconsolidated affiliate

    (371,000 )     (393,000 )

Operating lease expense, net of accretion

    532,000       -  

Changes in assets and liabilities:

               

Accounts receivable, net

    (479,000 )     (1,166,000 )

Accounts receivable, related party

    (372,000 )     (134,000 )

Inventories

    (1,377,000 )     897,000  

Prepaid expenses

    855,000       (834,000 )

Accounts payable and accrued liabilities

    (402,000 )     (1,086,000 )

Lease liabilities

    (492,000 )     -  
                 

Net cash provided by operating activities

    1,099,000       1,073,000  
                 

Cash Flows From Investing Activities:

               

Purchase of property and equipment

    (1,164,000 )     (424,000 )

Proceeds from sales of marketable securities

    133,000       15,000  
                 

Net cash used in investing activities

    (1,031,000 )     (409,000 )
                 

Cash Flows From Financing Activities:

               

Proceeds from exercise of stock options

    95,000       224,000  

Repurchase of common stock

    (2,064,000 )     (2,828,000 )
                 

Net cash used in financing activities

    (1,969,000 )     (2,604,000 )
                 

Decrease in cash

    (1,901,000 )     (1,940,000 )
                 

Cash, beginning of the period

    7,007,000       8,763,000  
                 

Cash, end of the period

  $ 5,106,000     $ 6,823,000  

 

 

 

Supplemental disclosure of non-cash financing activities:

Upon adoption of ASC 842, Leases, on January 1, 2019, the Company recorded $3,455,000 of right-of-use assets and related operating lease liabilities (see Note 5).

 

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

 

4

 

 

Alpha Pro Tech, Ltd.

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 


 

 

 

1.

The Company

 

Alpha Pro Tech, Ltd. (“Alpha Pro Tech,” the “Company,” “we”, “us” or “our”) is in the business of protecting people, products and environments. The Company accomplishes this by developing, manufacturing and marketing a line of building supply products for the new home and re-roofing markets and a line of disposable protective apparel for the cleanroom, industrial, pharmaceutical, medical and dental markets.

 

The Building Supply segment consists of construction weatherization products, such as housewrap and synthetic roof underlayment, as well as other woven material.

 

The Disposable Protective Apparel segment consists of a complete line of disposable protective garments (shoecovers, bouffant caps, coveralls, gowns, frocks and lab coats), face masks and face shields. Previously, face masks and face shields were included in a separate business segment called Infection Control. All of our disposable protective apparel products, including face masks and face shields, are sold through similar distribution channels, are single-use and disposable, have the purpose of protecting people, products and environments, and have to be produced in Food and Drug Administration (“FDA”) approved facilities, regardless of the market served. Based on these similarities, the Infection Control segment was combined with the Disposable Protective Apparel segment during the first quarter of 2019. The disclosures herein reflect this current segmentation.

 

The Company’s products are sold under the "Alpha Pro Tech" brand name as well as under private label, and are predominantly sold in the United States of America (“US”).

 

 

 

2.

Basis of Presentation and Revenue Recognition Policy

 

The interim financial information included in this report is unaudited; however, the information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for the fair presentation of the consolidated financial position, results of operations and cash flows for the interim periods reflected herein. These interim condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, omit certain information and note disclosures that would be necessary to present the statements in accordance with US generally accepted accounting principles (“US GAAP”). The interim condensed consolidated financial statements should be read in conjunction with the Company’s current year SEC filings, as well as the Company’s consolidated financial statements for the year ended December 31, 2018, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “2018 Form 10-K”), filed with the SEC on March 6, 2019. The results of operations for the three and nine months ended September 30, 2019 reported in this Quarterly Report on Form 10-Q are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet as of December 31, 2018 was prepared using information from the audited consolidated balance sheet contained in the 2018 Form 10-K; however, it does not include all disclosures required by US GAAP for annual consolidated financial statements.

 

As of January 1, 2018, the Company adopted the new accounting standard, Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. This standard was retrospectively adopted for the 2017 year, and there was no cumulative effect adjustment upon adoption. Under ASC 606, net sales includes revenue from products and shipping and handling charges, net of estimates for product returns and any related sales incentives. Revenue is measured as the amount of consideration that we expect to receive in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under the applicable contract. We recognize revenue in connection with transferring the promised products to the customer, with revenue being recognized at the point in time when the customer obtains control of the products, which is generally when title passes to the customer upon delivery, at which time a receivable is created for the invoice sent to the customer. We recognize revenue for shipping and handling charges at the time the products are delivered to or picked up by the customer. We estimate product returns based on historical return rates and estimate rebates based on contractual agreements. Using probability assessments, we estimate sales incentives expected to be paid over the term of the contract. Our contracts have a single performance obligation. Sales taxes and value added taxes in foreign and domestic jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from net sales. The Company manufactures certain private label goods for customers and has determined that control does not pass to the customer at the time of manufacture, based upon the nature of the private labelling. In connection with the adoption of ASC 606, the Company determined that it had no material contract assets, and concluded that its contract liabilities (primarily rebates) had the right of offset against customer receivables. See Note 10 and Note 11 of these Notes to Condensed Consolidated Financial Statements (Unaudited) for information on revenue disaggregated by type and by geographic region.

 

5

 

 

Alpha Pro Tech, Ltd.

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 


 

 

 

3.

Stock-Based Compensation

 

The Company maintains a stock option plan under which the Company may grant incentive stock options and non-qualified stock options to employees and non-employee directors. Stock options have been granted with exercise prices at or above the fair market value of the underlying shares of common stock on the date of grant. Options vest and expire according to terms established at the grant date.

 

The Company records compensation expense for the fair value of stock-based awards determined as of the grant date, including employee stock options, over the determined requisite service period, which is generally ratably over the vesting term.

 

For the nine months ended September 30, 2019 and 2018, 370,000 and 349,750 stock options were granted under the Company’s option plan, respectively. The Company recognized $353,000 and $312,000 in stock-based compensation expense for the nine months ended September 30, 2019 and 2018, respectively.

 

The Company uses the Black-Scholes option-pricing model to value the options. The Company uses historical data to estimate the expected life of the options. The risk-free interest rate for periods within the contractual life of an award is based on the US Treasury yield curve in effect at the time of grant. The estimated volatility is based on historical volatility and management’s expectations of future volatility. The Company uses an estimated dividend payout of zero, as the Company has not paid dividends in the past and, at this time, does not expect to do so in the future. The Company accounts for option forfeitures as they occur.

 

The following table summarizes stock option activity for the nine months ended September 30, 2019:

 

           

Weighted

 
           

Average

 
           

Exercise Price

 
   

Options

   

Per Option

 
                 

Options outstanding, December 31, 2018

    1,022,913     $ 2.69  

Granted to employees and non-employee directors

    370,000       3.59  

Exercised

    (49,833 )     1.90  

Canceled/expired/forfeited

    -       0.00  

Options outstanding, September 30, 2019

    1,343,080       2.96  

Options exercisable, September 30, 2019

    676,580       2.44  

 

As of September 30, 2019, $354,000 of total unrecognized compensation cost related to stock options was expected to be recognized over a weighted average period of 2.13 years.

 

6

 

 

Alpha Pro Tech, Ltd.

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 


 

 

 

4.

Investments

 

As of September 30, 2019 and December 31, 2018, investments totaled $348,000 and $258,000, respectively, which consisted of equity securities. No marketable securities were sold during the three months ended September 30, 2019, and 20,000 shares were sold during the three months ended September 30, 2018. The total loss on marketable securities during the three months ended September 30, 2019 was $387,000, and the unrealized gain on marketable securities during the three months ended September 30, 2018 was $25,000. The loss for the three months ended September 30, 2019 was due to an unrealized loss of $387,000. Certain marketable securities were sold during the nine months ended September 30, 2019 and September 30, 2018. The total gain on marketable securities during the nine months ended September 30, 2019 was $223,000 and the unrealized loss on marketable securities during the nine months ended September 30, 2018 was $40,000. The gain for the nine months ended September 30, 2019 was due to an unrealized gain of $168,000 and a realized gain of $55,000. The gain for the nine months ended September 30, 2018 was due to an unrealized loss of $43,000 and a realized gain of $3,000.

 

 

5.

Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Leases, which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as finance leases or operating leases under previous guidance. The update is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those reporting periods, with early adoption permitted. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which includes an option to not restate comparative periods in transition and elect to use the effective date of ASC 842, Leases, as the date of initial application of transition. Based on the effective date, the Company adopted this ASU beginning on January 1, 2019 and elected the transition option provided under ASU 2018-11. This standard had a material effect on our consolidated balance sheet with the recognition of new right-of-use assets and lease liabilities for all operating leases, as these leases typically have a non-cancelable lease term of greater than one year. Upon adoption, both assets and liabilities on our consolidated balance sheet increased by approximately $3,455,000. The Company elected a package of transition practical expedients which include not reassessing whether any expired or existing contracts are or contain leases, not reassessing the lease classification of expired or existing leases, and not reassessing initial direct costs for existing leases. The Company also elected a practical expedient to not separate lease and non-lease components. The Company did not elect the practical expedient to use hindsight in determining the lease terms or assessing impairment of the Right-of-Use (“ROU”) assets. See Note 13. Leases for more information.

 

In June 2016, the FASB issued ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13 is effective for public entities for the annual periods, including interim periods within those annual periods, beginning after December 15, 2019. This guidance is applicable to the Company’s fiscal year beginning January 1, 2020. Management is currently evaluating the requirements of this guidance and has not yet determined the impact on the adoption of the Company’s financial position or results from operations.

 

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with accounting for employee share-based compensation. ASU 2018-07 is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods, with early adoption permitted but no earlier than an entity’s adoption date of ASC Topic 606. The new guidance is required to be applied retrospectively with the cumulative effect recognized at the date of initial application. The Company adopted the provisions of this ASU in the first quarter of 2019. Adoption of the new standard did not have a material impact on our consolidated financial statements.

 

Management periodically reviews new accounting standards that are issued. Management has not identified any other new standards that it believes merit further discussion at this time.

 

7

 

 

Alpha Pro Tech, Ltd.

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 


 

 

 

6.

Inventories

 

As of September 30, 2019 and December 31, 2018, inventories consisted of the following:

 

   

September 30,

   

December 31,

 
   

2019

   

2018

 
                 

Raw materials

  $ 4,466,000     $ 4,732,000  

Work in process

    2,578,000       825,000  

Finished goods

    4,211,000       4,321,000  
    $ 11,255,000     $ 9,878,000  

 

 

 

7.

Equity Investment in Unconsolidated Affiliate

 

In 2005, Alpha ProTech Engineered Products, Inc. (a subsidiary of Alpha Pro Tech, Ltd.) entered into a joint venture with a manufacturer in India, Maple Industries and associates, for the production of building products. Under the terms of the joint venture agreement, a private company, Harmony Plastics Private Limited (“Harmony”), was created with ownership interests of 41.66% owned by Alpha ProTech Engineered Products, Inc. and 58.34% owned by Maple Industries and associates.

 

This joint venture positions Alpha ProTech Engineered Products, Inc. to respond to current and expected increased product demand for housewrap and synthetic roof underlayment and provides future capacity for sales of specialty roofing component products and custom products for industrial applications requiring high quality extrusion coated fabrics. In addition, the joint venture now supplies products for the Company’s Disposable Protective Apparel segment.

 

The capital from the initial funding and a bank loan, which loan is guaranteed exclusively by the individual shareholders of Maple Industries and associates and collateralized by the assets of Harmony, were utilized to purchase the original manufacturing facility in India. Harmony currently has four facilities in India (three owned and one rented), consisting of: (1) a 113,000 square foot building for manufacturing building products; (2) a 73,000 square foot building for manufacturing coated material and sewing proprietary disposable protective apparel; (3) a 16,000 square foot facility for sewing proprietary disposable protective apparel; and (4) a 93,000 square foot facility (rented) for manufacturing Building Supply segment products. All additions have been financed by Harmony with no guarantees from the Company.

 

In accordance with ASC 810, Consolidation, the Company assesses whether or not related entities are variable interest entities (“VIEs”). For those related entities that qualify as VIEs, ASC 810 requires the Company to determine whether or not the Company is the primary beneficiary of the VIE, and, if so, to consolidate the VIE. The Company has determined that Harmony is not a VIE and is, therefore, considered to be an unconsolidated affiliate.

 

The Company records its investment in Harmony as “equity investment in unconsolidated affiliate” in the accompanying condensed consolidated balance sheets. The Company records its equity interest in Harmony’s results of operations as “equity in income of unconsolidated affiliate” in the accompanying condensed consolidated statements of income. The Company periodically reviews its investment in Harmony for impairment. Management has determined that no impairment was required as of September 30, 2019 or December 31, 2018.

 

For the three months ended September 30, 2019 and 2018, Alpha Pro Tech purchased $4,849,000 and $4,535,000 of inventories, respectively, from Harmony. For the nine months ended September 30, 2019 and 2018, Alpha Pro Tech purchased $15,300,000 and $12,036,000 of inventories, respectively, from Harmony.

 

For the three months ended September 30, 2019 and 2018, the Company recorded equity in income of unconsolidated affiliate of $10,000 and $103,000, respectively, related to Harmony. For the nine months ended September 30, 2019 and 2018, the Company recorded equity in income of unconsolidated affiliate of $371,000 and $393,000, respectively, related to Harmony.

 

As of September 30, 2019, the Company’s investment in Harmony was $4,851,000, which consisted of its original $1,450,000 investment and cumulative equity in income of unconsolidated affiliate of $4,420,000, less $942,000 in repayments of the advance and $77,000 in dividends.

 

8

 

 

Alpha Pro Tech, Ltd.

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 


 

 

 

8.

Accrued Liabilities

 

As of September 30, 2019 and December 31, 2018, accrued liabilities consisted of the following:

 

   

September 30,

   

December 31,

 
   

2019

   

2018

 
                 

Payroll expenses and taxes payable

  $ 216,000     $ 269,000  

Commissions and bonuses payable and general accrued liabilities

    628,000       1,073,000  

Total accrued liabilities

  $ 844,000     $ 1,342,000  

 

 

 

9.

Basic and Diluted Earnings Per Common Share

 

The following table provides a reconciliation of both net income and the number of shares used in the computation of “basic” earnings per common share (“EPS”), which utilizes the weighted average number of common shares outstanding without regard to dilutive shares, and “diluted” EPS, which includes all such dilutive shares, for the three and nine months ended September 30, 2019 and 2018:

 

   

For the Three Months Ended

   

For the Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2019

   

2018

   

2019

   

2018

 

Net income (numerator)

  $ 437,000     $ 1,539,000     $ 2,665,000     $ 3,007,000  
                                 

Shares (denominator):

                               

Basic weighted average common shares outstanding

    13,056,173       13,795,007       13,209,598       14,031,518  

Add: dilutive effect of common stock options

    19,519       58,612       28,428       44,515  
                                 

Diluted weighted average common shares outstanding

    13,075,692       13,853,619       13,238,026       14,076,033  
                                 

Earnings per common share:

                               

Basic

  $ 0.03     $ 0.11     $ 0.20     $ 0.21  

Diluted

  $ 0.03     $ 0.11     $ 0.20     $ 0.21  

 

9

 

 

Alpha Pro Tech, Ltd.

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 


 

 

 

10.

Activity of Business Segments

 

The Company operates through two business segments:

 

(1) Building Supply: consisting of a line of construction supply weatherization products. The construction supply weatherization products consist of housewrap and synthetic roof underlayment, as well as other woven material. The majority of the Company’s equity in income of unconsolidated affiliate (Harmony) is included in the total segment income for the Building Supply segment.

 

(2) Disposable Protective Apparel: consisting of a complete line of disposable protective garments, including shoecovers (including the Aqua Trak® and spunbond shoecovers), bouffant caps, coveralls, frocks, lab coats, gowns and hoods, as well as face masks and face shields for the pharmaceutical, cleanroom, industrial, medical and dental markets. A portion of the Company’s equity in income of unconsolidated affiliate (Harmony) is included in the total segment income for the Disposable Protective Apparel segment.

 

Previously, face masks and face shields were included in a separate business segment called Infection Control. All of our disposable protective apparel, including face masks and face shields, are sold through similar distribution channels, are single-use and disposable, have the purpose of protecting people, products and environments, and have to be produced in FDA approved facilities, regardless of the market served. Based on these similarities, we determined that it would be best to consolidate the Infection Control segment into the Disposable Protective Apparel segment beginning with the first quarter of 2019.   

 

Segment data excludes charges allocated to the principal executive office and other unallocated corporate overhead expenses and income tax. The Company evaluates the performance of its segments and allocates resources to them based primarily on net sales.

 

The following table presents consolidated net sales for each segment for the three and nine months ended September 30, 2019 and 2018:

 

   

For the Three Months Ended

   

For the Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2019

   

2018

   

2019

   

2018

 

Building Supply

  $ 7,215,000     $ 6,979,000     $ 20,423,000     $ 20,220,000  

Disposable Protective Apparel

    4,812,000       5,125,000       15,322,000       15,435,000  

Consolidated net sales

  $ 12,027,000     $ 12,104,000     $ 35,745,000     $ 35,655,000  

 

 

The following table presents the reconciliation of consolidated segment income to consolidated net income for the three and nine months ended September 30, 2019 and 2018:

 

   

For the Three Months Ended

   

For the Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2019

   

2018

   

2019

   

2018

 

Building Supply

  $ 1,010,000     $ 1,130,000     $ 2,819,000     $ 3,191,000  

Disposable Protective Apparel

    839,000       1,194,000       3,140,000       3,502,000  

Total segment income

    1,849,000       2,324,000       5,959,000       6,693,000  
                                 

Unallocated corporate overhead expenses

    1,302,000       426,000       2,702,000       3,033,000  

Provision for income taxes

    110,000       359,000       592,000       653,000  

Consolidated net income

  $ 437,000     $ 1,539,000     $ 2,665,000     $ 3,007,000  

 

 

10

 

 

Alpha Pro Tech, Ltd.

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 


 

 

The following table presents the consolidated net property and equipment, goodwill and definite-lived intangible assets (“consolidated assets”) by segment as of September 30, 2019 and December 31, 2018:

 

   

September 30,

   

December 31,

 
   

2019

   

2018

 
                 

Building Supply

  $ 1,908,000     $ 1,908,000  

Disposable Protective Apparel

    1,109,000       400,000  

Total segment assets

    3,017,000       2,308,000  
                 

Unallocated corporate assets

    1,053,000       1,007,000  

Total consolidated assets

  $ 4,070,000     $ 3,315,000  

 

 

 

11.

Financial Information about Geographic Areas

 

The following table summarizes the Company’s net sales by geographic region for the three and nine months ended September 30, 2019 and 2018:

 

   

For the Three Months Ended

   

For the Nine Months Ended

 
   

September 30,

   

September 30,

 
   

2019

   

2018

   

2019

   

2018

 

Net sales by geographic region

                               

United States

  $ 11,806,000     $ 11,918,000     $ 35,004,000     $ 34,977,000  

International

    221,000       186,000       741,000       678,000  
                                 

Consolidated net sales

  $ 12,027,000     $ 12,104,000     $ 35,745,000     $ 35,655,000  

 

 

Net sales by geographic region are based on the countries in which our customers are located. For the three and nine months ended September 30, 2019 and 2018, the Company did not generate sales from any single country, other than the United States, that were significant to the Company’s consolidated net sales.

 

The following table summarizes the locations of the Company’s long-lived assets by geographic region as of September 30, 2019 and December 31, 2018:

 

   

September 30,

   

December 31,

 
   

2019

   

2018

 

Long-lived assets by geographic region

               

United States

  $ 3,240,000     $ 2,528,000  

International

    762,000       716,000  
                 

Consolidated total long-lived assets

  $ 4,002,000     $ 3,244,000  

 

11

 

 

Alpha Pro Tech, Ltd.

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

 


 

 

 

12.

Related Party Transactions

 

As of September 30, 2019, the Company had no related party transactions, other than the Company’s transactions with its non-consolidated affiliate, Harmony. See Note 7 to these Notes to Condensed Consolidated Financial Statements (Unaudited).

 

 

 

13.

Leases

 

The Company has operating leases for the Company’s corporate office and manufacturing facilities, which expire at various dates through 2024. The Company’s primary operating lease commitments at September 30, 2019 related to the Company’s manufacturing facilities in Valdosta, Georgia, Nogales, Arizona and Salt Lake City, Utah, as well as the Company’s corporate headquarters in Markham, Ontario, Canada.

 

As of September 30, 2019, the Company had operating lease right-of-use assets of $2,921,000 and operating lease liabilities of $2,962,000. As of September 30, 2019, we did not have any finance leases recorded on the Company’s condensed consolidated balance sheet. Operating lease expense was approximately $201,000 and $603,000 during the three and nine months ended September 30, 2019, respectively.

 

The aggregate future minimum lease payments and reconciliation to lease liabilities as of September 30, 2019 were as follows:

 

   

September 30,

 
   

2019

 

Remaining three months of 2019

  $ 181,000  

2020

    797,000  

2021

    776,000  

2022

    670,000  

2023

    676,000  

Thereafter

    135,000  

Total future minimum lease payments

    3,235,000  

Less imputed interest

    (273,000 )

Total lease liabilities

  $ 2,962,000  

 

 

As of September 30, 2019, the weighted average remaining lease term of the Company’s operating leases was 4.78 years. During the nine months ended September 30, 2019, the weighted average discount rate with respect to these leases was 4.32%.

 

 

14.

Subsequent Events

 

The Company has reviewed and evaluated whether subsequent events have occurred from the condensed consolidated balance sheet date of September 30, 2019 through the filing date of this Quarterly Report on Form 10-Q that would require accounting or disclosure and has concluded that there are no such subsequent events.

 

12

 

 

Alpha Pro Tech, Ltd.

 

 


 

 

 

ITEM 2.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and the notes to our unaudited condensed consolidated financial statements, which appear elsewhere in this report, as well as our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (the “SEC”) on March 6, 2019 (the “2018 Form 10-K”).

 

Special Note Regarding Forward-Looking Statements

 

Certain information set forth in this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of federal securities laws. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions and other information that is not historical information. When used in this report, the words “estimates,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes” and variations of such words or similar expressions are intended to identify forward-looking statements. We may make additional forward-looking statements from time to time. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise. All forward-looking statements, whether written or oral and whether made by us or on our behalf, are expressly qualified by this special note.

Any expectations based on these forward-looking statements are subject to risks and uncertainties, including the risks described in Part I, Item IA, “Risk Factors, “in the 2018 Form 10-K. These and many other factors could affect the Company’s future operating results, and financial condition and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by the Company or on its behalf.

 

Special Note Regarding Smaller Reporting Company Status

 

We are filing this report as a “smaller reporting company” (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended). As a result of being a smaller reporting company, we are allowed and have elected to omit certain information from this Management’s Discussion and Analysis of Financial Condition and Results of Operations; however, we have provided all information for the periods presented that we believe to be appropriate.

 

Where to find more information about us. We make available, free of charge, on our website (http://www.alphaprotech.com) our most recent Annual Report on Form 10-K, our most recent Quarterly Report on Form 10-Q, any Current Reports on Form 8-K furnished or filed since our most recent Annual Report on Form 10-K, and any amendments to such reports, as soon as reasonably practicable following the electronic filing of such reports with the SEC. In addition, in accordance with SEC rules, we provide electronic or paper copies of our filings free of charge upon request.

 

Critical Accounting Policies

 

The preparation of our financial statements in conformity with US generally accepted accounting principles (“US GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of net sales and expenses during the reported periods. We base estimates on past experience and on various other assumptions that are believed to be reasonable under the circumstances. The application of these accounting policies on a consistent basis enables us to provide timely and reliable financial information. Our critical accounting policies include the following:

 

Marketable Securities: The Company periodically invests a portion of its cash in excess of short-term operating needs in marketable equity securities. These investments are classified as available-for-sale in accordance with US GAAP. The Company does not have any investments classified as held-to-maturity or trading securities. Available-for-sale investments are carried at their fair value using quoted prices in active markets for identical securities, and, effective January 1, 2018, unrealized gains and losses are reported as a component of net income in the statements of income. Prior to January 1, 2018, unrealized gains and losses were reported as other comprehensive income as a component of equity. The cost of securities sold is based on the specific identification method. Investments that the Company intends to hold for more than one year are classified as long-term investments in the accompanying condensed consolidated balance sheets.

 

13

 

 

Alpha Pro Tech, Ltd.

 

 


 

 

Inventories: Inventories include freight-in, materials, labor and overhead costs and are stated at the lower of cost or net realizable value. Allowances are recorded for slow-moving, obsolete or unusable inventory. We assess our inventory for estimated obsolescence or unmarketable inventory and write down the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future sales and quantities on hand, if necessary. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

 

Accounts Receivable: Accounts receivable are recorded at the invoice amount and do not bear interest. The general term for receivables is net 30 days.  The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable; however, changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the future.  The Company determines the allowance based upon historical write-off experience and known conditions about customers’ current ability to pay.  Account balances are charged against the allowance when the potential for recovery is considered remote.

 

Leases: We determine if an arrangement is a lease at inception. Operating leases are included as right-of-use (“ROU”) assets and lease liabilities on our condensed consolidated balance sheet. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Our leases do not provide an implicit rate, and, therefore, we estimate our incremental borrowing rate based on the information available at the commencement date in determining the present value of future minimum lease payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. We do not record leases on our condensed consolidated balance sheet with a term of one year or less. We elected a package of transition practical expedients, which included not reassessing whether any expired or existing contracts are or contain leases, not reassessing the lease classification of expired or existing leases, and not reassessing initial direct costs for existing leases. We also elected a practical expedient to not separate lease and non-lease components. We did not elect the practical expedient to use hindsight in determining our lease terms or assessing impairment of our ROU assets.

 

Revenue Recognition: Net sales includes revenue from products and shipping and handling charges, net of estimates for product returns and any related sales incentives. Revenue is measured as the amount of consideration that we expect to receive in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under the applicable contract. We recognize revenue in connection with transferring the promised products to the customer, with revenue being recognized at the point in time at which the customer obtains control of the products. This generally occurs when title passes to the customer upon delivery, at which time a receivable is created for the invoice sent to the customer. We recognize revenue for shipping and handling charges at the time at which the products are delivered to or picked up by the customer. We estimate product returns based on historical return rates and estimate rebates based on contractual agreements. Using probability assessments, we estimate sales incentives expected to be paid over the term of the contract. Our contracts have a single performance obligation. Sales taxes and value added taxes in domestic and foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from net sales. The Company manufactures certain private label goods for customers and has determined that control does not pass to the customer at the time of manufacture, based upon the nature of the private labelling. The Company has determined that it has no material contract assets, and has concluded that its contract liabilities (primarily rebates) have the right of offset against customer receivables.

 

See Note 10 and Note 11 of the Notes to Condensed Consolidated Financial Statements (Unaudited), which appear elsewhere in this report, for information on revenue disaggregated by type and by geographic region.

 

Sales Returns, Rebates and Allowances: Sales are reduced for any anticipated sales returns, rebates and allowances based on historical experience. Since our return policy is only 90 days and our products are not generally susceptible to external factors such as technological obsolescence or significant changes in demand, we are able to make a reasonable estimate for returns. We offer end-user, product-specific and sales volume rebates to select distributors. Our rebates are based on actual sales and are accrued monthly.

 

14

 

 

Alpha Pro Tech, Ltd.

 

 


 

 

Stock-Based Compensation: The Company accounts for stock-based awards using Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, Stock Compensation. ASC 718 requires companies to record compensation expense for the value of all outstanding and unvested share-based payments, including employee stock options and similar awards.

 

The fair values of stock option grants are determined using the Black-Scholes option-pricing model and are based on the following assumptions: expected stock price volatility based on historical data and management’s expectations of future volatility, risk-free interest rates from published sources, expected term based on historical data and no dividend yield, as the Board of Directors currently has no plans to pay dividends in the foreseeable future. The Company accounts for option forfeitures as they occur. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and that are fully transferable. In addition, the option-pricing model requires the input of highly subjective assumptions, including expected stock price volatility. Our stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value of such options.

 

OVERVIEW

 

Alpha Pro Tech is in the business of protecting people, products and environments. We accomplish this by developing, manufacturing and marketing a line of high-value, disposable protective apparel products for the cleanroom, industrial, pharmaceutical, medical and dental markets. We also manufacture a line of building supply construction weatherization products. Our products are sold under the "Alpha Pro Tech" brand name, as well as under private label.

 

Our products are grouped into two business segments: the Building Supply segment, consisting of construction weatherization products, such as housewrap and synthetic roof underlayment as well as other woven material; and the Disposable Protective Apparel segment, consisting of disposable protective garments (including shoecovers, bouffant caps, coveralls, gowns, frocks and lab coats), face masks and face shields. All financial information presented in this report reflects the current segmentation.

 

Previously, face masks and face shields were included in a separate business segment called Infection Control. All of our disposable protective apparel, including face masks and face shields, are sold through similar distribution channels, are single-use and disposable, have the purpose of protecting people, products and environments, and have to be produced in FDA approved facilities, regardless of the market served. Based on these similarities we determined that it would be best to consolidate the Infection Control segment into the Disposable Protective Apparel segment beginning with the first quarter of 2019.    

 

Our target markets include pharmaceutical manufacturing, bio-pharmaceutical manufacturing, medical device manufacturing, lab animal research, high technology electronics manufacturing (which includes the semi-conductor market), medical and dental distributors, and construction, building supply and roofing distributors.

 

Our products are used primarily in cleanrooms, industrial safety manufacturing environments, health care facilities, such as hospitals, laboratories and dental offices, and building and re-roofing sites. Our products are distributed principally in the United States through a network consisting of purchasing groups, national distributors, local distributors, independent sales representatives and our own sales and marketing force.

 

15

 

 

Alpha Pro Tech, Ltd.

 

 


 

 

RESULTS OF OPERATIONS

 

The following table sets forth certain operational data as a percentage of net sales for the periods indicated:

 

   

For the Three Months

Ended September 30,

   

For the Nine Months

Ended September 30,

 
   

2019

   

2018

   

2019

   

2018

 

Net sales

    100.0 %     100.0 %     100.0 %     100.0 %

Gross profit

    35.1 %     37.9 %     36.7 %     38.6 %

Selling, general and administrative expenses

    26.4 %     22.1 %     28.3 %     28.1 %

Income from operations

    7.5 %     14.6 %     7.3 %     9.3 %

Income before provision for income taxes

    4.5 %     15.7 %     9.1 %     10.3 %

Net income

    3.6 %     12.7 %     7.5 %     8.4 %

 

 

Three and Nine months ended September 30, 2019, compared to Three and Nine months ended September 30, 2018

 

 

Sales. Consolidated sales for the three months ended September 30, 2019 decreased slightly to $12,027,000 from $12,104,000 for the three months ended September 30, 2018, representing a decrease of $77,000, or 0.6%. This decrease consisted of decreased sales in the Disposable Protective Apparel segment (now including face masks and face shields) of $313,000, partially offset by increased sales in the Building Supply segment of $236,000.

 

Building Supply segment sales for the three months ended September 30, 2019 increased by $236,000, or 3.4%, to $7,215,000, compared to $6,979,000 for the same period of 2018. This segment increase was primarily due to an increase in sales of the economy TECHNO SB® family brand of synthetic roof underlayment and by an increase in sales of economy REX™ Wrap brand of housewrap, partially offset by a decrease in sales of other woven material. For the three months ended September 30, 2019, synthetic roof underlayment sales increased by 16.7% and housewrap sales increased by 15.4%, partially offset by a decrease in sales of other woven material of 56.1% compared to the same period of 2018.

 

In the second quarter of 2019, we expanded our TECHNO family of spunbond based (SB) synthetic roof underlayment products, and we are very encouraged by the early success of our new TECHNO SB® 25 product, which was instrumental in our 60.6% growth of the TECHNO family and 16.7% overall growth in synthetic roof underlayment during the third quarter of 2019 compared to the same quarter of 2018. Housewrap sales were up 15.4% for the quarter as a result of improved U.S. housing starts and our increased efforts to grow market share, and we expect continued growth as optimism continues in the market. Sales of other woven material were down significantly as a result of our largest customer in this category having excess inventory and a slowdown in orders from its customers. As mentioned in our second quarter Form 10-Q, we do expect this to continue for the remainder of the year. The sales mix of the Building Supply segment for the three months ended September 30, 2019 was 48% for synthetic roof underlayment, 46% for housewrap and 6% for other woven material. This sales mix is compared to 44% for synthetic roof underlayment, 42% for housewrap and 14% for other woven material for the three months ended September 30, 2018.

 

Sales for the Disposable Protective Apparel segment for the three months ended September 30, 2019 decreased by $313,000, or 6.1%, to $4,812,000, compared to $5,125,000 for the same period of 2018. This segment decrease was primarily due to a 7.2% decrease in sales of disposable protective garments and a decrease in sales of face shields, partially offset by an increase in sales of face masks. The decrease was primarily due to decreased sales to a large national distributor that lost business in a bid situation to another one of our national distributors. The end user continues to use our Critical Cover® Brand, and, once such end user runs through its current inventory, we expect to continue to purchase our brand through the distributor that won the bid. To a lesser extent, the decrease was due to lower sales to our major international supply chain partner, however, this partner’s sales for the three months ended September 30, 2019 to its end users were up 8%, demonstrating demand for our products. The sales mix of the Disposable Protective Apparel segment for the three months ended September 30, 2019 was 76% for disposable protective garments, 16% for face masks and 8% for face shields. This sales mix is compared to 76% for disposable protective garments, 14% for face masks and 10% for face shields for the three months ended September 30, 2018.

 

16

 

Alpha Pro Tech, Ltd.

 

 


 

 

Consolidated sales for the nine months ended September 30, 2019 increased slightly to $35,745,000 from $35,655,000 for the nine months ended September 30, 2018, representing an increase of $90,000, or 0.3%. This, increase consisted of increased sales in the Building Supply segment of $203,000, partially offset by decreased sales in the Disposable Protective Apparel Segment of $113,000.

 

Building Supply segment sales for the nine months ended September 30, 2019 increased by $203,000, or 1.0%, to $20,423,000, compared to $20,220,000 for the same period of 2018. Our synthetic roof underlayment product line includes REX™, TECHNOply™ and TECHNO SB®, and our housewrap line consists of REX™ Wrap, REX™ Wrap Plus and REX™ Wrap Fortis. The Building Supply segment increase was primarily due to a 5.3% increase in our core building products, including an increase in sales of synthetic roof underlayment of 11.1% and an increase in sales of housewrap of 1.5% compared to the same period of 2018. Sales of other woven material decreased by 26.8% compared to the same period of 2018. Synthetic roof underlayment sales have increased as a result of increased sales of the TECHNO family products and management expects continued growth from this product line. Although Housewrap sales in the first half of 2019 were negatively affected by softer U.S. housing starts due in part to unusually severe weather across many parts of the country, sales in the third quarter of 2019 increased 15.4% and we expect continued growth in housewrap sales due to the current positive outlook towards housing starts. Other woven material sales were down significantly in the third quarter of 2019, as mentioned above, due to lower orders from a customer that currently has excess inventory and has seen a decline in its business. The sales mix of the Building Supply segment for the nine months ended September 30, 2019 was 47% for synthetic roof underlayment, 45% for housewrap and 8% for other woven material. This compared to 43% for synthetic roof underlayment, 45% for housewrap and 12% for other woven material for the nine months ended September 30, 2018.

 

Sales for the Disposable Protective Apparel segment for the nine months ended September 30, 2019 slightly decreased by $113,000, or 0.7%, to $15,322,000, compared to $15,435,000 for the same period of 2018. This segment decrease was primarily due to a decrease in sales of face masks and face shields, partially offset by a 1.3% increase in sales of disposable protective garments. Mask sales have been negatively affected by a less severe flu season in 2019, and face shield sales have decreased primary due to a one-time sale in 2018 that did not recur in 2019. The increase in disposable protective garments was primarily due to increased sales to our major international supply chain partner, primarily offset by decreased sales to a national distributor whose end-user was over stocked and who we anticipate will be purchasing again in the future. The sales mix of the Disposable Protective Apparel segment for the nine months ended September 30, 2019 was 76% for disposable protective clothing, 16% for face masks and 8% for face shields. This sales mix is compared to 75% for disposable protective garments, 16% for face masks and 9% for face shields for the nine months ended September 30, 2018.

 

Gross Profit. Gross profit decreased by $365,000, or 8.0%, to $4,220,000 for the three months ended September 30, 2019, from $4,585,000 for the same period of 2018. The gross profit margin was 35.1% for the three months ended September 30, 2019, compared to 37.9% for the same period of 2018. For the three months ended September 30, 2019, gross profit margin was negatively affected as certain products that were tariff free until June 4, 2019 under the U.S. Customs and Borders Protection Generalized System of Preferences (“GSP”) will no longer be duty free, as the government program was terminated. This termination of tariff free GSP products primarily affected gross profit of the Disposable Protective Apparel segment and to a much lesser extent the Building Supply segment. In addition, both segments were negatively impacted by increased rebates. Gross profit margin was also affected by a change in product mix in the Building Supply segment, with significant growth in the TECHNO family economy line of synthetic roof underlayment, which has a lower gross margin. As stated above, in the second quarter of 2019, we expanded our TECHNO family of spunbond based (SB) products to include our new TECHNO SB® 25 product, which was marketed with a lower introductory price that impacted gross profit in the quarter. Pricing of the TECHNO SB® family will be increased during the latter part of the fourth quarter this year, which will improve gross profit margin going forward. Management expects that gross profit margin should be in the mid-to-high thirty percent range next year.

 

17

 

 

Alpha Pro Tech, Ltd.

 

 


 

 

Gross profit decreased by $630,000, or 4.6%, to $13,129,000 for the nine months ended September 30, 2019, from $13,759,000 for the same period of 2018. The gross profit margin was 36.7% for the nine months ended September 30, 2019, compared to 38.6% for the same period of 2018. Gross profit margin was negatively affected by a change in product mix in the Building Supply segment, with significant growth in the economy line of synthetic roof underlayment, which has a lower gross margin. In addition, both segments were negatively impacted by increased rebates, as well as the elimination of tariff free GSP products.

 

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $496,000, or 18.5%, to $3,172,000 for the three months ended September 30, 2019, from $2,676,000 for the three months ended September 30, 2018. As a percentage of net sales, selling, general and administrative expenses increased to 26.4% for the three months ended September 30, 2019, from 22.1% for the same period of 2018. The increase in selling, general and administrative expenses was primarily the result of a cost recovery in the third quarter of 2018 that did not recur in the third quarter of 2019. The recovery in 2018 was due to a cost recovery from our former litigation counsel.

 

The change in expenses by segment for the three months ended September 30, 2019 was as follows: Corporate unallocated expenses increased by $480,000, or 109.1%; Building Supply increased by $28,000, or 2.3%; and Disposable Protective Apparel (which now includes expenses from the former Infection Control segment) decreased by $12,000, or 1.2%. The increase in corporate unallocated expenses was primarily due to the cost recovery from our former litigation counsel that occurred in 2018 and did not recur in 2019, mentioned above.

 

Selling, general and administrative expenses increased slightly by $84,000, or 0.8%, to $10,108,000 for the nine months ended September 30, 2019, from $10,024,000 for the nine months ended September 30, 2018. As a percentage of net sales, selling, general and administrative expenses increased slightly to 28.3% for the nine months ended September 30, 2019, from 28.1% for the same period of 2018. The increase was primarily a result of increased Building Supply segment trade show expenses.

 

The change in expenses by segment for the nine months ended September 30, 2019 was as follows: Building Supply increased by $174,000, or 4.6%; Disposable Protective Apparel decreased by $70,000 or 2.1%; and corporate unallocated expenses were down $20,000, or 0.7%. The increase in the Building Supply segment expenses was primarily due to increased trade show, sales commission and sales-related travel expenses. The decrease in the Disposable Protective Apparel segment expenses was related to lower commissions, and the decrease in corporate unallocated expenses was primarily due to lower expenses for professional fees.

 

In accordance with the terms of his employment agreement, the Company’s President and Chief Executive Officer is entitled to an annual bonus equal to 5% of the pre-tax profits of the Company, excluding bonus expense. A bonus amount of $36,000 was accrued for the three months ended September 30, 2019, as compared to $100,000 for the same period of 2018. A bonus amount of $171,000 was accrued for the nine months ended September 30, 2019, as compared to $193,000 for the same period of 2018.

 

Depreciation and Amortization. Depreciation and amortization expense increased by $2,000, or 1.4%, to $142,000 for the three months ended September 30, 2019, from $140,000 for the three months ended September 30, 2018. Depreciation and amortization expense decreased by $20,000, or 4.7%, to $410,000 for the nine months ended September 30, 2019, from $430,000 for the same period of 2018. The decrease was primarily attributable to decreased depreciation for machinery and equipment in the Building Supply segment.

 

Income from Operations. Income from operations decreased by $863,000, or 48.8%, to $906,000 for the three months ended September 30, 2019, compared to $1,769,000 for the three months ended September 30, 2018. The decreased income from operations was primarily due to a decrease in gross profit of $365,000, an increase in selling, general and administrative expenses of $496,000 and an increase in depreciation and amortization expense of $2,000. Income from operations for the third quarter of 2018 was positively impacted by the cost recovery from our former litigation counsel, as mentioned above, and is the primary reason for the increase in selling, general and administrative expenses in the third quarter of 2019. Income from operations as a percentage of net sales for the three months ended September 30, 2019 was 7.5%, compared to 14.6% for the same period of 2018.

 

18

 

Alpha Pro Tech, Ltd.

 

 


 

 

Income from operations decreased by $694,000, or 21.0%, to $2,611,000 for the nine months ended September 30, 2019, compared to $3,305,000 for the nine months ended September 30, 2018. The decreased income from operations was primarily due to a decrease in gross profit of $630,000 and an increase in selling, general and administrative expenses of $84,000, partially offset by a decrease in depreciation and amortization expense of $20,000. Income from operations as a percentage of net sales for the nine months ended September 30, 2019 was 7.3%, compared to 9.3% for the same period of 2018.

 

Other Income. Other income decreased by $488,000 to a loss of $359,000 for the three months ended September 30, 2019 from income of $129,000 for the same period of 2018. The decrease was primarily due to a loss on marketable securities in the third quarter of 2019 compared to a gain on marketable securities during the same period of 2018 for a net change of $412,000, and a decrease in equity in income of unconsolidated affiliate of $93,000, partially offset by an increase in interest income of $17,000 due to restructuring the interest terms on our operating cash accounts.

 

Other income consisted of equity in income of unconsolidated affiliate of $10,000, a loss on marketable securities of $387,000 and interest income of $18,000 for the three months ended September 30, 2019. Other income consisted of equity in income of unconsolidated affiliate of $103,000, a gain on marketable securities of $25,000 and interest income of $1,000 for the three months ended September 30, 2018.

 

Other income increased by $291,000 to $646,000 for the nine months ended September 30, 2019, from $355,000 for the same period of 2018. The increase was primarily due to the gain on marketable securities for the nine months ended September 30, 2019 compared to a loss on marketable securities during the same period of 2018, for a net change of $263,000, and an increase in interest income of $50,000, partially offset by a decrease in equity in income of unconsolidated affiliate of $22,000.

 

Other income consisted of equity in income of unconsolidated affiliate of $371,000, a gain on marketable securities of $223,000 and interest income of $52,000 for the nine months ended September 30, 2019. Other income consisted primarily of equity in income of unconsolidated affiliate of $393,000, a loss on marketable securities of $40,000 and interest income of $2,000 for the nine months ended September 30, 2018.

 

Income before Provision for Income Taxes. Income before provision for income taxes for the three months ended September 30, 2019 was $547,000, compared to income before provision for income taxes of $1,898,000 for the three months ended September 30, 2018, representing a decrease of $1,351,000, or 71.2%. This decrease in income before provision for income taxes was primarily due to a decrease in income from operations of $863,000, which was negatively impacted by the mediated litigation settlement in the third quarter of 2018 that did not recur in the third quarter of 2019 and a decrease in other income of $488,000, which was primarily related to an unrealized loss on marketable securities in the third quarter of 2019.

 

Income before provision for income taxes for the nine months ended September 30, 2019 was $3,257,000, compared to income before provision for income taxes of $3,660,000 for the nine months ended September 30, 2018, representing a decrease of $403,000, or 11.0%. This decrease in income before provision for income taxes was due to a decrease in income from operations of $694,000, partially offset by an increase in other income of $291,000.

 

Provision for Income Taxes. The provision for income taxes for the three months ended September 30, 2019 was $110,000, compared to $359,000 for the same period of 2018. The effective tax rate was 20.1% for the three months ended September 30, 2019, compared to 18.9% for the same period of 2018. The Company does not record a tax provision on equity in income of unconsolidated affiliate.

 

The provision for income taxes for the nine months ended September 30, 2019 was $592,000, compared to $653,000 for the same period of 2018. The effective tax rate was 18.2% for the nine months ended September 30, 2019, compared to 17.8% for the same period of 2018. As mentioned above, the Company does not record a tax provision on equity in income of unconsolidated affiliate.

 

19

 

 

Alpha Pro Tech, Ltd.

 

 


 

 

Net Income. Net income for the three months ended September 30, 2019 was $437,000, compared to net income of $1,539,000 for the same period of 2018, representing a decrease of $1,102,000, or 71.6%. The net income decrease was due to a decrease in income before provision for income taxes of $1,351,000, partially offset by a decrease in provision for income taxes of $249,000. As mentioned above, net income in the third quarter of 2019 was negatively impacted by two large factors; the cost recovery from our former litigation counsel in the third quarter of 2018 that did not recur in third quarter of 2019 and the unrealized loss on marketable securities in the third quarter of 2019. Net income as a percentage of net sales for the three months ended September 30, 2019 was 3.6%, compared to 12.7% for the same period of 2018. Basic and diluted earnings per common share for the three months ended September 30, 2019 and 2018 were $0.03 and $0.11, respectively.

 

Net income for the nine months ended September 30, 2019 was $2,665,000, compared to net income of $3,007,000 for the same period of 2018, representing a decrease of $342,000, or 11.4%. The net income decrease was due to a decrease in income before provision for income taxes of $403,000, partially offset by a decrease in provision for income taxes of $61,000. Net income as a percentage of net sales for the nine months ended September 30, 2019 was 7.5%, and net income as a percentage of net sales for the same period of 2018 was 8.4%. Basic and diluted earnings per common share for the nine months ended September 30, 2019 and 2018 were $0.20 and $0.21, respectively.

 

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of September 30, 2019, the Company had cash of $5,106,000 and working capital of $24,516,000, representing a decrease in working capital of $24,000 from $24,540,000 as of December 31, 2018. As of September 30, 2019, the Company’s current ratio (current assets/current liabilities) was 12:1, compared to a 14:1 current ratio as of December 31, 2018. Cash decreased by 27.1%, or $1,901,000, to $5,106,000 as of September 30, 2019, compared to $7,007,000 as of December 31, 2018. The decrease in cash from December 31, 2018 was due to cash provided by operating activities of $1,099,000, cash used in financing activities of $1,969,000 and cash used in investing activities of $1,031,000.

 

We have a $3,500,000 credit facility with Wells Fargo Bank, consisting of a line of credit with interest at prime plus 0.5%. As of September 30, 2019, the prime interest rate was 5.00%. This credit line will expire in May 2020. The available line of credit is based on a formula of eligible accounts receivable and inventories. Our borrowing capacity on the line of credit was $3,500,000 as of September 30, 2019. As of September 30, 2019, we did not have any borrowings under this credit facility and do not anticipate using it in the near future. The credit facility includes customary financial and non-financial debt covenants. As of September 30, 2019 we believe that we are in compliance with all such covenants.

 

Net cash provided by operating activities of $1,099,000 for the nine months ended September 30, 2019 was due to net income of $2,665,000, impacted primarily by the following: stock-based compensation expense of $353,000, depreciation and amortization expense of $410,000, loss on marketable securities of $223,000, equity in income of unconsolidated affiliate of $371,000, operating lease expense net of accretion of $532,000, an increase in accounts receivable of $851,000, a decrease in prepaid expenses of $855,000, an increase in inventory of $1,377,000, a decrease in accounts payable and accrued liabilities of $402,000 and a decrease in lease liabilities of $492,000.

 

Accounts receivable increased by $851,000, or 16.0%, to $6,169,000 as of September 30, 2019, from $5,318,000 as of December 31, 2018. The increase in accounts receivable was primarily related to increased sales in the latter half of the third quarter of 2019 compared to the same period fourth quarter of 2018. The number of days that sales remained outstanding as of September 30, 2019, calculated by using an average of accounts receivable outstanding and annual revenue, was 44 days, compared to 40 days as of December 31, 2018.

 

Inventory increased by $1,377,000, or 13.9%, to $11,255,000 as of September 30, 2019, from $9,878,000 as of December 31, 2018. The increase was primarily due to an increase in inventory for the Building Supply segment of $1,454,000, or 33.8%, to $5,756,000, partially offset by a decrease in inventory for the Disposable Protective Apparel segment of $77,000, or 1.4%, to $5,499,000,

 

20

 

 

Alpha Pro Tech, Ltd.

 

 


 

 

Prepaid expenses decreased by $855,000, or 21.4%, to $3,144,000 as of September 30, 2019, from $3,999,000 as of December 31, 2018. The decrease was primarily due to prepayments for equipment that has now been received and a decrease in tax prepayments, partially offset by increased prepaid insurance and deposits for the purchase of inventory.

 

Right-of-use assets as of September 30, 2019 decreased by $534,000 to $2,921,000 from $3,455,000 as of January 1, 2019 when ASC 842 Leases was adopted.

 

Lease liabilities as of September 30, 2019 decreased by $493,000 to $2,962,000 from $3,455,000 as of January 1, 2019. The recording of the lease liabilities was the result of adopting ASC 842, Leases. The decrease in the lease liabilities was the result of amortizing the balance over the life of the lease.

 

Accounts payable and accrued liabilities as of September 30, 2019 decreased by $402,000, or 20.9%, to $1,518,000, from $1,920,000 as of December 31, 2018. The change was primarily due to a decrease in accrued liabilities as a result of payments of 2018 year-end commissions and bonuses and a decreased accrued payroll.

 

Net cash used in investing activities was $1,031,000 for the nine months ended September 30, 2019, compared to net cash used in investing activities of $409,000 for the same period of 2018. Investing activities for the nine months ended September 30, 2019 consisted of the purchase of property and equipment of $1,164,000 for both the Building Supply segment and the Disposable Apparel Products segment and proceeds from the sale of marketable securities of $133,000. Investing activities for the nine months ended September 30, 2018 consisted of the purchase of property and equipment of $424,000 and proceeds from the sale of marketable securities of $15,000.

 

Net cash used in financing activities was $1,969,000 for the nine months ended September 30, 2019, compared to net cash used in financing activities of $2,604,000 for the same period of 2018. Net cash used in financing activities for the nine months ended September 30, 2019 resulted from the payment of $2,064,000 for the repurchase of common stock, partially offset by proceeds of $95,000 from the exercise of stock options. Net cash used in financing activities for the nine months ended September 30, 2018 resulted from the payment of $2,828,000 for the repurchase of common stock, partially offset by proceeds of $224,000 from the exercise of stock options.

 

As of September 30, 2019, we had $635,000 available for additional stock purchases under our stock repurchase program. For the nine months ended September 30, 2019, we repurchased 548,000 shares of common stock at a cost of $2,064,000. As of September 30, 2019, we had repurchased a total of 17,751,917 shares of common stock at a cost of $33,834,000 through our repurchase program. We retire all stock upon repurchase. Future repurchases are expected to be funded from cash on hand and cash flows from operating activities.

 

We believe that our current cash balance and the funds available under our credit facility will be sufficient to satisfy our projected working capital and planned capital expenditures for the foreseeable future.

 

 

Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU 2016-02, Leases, which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The update is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those reporting periods, with early adoption permitted. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which includes an option to not restate comparative periods in transition and elect to use the effective date of ASC 842, Leases, as the date of initial application of transition. Based on the effective date, we adopted this ASU beginning on January 1, 2019 and elected the transition option provided under ASU 2018-11. This standard had a material effect on our consolidated balance sheet with the recognition of new right- of-use assets and lease liabilities for all operating leases, as these leases typically have a non-cancelable lease term of greater than one year. Upon adoption, both assets and liabilities on our consolidated balance sheet increased by approximately $3,455,000. We have elected a package of transition practical expedients which include not reassessing whether any expired or existing contracts are or contain leases, not reassessing the lease classification of expired or existing leases, and not reassessing initial direct costs for existing leases. We have also elected a practical expedient to not separate lease and non-lease components. We did not elect the practical expedient to use hindsight in determining the lease terms or assessing impairment of the ROU assets. See also Note 13 to the Condensed Consolidated Financial Statements (Unaudited), which appear elsewhere in this report.

 

21

 

 

Alpha Pro Tech, Ltd.

 

 


 

 

In June 2016, the FASB issued ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13 is effective for public entities for the annual periods, including interim periods within those annual periods, beginning after December 15, 2019. This guidance is applicable to the Company’s fiscal year beginning January 1, 2020. Management is currently evaluating the requirements of this guidance and has not yet determined the impact on the adoption of the Company’s financial position or results from operations.

 

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with accounting for employee share-based compensation. ASU 2018-07 is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods, with early adoptions permitted but no earlier than an entity’s adoption date of ASC Topic 606. The new guidance is required to be applied retrospectively with the cumulative effect recognized at the date of initial application. We adopted the provisions of this ASU in the first quarter of 2019. Adoption of the new standard did not have a material impact on our consolidated financial statements.

 

Management periodically reviews new accounting standards that are issued. Management has not identified any other new standards that it believes merit further discussion at this time.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

As a smaller reporting company, we are not required to provide the information otherwise required by this Item.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures.

 

Under the supervision and with the participation of our management, including our President and Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), as of September 30, 2019, pursuant to the evaluation of these controls and procedures required by Rule 13a-15 of the Exchange Act. Disclosure controls and procedures are the controls and other procedures that we have designed to ensure that we record, process, summarize and report in a timely manner the information that we must disclose in reports that we file with or submit to the SEC under the Exchange Act.     

 

In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and that we are required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

Based on the evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

 

Changes in Internal Control Over Financial Reporting

 

During the quarter to which this report relates, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

22

 

 

Alpha Pro Tech, Ltd.

 

 


 

 

PART II. OTHER INFORMATION

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

ISSUER PURCHASES OF EQUITY SECURITIES

 

The following table sets forth purchases made by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act:

 

   

Issuer Purchases of Equity Securities

 

Period

 

Total Number of

Shares Purchased

   

Weighted Average

Price Paid per Share

   

Total Number of

Shares Purchased

as Part of Publicly

Announced

Program (1)

   

Approximate Dollar Value

of Shares that May Yet Be

Purchased Under the

Program (1)

 

July 1 - 31, 2019

    44,000     $ 3.51       44,000     $ 907,000  

August 1 - 31, 2019

    48,000       3.51       48,000       737,000  

September 1 - 30, 2019

    29,010       3.49       29,010       635,000  
      121,010       3.51       121,010          

 

(1) On December 20, 2018, the Company announced that the Board of Directors had authorized a $2,000,000 expansion of the Company’s existing share repurchase program.

 

 

SECURITIES SOLD

 

We did not sell unregistered equity securities during the period covered by this report.

 

23

 

 

Alpha Pro Tech, Ltd.

 

 


 

 

ITEM 6. EXHIBITS

 

3.1.1*

 

Certificate of Incorporation of Alpha Pro Tech, Ltd., incorporated by reference to Exhibit 3(f) to Form 10-K for the year ended December 31, 1994, filed on March 31, 1995 (File No. 000-19893).

3.1.2*

 

Certificate of Amendment of Certificate of Incorporation of Alpha Pro Tech, Ltd., incorporated by reference to Exhibit 3(j) to Form 10-K for the year ended December 31, 1994, filed on March 31, 1995 (File No. 000-19893).

3.1.3*

 

Certificate of Ownership and Merger (BFD Industries, Inc. into Alpha Pro Tech, Ltd.), incorporated by reference to Exhibit 3(l) to Form 10-K for the year ended December 31, 1994, filed on March 31, 1995 (File No. 000-19893).

3.2*

 

Bylaws of Alpha Pro Tech, Ltd., incorporated by reference to Exhibit 3(g) to Form 10-K for the year ended December 31, 1994, filed on March 31, 1995 (File No. 000-19893).

31.1

 

Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

31.2

 

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.

32.1

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – President and Chief Executive Officer.

32.2

 

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer.

101

 

Interactive Data Files for Alpha Pro Tech, Ltd’s Form 10-Q for the period ended September 30, 2019.

     
   

* Filed in paper form with SEC

 

24

 

 

Alpha Pro Tech, Ltd.

 

 


 

SIGNATURES

 

 

Pursuant to the requirements 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:

November 6, 2019      

BY:

/s/ Lloyd Hoffman

 

 

   

 

Lloyd Hoffman   

 

 

   

 

President and Chief Executive Officer 

 

 

 

 

   

 

 

 

   

 

 

 

 

   

 

 

 

DATE: 

November 6, 2019    

BY:

/s/ Colleen McDonald

 

 

   

 

Colleen McDonald  

 

 

   

 

Chief Financial Officer 

 

 

25

 


Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
1/1/20
12/31/1910-K
12/15/19
Filed on:11/6/19
11/1/19
For Period end:9/30/19
6/30/1910-Q
6/4/19
3/31/1910-Q
3/6/1910-K
1/1/19
12/31/1810-K
12/20/18
12/15/18
9/30/1810-Q
6/30/1810-Q
3/31/1810-Q
1/1/18
12/31/1710-K
3/31/95
12/31/94
 List all Filings 
Top
Filing Submission 0001437749-19-021693   –   Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Copyright © 2024 Fran Finnegan & Company LLC – All Rights Reserved.
AboutPrivacyRedactionsHelp — Thu., Apr. 25, 8:00:31.2am ET