**SECURITIES AND EXCHANGE COMMISSION**

** **

**WASHINGTON, D.C. 20549**

 

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**FORM 10-Q**

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**Quarterly Report pursuant to Section 13 or15(d)**

**of the Securities Exchange Act of 1934**

 

**For the Quarter Ended June 30, 2002  Commission File No. 0-19893**

 

**Alpha Pro Tech, Ltd.**

(exact name of registrant as specified in its charter)

 

| **Delaware, U.S.A.**                           |   | **63-1009183**                       |
|------------------------------------------------|--------|--------------------------------------|
| (State or other jurisdiction of incorporation) |   | (I.R.S. Employer Identification No.) |
|                                           |   |                                 |
| **Suite 112, 60 Centurian Drive**              |   |                                 |
| **Markham, Ontario, Canada**                   |   | **L3R 9R2**                          |
| (Address of principal executive offices)       |   | (Zip Code)                           |

 

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

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 3 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor 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 ý  No o

 

Indicate the number of sharesoutstanding of each of the issuer’s classes of common stock , as of July 24,2002

 

Common stock,$.01 par value....                                      23,228,007

**Alpha Pro Tech, Ltd**.

 

 

Table of Contents

 

 

 
| PART I.  FINANCIAL INFORMATION |                                                                                                      |
|-------------------------------------|-----------------------------------------------------------------------------------------------------------|
|                                |                                                                                                      |   |   |
|                                | ITEM 1  Consolidated Financial Statements  (Unaudited)                                               |   |
|                                |                                                                                                      |   |   |
|                                |                                                                                                      | a) | Consolidated Balance Sheets - |   |
|                                |                                                                                                      | June 30, 2002 (unaudited) and December 31, 2001 |   |
|                                |                                                                                                      |   |   |
|                                |                                                                                                      | b) | Consolidated  Statements of Operations for the three and six months ended June 30, 2002  (unaudited) and June 30, 2001 (unaudited) |   |
|                                |                                                                                                      |   |   |
|                                |                                                                                                      | c) | Consolidated Statement of Shareholder’s  Equity for the six months ended June 30, 2002 (unaudited) |   |
|                                |                                                                                                      |   |   |
|                                |                                                                                                      | d) | Consolidated Statements of Cash Flows for  the six months ended June 30, 2002 (unaudited) and June 30, 2001 (unaudited) |   |
|                                |                                                                                                      |   |   |
|                                |                                                                                                      | e) | Notes to Consolidated Financial Statements |   |
|                                |                                                                                                      |   |   |
|                                | ITEM 2   Management’s Discussion and Analysis of Financial Condition and  Results of Operations |   |
|                                |                                                                                                      |   |   |
| PART II.                            | OTHER INFORMATION                                                                                         |   |
|                                |                                                                                                      |   |   |
|                                | ITEM 4                                                                                                    | Submission of Matters to a Vote Security  Holders |   |
|                                |                                                                                                      |   |   |
| SIGNATURES                          |                                                                                                      |   |
|                                     |                                                                                                           |  |  |  |  |

 

**AlphaPro Tech, Ltd.**

 

**ConsolidatedBalance Sheets**

** **
|                                                                                                                                                         |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                         |   | **June 30,** |   | **December  31,** |   |
|                                                                                                                                                         |   | **2002** |   | **2001** |   |
|                                                                                                                                                         |   | **(Unaudited)** |   |   |   |
| **Assets**                                                                                                                                                   |   |   |   |   |   |
| Current assets:                                                                                                                                              |   |   |   |   |   |
| Cash                                                                                                                                                         |   | $ | 1,236,000 |   | $ | 1,372,000 |   |
| Accounts receivable, net of allowance for  doubtful accounts of $34,000 at June 30, 2002 and December 31, 2001                                               |   | 2,965,000 |   | 2,455,000 |   |
| Inventories, net                                                                                                                                             |   | 4,257,000 |   | 3,581,000 |   |
| Prepaid expenses and other current assets                                                                                                                    |   | 422,000 |   | 249,000 |   |
| Deferred income taxes                                                                                                                                        |   | 467,000 |   | 467,000 |   |
| Total current  assets                                                                                                                                        |   | 9,347,000 |   | 8,124,000 |   |
|                                                                                                                                                         |   |   |   |   |   |
| Property and equipment, net                                                                                                                                  |   | 3,427,000 |   | 3,535,000 |   |
| Intangible  assets, net                                                                                                                                      |   | 187,000 |   | 189,000 |   |
| Notes receivable and other assets                                                                                                                            |   | 61,000 |   | 56,000 |   |
|                                                                                                                                                         |   | $ | 13,022,000 |   | $ | 11,904,000 |   |
| **Liabilities and Shareholders’ Equity**                                                                                                                |   |   |   |   |   |
| Current  liabilities:                                                                                                                                        |   |   |   |   |   |
| Accounts  payable                                                                                                                                            |   | $ | 998,000 |   | $ | 882,000 |   |
| Accrued  liabilities                                                                                                                                         |   | 1,054,000 |   | 603,000 |   |
| Notes payable,  current portion                                                                                                                              |   | 165,000 |   | 185,000 |   |
| Capital leases, current portion                                                                                                                              |   | 3,000 |   | 9,000 |   |
| Total current liabilities                                                                                                                                    |   | 2,220,000 |   | 1,679,000 |   |
|                                                                                                                                                         |   |   |   |   |   |
| Notes payable, less current portion                                                                                                                          |   | 473,000 |   | 770,000 |   |
| Deferred income taxes                                                                                                                                        |   | 551,000 |   | 551,000 |   |
| Total liabilities                                                                                                                                            |   | 3,244,000 |   | 3,000,000 |   |
|                                                                                                                                                         |   |   |   |   |   |
| Shareholders’ Equity:                                                                                                                                   |   |   |   |   |   |
| Common stock, $.01 par value, 50,000,000  shares authorized, 23,311,807 and 23,546,809 shares issued and outstanding at  June 30, 2002 and December 31, 2001 |   | 233,000 |   | 235,000 |   |
| Additional paid-in capital                                                                                                                                   |   | 23,707,000 |   | 23,920,000 |   |
| Accumulated deficit                                                                                                                                          |   | (14,162,000 | ) | (15,251,000 | ) |
| Total shareholders’ equity                                                                                                                              |   | 9,778,000 |   | 8,904,000 |   |
|                                                                                                                                                         |   | $ | 13,022,000 |   | $ | 11,904,000 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

1

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**Alpha Pro Tech, Ltd.**

** **

**ConsolidatedStatements of Operations (Unaudited)**
|                                                         |   |
|--------------------------------------------------------------|--------|
|                                                         |   | **For the  Three Months Ended June 30,** |   | **For the Six  Months Ended June 30,** |   |
|                                                         |   | **2002** |   | **2001** |   | **2002** |   | **2001** |   |
|                                                         |   |   |   |   |   |   |   |   |   |
| Sales                                                        |   | $ | 5,805,000 |   | $ | 6,003,000 |   | $ | 11,008,000 |   | $ | 11,438,000 |   |
|                                                         |   |   |   |   |   |   |   |   |   |
| Cost of goods sold, excluding depreciation  and amortization |   | 2,734,000 |   | 3,473,000 |   | 5,512,000 |   | 6,527,000 |   |
|                                                         |   |   |   |   |   |   |   |   |   |
| Gross margin                                                 |   | 3,071,000 |   | 2,530,000 |   | 5,496,000 |   | 4,911,000 |   |
|                                                         |   |   |   |   |   |   |   |   |   |
| Expenses:                                                    |   |   |   |   |   |   |   |   |   |
| Selling, general and administrative                          |   | 1,951,000 |   | 1,991,000 |   | 3,609,000 |   | 3,800,000 |   |
| Depreciation and amortization                                |   | 110,000 |   | 120,000 |   | 218,000 |   | 237,000 |   |
|                                                         |   |   |   |   |   |   |   |   |   |
| Income from operations                                       |   | 1,010,000 |   | 419,000 |   | 1,669,000 |   | 874,000 |   |
|                                                         |   |   |   |   |   |   |   |   |   |
| Interest, net                                                |   | 9,000 |   | 4,000 |   | 19,000 |   | 0 |   |
|                                                         |   |   |   |   |   |   |   |   |   |
| Income before provision for income taxes                     |   | 1,001,000 |   | 415,000 |   | 1,650,000 |   | 874,000 |   |
|                                                         |   |   |   |   |   |   |   |   |   |
| Provision for income taxes                                   |   | 333,000 |   | 150,000 |   | 561,000 |   | 309,000 |   |
|                                                         |   |   |   |   |   |   |   |   |   |
| Net income                                                   |   | $ | 668,000 |   | $ | 265,000 |   | $ | 1,089,000 |   | $ | 565,000 |   |
|                                                         |   |   |   |   |   |   |   |   |   |
| Basic income per share                                       |   | $ | 0.03 |   | $ | 0.01 |   | $ | 0.05 |   | $ | 0.02 |   |
|                                                         |   |   |   |   |   |   |   |   |   |
| Diluted income per share                                     |   | $ | 0.03 |   | $ | 0.01 |   | $ | 0.05 |   | $ | 0.02 |   |
|                                                         |   |   |   |   |   |   |   |   |   |
| Basic weighted average shares outstanding                    |   | 23,495,569 |   | 23,595,697 |   | 23,521,047 |   | 23,643,783 |   |
|                                                         |   |   |   |   |   |   |   |   |   |
| Diluted weighted average shares outstanding                  |   | 24,216,059 |   | 23,716,767 |   | 24,197,643 |   | 24,384,234 |   |

 

The accompanying notes are anintegral part of these consolidated financial statements.

 

 

2

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**Alpha Pro Tech, Ltd.**

 
| **Consolidated Statement of Shareholders’  Equity (Unaudited)** |
|----------------------------------------------------------------------|
|                                                                 |
|                                                                 |

 

 

 
|                         | **For the  Six Months Ended June 30, 2002** |       |
|------------------------------|---------------------------------------------|------------|
|                         |                                        |       |   |   |   |   |   |   |   |   |   |
|                         |                                        | **Shares** |   | **Common  Stock** |   | **Additional  Paid-in Capital** |   | **Accumulated  Deficit** |   | **Total** |   |
| Balance at December 31, 2001 |                                        | 23,546,809 |   | $ | 235,000 |   | $ | 23,920,000 |   | $ |  (15,251,000 | ) | $ | 8,904,000 |   |
|                         |                                        |       |   |   |   |   |   |   |   |   |   |
| Repurchased/cancel           |                                        | (235,002   | ) | (2,000 | ) | (213,000 | ) |   |   | (215,000 | ) |
|                         |                                        |       |   |   |   |   |   |   |   |   |   |
| Net Income                   |                                        |       |   |   |   |   |   | 1,089,000 |   | 1,089,000 |   |
|                         |                                        |       |   |   |   |   |   |   |   |   |   |
| Balance at June 30, 2002     |                                        | 23,311,807 |   | $ | 233,000 |   | $ | 23,707,000 |   | $ |  (14,162,000 | ) | $ | 9,778,000 |   |

 

 

 

 

 

The accompanying notes are anintegral part of these consolidated financial statements

 

 

3

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**Alpha Pro Tech, Ltd.**

 
| **Consolidated Statements of Cash Flows  (Unaudited)** |
|--------------------------------------------------------|
|                                                   |

 

** **
|                                                                               |   | **For the  six months ended** |      |
|------------------------------------------------------------------------------------|--------|-------------------------------|-----------|
|                                                                               |   | **June 30,**                  |      |
|                                                                               |   |                          |      |   |   |
|                                                                               |   | **2002**                      |      | **2001** |   |
| **Cash Flows From Operating Activities:**                                          |   |                          |      |   |   |
| Net income                                                                         |   | $                             | 1,089,000 |   | $ | 565,000 |   |
| Adjustments to reconcile net income to net  cash provided by operating activities: |   |                          |      |   |   |
| Depreciation and amortization                                                      |   | 218,000                       |      | 237,000 |   |
|                                                                               |   |                          |      |   |   |
| Changes in assets and liabilities:                                                 |   |                          |      |   |   |
| Accounts receivable, net                                                           |   | (510,000                      | )         | 236,000 |   |
| Inventories, net                                                                   |   | (676,000                      | )         | (1,211,000 | ) |
| Prepaid expenses and other assets                                                  |   | (178,000                      | )         | 47,000 |   |
| Accounts payable and accrued liabilities                                           |   | 567,000                       |      | 520,000 |   |
|                                                                               |   |                          |      |   |   |
| Net cash provided by operating activities:                                         |   | 510,000                       |      | 394,000 |   |
|                                                                               |   |                          |      |   |   |
| **Cash Flows From Investing Activities:**                                          |   |                          |      |   |   |
| Purchase of property and equipment                                                 |   | (100,000                      | )         | (933,000 | ) |
| Purchase of intangible assets                                                      |   | (8,000                        | )         | (12,000 | ) |
|                                                                               |   |                          |      |   |   |
| Net cash used in investing activities                                              |   | (108,000                      | )         | (945,000 | ) |
|                                                                               |   |                          |      |   |   |
| **Cash Flows From Financing Activities:**                                          |   |                          |      |   |   |
| Proceeds from notes payable                                                        |   | 219,000                       |      | 516,000 |   |
| Payments on notes payable                                                          |   | (536,000                      | )         | (64,000 | ) |
| Principal payments on capital leases                                               |   | (6,000                        | )         | (23,000 | ) |
| Proceeds from exercise of options                                                  |   |                          |      | 58,000 |   |
| Payments for repurchase of common stock                                            |   | (215,000                      | )         | (198,000 | ) |
| Net cash provided by/(used in) financing  activities                               |   | (538,000                      | )         | 289,000 |   |
|                                                                               |   |                          |      |   |   |
| Decrease in cash during the period                                                 |   | (136,000                      | )         | (262,000 | ) |
|                                                                               |   |                          |      |   |   |
| Cash, beginning of period                                                          |   | $                             | 1,372,000 |   | $ | 1,131,000 |   |
| Cash, end of period                                                                |   | $                             | 1,236,000 |   | $ | 869,000 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements

 

4

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**Alpha Pro Tech, Ltd.**

 
| **Notes to  Consolidated Financial Statements (Unaudited)** |
|-------------------------------------------------------------|
|                                                        |
|                                                        |

 

 

 

**1.  The Company**

 

Alpha Pro Tech, Ltd. (the Company) manufactures and distributes avariety of disposable mask, shield, shoe cover, apparel products and wound careproducts.  Most of the Company’sdisposable apparel, mask and shield products, and wound care products aredistributed to medical, dental, industrial safety and clean room markets,predominantly in the United States of America.

 

 

 

**2.  Basis of Presentation**

 

The accompanyingconsolidated financial statements are unaudited but, in the opinion ofmanagement, contain all the adjustments (consisting of those of a normalrecurring nature) considered necessary to present fairly the financialposition, results of operations and cash flows for the periods presented inconformity with accounting principles generally accepted in the United Statesof America.  The accompanyingconsolidated financial statements should be read in conjunction with theCompanies Form 10-K for the year ended December 31, 2001.

 

There have been no significant changes since December 31, 2001 inaccounting principles and practices utilized in the presentation of thesefinancial statements.

 

 

 

**3.  Inventories**

 
|                          |   | **June 30,  2002** |      | **December  31, 2001** |   |
|-------------------------------|--------|--------------------|-----------|------------------------|--------|
|                          |   |               |      |                   |   |
| Raw materials                 |   | $                  | 2,185,000 |                   | $      | 2,165,000 |   |
| Work in process               |   | 152,000            |      | 100,000                |   |
| Finished goods                |   | 2,232,000          |      | 1,628,000              |   |
|                          |   | 4,569,000          |      | 3,893,000              |   |
| Less reserve for obsolescence |   | (312,000           | )         | (312,000               | )      |
|                          |   | $                  | 4,257,000 |                   | $      | 3,581,000 |   |

 

 

5

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**4.  AccruedLiabilities**

 
|                      |   | **June 30,  2002** |      | **December  31, 2001** |   |
|---------------------------|--------|--------------------|-----------|------------------------|--------|
|                      |   |               |      |                   |   |
| Income taxes              |   | $                  | 554,000   |                   | $      | 27,000 |   |
| Payroll and payroll taxes |   | 373,000            |      | 416,000                |   |
| Other                     |   | 127,000            |      | 160,000                |   |
|                      |   | $                  | 1,054,000 |                   | $      | 603,000 |   |

 

 

 

**5.  Basic and Diluted Net Income Per Share**

 

The following tableprovides a reconciliation of both the net income and the number of shares usedin the computation of “basic” EPS, which utilizes the weighted average numberof shares outstanding without regard to potential shares, and “diluted” EPS,which includes all such shares.

 
|                                                |   | **For the  Three Months Ended June 30,** |    | **For the  Six Months Ended June 30,** |   |
|-----------------------------------------------------|--------|------------------------------------------|---------|----------------------------------------|--------|
|                                                |   | **2002**                                 |    | **2001**                               |   | **2002** |   | **2001** |   |
|                                                |   |                                     |    |                                   |   |   |   |   |   |
| Net income   (Numerator)                       |   | $                                        | 668,000 |                                   | $      | 265,000 |   | $ | 1,089,000 |   | $ | 565,000 |   |
|                                                |   |                                     |    |                                   |   |   |   |   |   |
| Shares (Denominator):                               |   |                                     |    |                                   |   |   |   |   |   |
| Basic weighted average shares outstanding           |   | 23,495,569                               |    | 23,595,697                             |   | 23,521,047 |   | 23,643,783 |   |
| Add: Dilutive effect of stock options and  warrants |   | 720,490                                  |    | 121,070                                |   | 676,596 |   | 740,451 |   |
|                                                |   |                                     |    |                                   |   |   |   |   |   |
| Diluted weighted average shares outstanding         |   | 24,216,059                               |    | 23,716,767                             |   | 24,197,643 |   | 24,384,234 |   |
|                                                |   |                                     |    |                                   |   |   |   |   |   |
| Net income   per share:                        |   |                                     |    |                                   |   |   |   |   |   |
| Basic                                               |   | $                                        | 0.03    |                                   | $      | 0.01 |   | $ | 0.05 |   | $ | 0.02 |   |
| Diluted                                             |   | $                                        | 0.03    |                                   | $      | 0.01 |   | $ | 0.05 |   | $ | 0.02 |   |
|                                                |   |                                     |    |                                   |   |   |   |   |   |

 

 

 

6

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**6.    Activity of Business Segments**

 

The Company classifies its businesses into threefundamental segments:  Apparel,consisting of a complete line of disposable clothing such as coveralls, frocks,lab coats, hoods, bouffant caps and shoe covers; Mask and eye shields,consisting principally of medical, dental and industrial masks and eye shields;and Extended Care Unreal Lambskin®, consisting principally of fleece and otherrelated products which includes a line of pet beds.

 

The accounting policies of the segments are the same as those describedin the 10-K under “Summary of Significant Accounting Policies.”  Segment data excludes charges allocated tohead office and corporate sales/marketing departments.  The Company evaluates the performance of itssegments and allocates resources to them based primarily on net sales.

 

The following table shows net sales for each segmentfor the three and six months ended June 30, 2002 and 2001:

 
|                         |   | **For the  Three Months Ended June 30,** |      | **For the  Six Months Ended June 30,** |   |
|------------------------------|--------|------------------------------------------|-----------|----------------------------------------|--------|
|                         |   | **2002**                                 |      | **2001**                               |   | **2002** |   | **2001** |   |
|                         |   |                                     |      |                                   |   |   |   |   |   |
| Apparel                      |   | $                                        | 4,180,000 |                                   | $      | 4,367,000 |   | $ | 7,566,000 |   | $ | 7,843,000 |   |
| Mask and eye shield          |   | 1,260,000                                |      | 1,206,000                              |   | 2,481,000 |   | 2,565,000 |   |
| Fleece                       |   | 365,000                                  |      | 430,000                                |   | 961,000 |   | 1,030,000 |   |
|                         |   |                                     |      |                                   |   |   |   |   |   |
| Consolidated total net sales |   | $                                        | 5,805,000 |                                   | $      | 6,003,000 |   | $ | 11,008,000 |   | $ | 11,438,000 |   |

 

 

 

A reconciliation of total segment net income to totalconsolidated net income for the three and six months ended June 30, 2002 and2001 is presented below:

 

 
|                                    |   | **For the  Three Months Ended June 30,** |      | **For the  Six Months Ended June 30,** |   |
|-----------------------------------------|--------|------------------------------------------|-----------|----------------------------------------|--------|
|                                    |   | **2002**                                 |      | **2001**                               |   | **2002** |   | **2001** |   |
|                                    |   |                                     |      |                                   |   |   |   |   |   |
| Apparel                                 |   | $                                        | 1,475,000 |                                   | $      | 1,005,000 |   | $ | 2,453,000 |   | $ | 1,858,000 |   |
| Mask and Shield                         |   | 484,000                                  |      | 20,000                                 |   | 845,000 |   | 122,000 |   |
| Fleece                                  |   | 47,000                                   |      | 72,000                                 |   | 196,000 |   | 211,000 |   |
|                                    |   |                                     |      |                                   |   |   |   |   |   |
| Total segment net income                |   | 2,006,000                                |      | 1,097,000                              |   | 3,494,000 |   | 2,191,000 |   |
| Unallocated corporate overhead expenses |   | (1,005,000                               | )         | (682,000                               | )      | (1,844,000 | ) | (1,317,000 | ) |
| Provision for income taxes              |   | (333,000                                 | )         | (150,000                               | )      | (561,000 | ) | (309,000 | ) |
|                                    |   |                                     |      |                                   |   |   |   |   |   |
| Consolidated net income                 |   | $                                        | 668,000   |                                   | $      | 265,000 |   | $ | 1,089,000 |   | $ | 565,000 |   |

 

 

7

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**ITEM2****.               MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL                                                       CONDITIONAND RESULTS OF OPERATIONS**

 

 

### **RESULTS OF OPERATIONS**

 

**Three months and sixmonths ended June 30, 2002, compared to the three months and six months endedJune 30, 2001**

 

Alpha Pro Tech, Ltd.(“Alpha” or the “Company”) reported record quarterly net income for the quarterended June 30, 2002 of $668,000 as compared to $265,000 for the quarter endedJune 30, 2001, representing an increase of $403,000 or 152.1%.  The increase is attributable to an increasein income before provision for income taxes of $586,000, partially offset by anincrease in income taxes of  $183,000.

 

**Sales**Consolidated sales for thequarter ended June 30, 2002 decreased to $5,805,000 from $6,003,000 for thequarter ended June 30, 2001, representing a decrease of $198,000 or 3.3%.     The Company attributes the lower salesprimarily to the continued slowdown in the Semiconductor clean room market.  Management expects increased sales eachquarter vs. prior period quarters for the remainder of 2002 as we continue toregain the momentum lost during the second half of 2001.

 

Apparel sales for thequarter ended June 30, 2002 were $4,180,000 as compared to $4,367,000 for thesame period of 2001.  The Apparel salesdecrease of $187,000 or 4.3% was due primarily to decreased sales to theCompany’s largest Industrial Safety/Clean Room distributor, partially offset byimproved sales to other Industrial Safety distributors.  Sales are down due to the continued weaknessin the Semiconductor clean room and Industrial Safety markets.  The Company expects a slow recoverythroughout the year in both of those market segments.  The Company has begun to service the Pharmaceutical industry, andas a result, management expects growth in this market segment.

 

Mask and eye shield salesincreased by $54,000 or 4.5%****to $1,260,000 in 2002 from $1,206,000 in2001.  The increase is primarily theresult of an increase in medical and dental masks, partially offset by a smalldecline in industrial mask and shield sales.

 

Sales from the Company’s Extended Care Unreal Lambskinâ andother related products, which includes a line of pet beds, decreased by$65,000 or 15.1% to $365,000 for the quarter ended June 30, 2002 from  $430,000 for the quarter ended June 30,2001.  The decrease in sales of $65,000is primarily the result of a decrease in medical fleece product and pet bedsales.

 

Consolidated sales were$11,008,000 and $11,438,000 for the six months ended June 30, 2002 and 2001respectively, representing a decrease of $430,000 or 3.8%.

 

Apparel sales for the six months ended June 30, 2002were $7,566,000 as compared to $7,843,000 for the same period of 2001, adecrease of $277,000 or 3.5%. The Company’s largest distributor has reportedlower year to date sales of the Company’s products to their end-users, due tothe slowdown in the Semiconductor clean room market.

 

8

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Mask and eye shield sales decreased by $84,000 or 3.3%to $2,481,000 for the six months ended June 30, 2002 from $2,565,000 in thesame period of 2001.  The decrease isprimarily due to lower industrial mask sales, partially offset by increasedmedical and dental mask sales and shield sales.

 

Sales from the Company’s Extended Care Unreal Lambskinâ andother related products decreased by $69,000 or 6.7% to $961,000 for the sixmonths ended June 30, 2002 compared to $1,030,000 in the same period in2001.  The decrease in sales is theresult of a decrease in medical bed pad sales, partially offset by a slightincrease in sales of pet bed products.

 

 

 

The Medical market, whichincludes a line of facemasks, eye shield and fleece bed pads, decreased by10.8% for the six months ended June 30, 2002 as compared to the six monthsended June 30, 2001.  A decrease inMedical fleece bed pads sales was partially offset by an increase in Medicalfacemask and shield sales.  The Medicalmarket, which comprises approximately 15% of the Company’s revenue, is notconsidered a high growth area for the Company.

 

Dental market salesincreased by 15.3% for the three months ended June 30, 2002 as compared to thesame period in 2001.  The dental marketdecreased by 2.3% for the six months ended June 30, 2002 as compared to the sameperiod in 2001.  Management believesthat revenue in this market, which comprises approximately 7% of the Company’srevenue, will continue to strengthen due to the hiring of a dedicated dentalsales rep.

 

In the Food Service market,sales for the six months ended June 30, 2002 were $170,000 compared to $86,000in the same period of 2001, representing an increase of $84,000 or 97.7%.  In January 2002, the Company announced a newdistribution agreement with a food service distributor to sell and distributeAlpha Pro Tech’s line of personal safety products starting in February2002.   The Company expects modestgrowth in this market in 2002 and significant growth over the long term.

 

 

 

 

**Cost ofGoods Sold **Cost of goods sold, excludingdepreciation and amortization, decreased to $2,734,000 for the quarter endedJune 30, 2002 from $3,473,000 for the same period in 2001   Gross profit margin increased to 52.9% forthe quarter ended June 30, 2002 from 42.1% for the same period in 2001, due toan increase in the amount of products being manufactured in China. Managementexpects this to continue during fiscal 2002 and therefore gross profit marginshould continue to be strong for the balance of the year.

For the six months ended June 30, 2002 as compared to2001, cost of goods sold decreased to $5,512,000 from $6,527,000.  Gross profit margin increased to 49.9% from42.9% for the six months ended June 30, 2002 and 2001, respectively.

 

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**Selling,General and Administrative Expenses** Selling, general and administrative expensesdecreased by $40,000 or 2.0% to $1,951,000 for the quarter ended June 30, 2002from $1,991,000 for the quarter ended June 30, 2001.  As a percentage of net sales, selling, general and administrativeexpenses increased slightly to 33.6% in the quarter ended June 30, 2002 from33.2% for the same period in 2001.  Thedecrease in selling, general and administrative expenses primarily consists ofdecreased travel, marketing and commission expenses of $80,000; and decreasedgeneral office expenses of $42,000, partially offset by increased rent andutilities of $22,000 and increased professional fees and public companyexpenses of $70,000.

 

Selling, general and administrative expenses decreasedby $191,000 or 5.0%, to $3,609,000 for the six months ended June 30, 2002 from$3,800,000 for the six months ended June 30, 2001. As a percentage of netsales, selling, general and administrative expenses decreased to 32.8% in thesix months ended June 30, 2002 from 33.2% in the same period of 2001.  The decrease in selling, general andadministrative expenses primarily consists of decreased payroll related costsof $110,000; decreased travel, marketing and commission expenses of $110,000and decreased general office expenses of $86,000; partially offset by increasedrent and utilities of $52,000 and increased professional fees and publiccompany expenses of $56,000.

 

 

**Depreciation and Amortization**Depreciationand amortization expense decreased by $10,000 to $110,000 for the quarter endedJune 30, 2002 from $120,000 for the same period in 2001 and decreased by$19,000 to $218,000 from $237,000 for the six months ended June 30, 2002compared to the same period in 2001. The decrease is primarily attributable to the adoption of Statement ofFinancial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”,which eliminated the need to amortize goodwill effective January 1, 2002.

 

 

 

 

 

 

**Income from Operations**Income from operations increased by $591,000 or 141.1%, to $1,010,000****forthe quarter ended June 30, 2002 as compared to income from operations of$419,000 for the quarter ended June 30, 2001. The increase in income from operations is due to an increase in grossprofit of $541,000, a decrease in selling, general and administrative expensesof $40,000, and a decrease in depreciation and amortization of $10,000.

 

Income from operations increased by $795,000 or 91.0% to $1,669,000 forthe six months ended June 30, 2002 as compared to income from operations of$874,000 for the six months ended June 30, 2001.  The increase in income from operations is due to an increase ingross profit of $585,000, a decrease in selling, general and administrativeexpenses of $191,000, and a decrease in depreciation and amortization of $19,000.

 

 

**Net Interest** Netinterest expense increased by $5,000 to $9,000 for the quarter ended June 30,2002 from net interest expense of $4,000 for the quarter ended June 30,2001.  Net interest expense increased by$19,000 to $19,000 for the six months ended June 30, 2002 from $0 for the sixmonths ended June 30, 2001.  Theincrease in net interest expense is due to decreased interest income. Interestincome decreased by $15,000 to $8,000 for the six months ended June 30, 2002from $23,000 in the same period of 2001 due to an overall decrease in interestrates.

 

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**Income Before Provision for Income Taxes******Incomebefore provision for income taxes for the quarter ended June 30, 2002 was arecord $1,001,000 as compared to $415,000 for the quarter ended June 30, 2001,representing an increase of $586,000 or 141.2%.  This increase is attributable primarily to an increase in grossprofit of $541,000, a decrease in selling, general and administrative expensesof $40,000 and a decrease in depreciation and amortization of $10,000,partially offset by an increase in net interest expense of $5,000.

 

Income before provision for income taxes for the six months ended June30, 2002 was $1,650,000 as compared to $874,000 for the six months ended June30, 2001, representing an increase of $776,000 or 88.8%.  This increase is attributable primarily toan increase in gross profit of $585,000, a decrease in selling, general andadministrative expenses of $191,000 and a decrease in depreciation andamortization of $19,000, partially offset by an increase in net interestexpense of $19,000.

 

 

**Provisionfor Income Taxes**Theprovision for income taxes for the three and six months ended June 30, 2002 was$333,000 and $561,000, as compared to $150,000 and $309,000 for the three andsix months ended June 30, 2001.  Theestimated tax rate is approximately 34%.

 

**Net Income** Netincome for the quarter ended June 30, 2002 was a record $668,000 compared tonet income of $265,000 for the quarter ended June 30, 2001, an increase of$403,000 or 152.1%.  The net incomeincrease of $403,000 is comprised of an increase in income from operationsof  $591,000, partially offset by anincrease in net interest expense of $5,000 and an increase in income taxes of$183,000.

 

Net income for the six months ended June 30, 2002 was $1,089,000compared to net income of $565,000 for the six months ended June 30, 2001, anincrease of $524,000 or 92.8%.  The netincome increase of $524,000 is comprised of an increase in income fromoperations of $795,000, partially offset by an increase in net interest expenseof $19,000 and an increase in income taxes of $252,000.

 

 

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### **LIQUIDITY AND CAPITAL RESOURCES**

 

As of June 30, 2002, the Company had cash of$1,236,000 and working capital of $7,127,000. During the quarter ended June 30, 2002, cash decreased by $136,000 andaccounts payable and accrued liabilities increased by  $567,000.   The decreasein the Company’s cash is due primarily to net payments on notes payable andpayments for the repurchase of the Company’s common shares, partially offset byincome from operations.

 

The Company has a $4,301,000 credit facility with abank, consisting of a line of credit of up to $3,500,000, a term note of$225,000 and equipment loans of $576,000, with interest at prime plus 0.5% onthe credit line, prime plus 1.0% on the term loan and an 8.5% fixed rate on theequipment loans.  At June 30, 2002, theprime interest rate was 4.75%.  The lineof credit expires in May 2004, the term note expires in April 2003 and theequipment loans expire between December 2005 and September 2006.  At June 30, 2002, the Company’s unusedportion of the line of credit is $2,282,000.

 

Net cash provided from operations was $510,000 for thesix months ended June 30, 2002 compared to $394,000 for the same period of2001.  The increase in Company’sgeneration of cash from operations of $510,000 for the six months ended June 30,2002 is primarily due to an increase in net income, an increase in accountspayable and accrued liabilities, partially offset by an increase in inventory,accounts receivable and an increase in prepaid expenses and other assets.

 

The Company’s investing activities have consistedprimarily of expenditures for property and equipment and intangible assets, fora total of $108,000 for the six months ended June 30, 2002 compared to $945,000for the six months ended June 30, 2001.

 

The Company expects to purchase approximately anadditional $100,000 of equipment in 2002.

 

During the six months ended June 30, 2002, theCompany’s cash used in financing activities resulted primarily from payments onthe Company’s notes payable of $317,000 and payments of $215,0000 for therepurchase of common stock.

 

In April 2002, the Companyannounced that its Board of Directors had approved the buy-back of up to anadditional $500,000 of the Company’s outstanding common stock.  Previously the Company has bought back877,900 common shares at a cost of $1,036,000. As of June 30, 2002, the Company has bought back a total of 1,112,900common shares at a cost of $1,251,000, which includes 235,000 common shares ata cost of $215,000 on the most recently approved buy back.

 

 

 

The Company believes that cash generated from operations,its current cash balance, and the funds available under its credit facility,will be sufficient to satisfy the Company’s projected working capital andplanned capital expenditures for the foreseeable future.

 

 

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**Alpha Pro Tech, Ltd.**

 
| **PART II****- OTHER INFORMATION** |
|------------------------------------|
|                               |

 

 
| Item 4. | Submission of Matters to a Vote of Security Holders |                                                                                                                                                                        |   |
|---------|-----------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|    |                                                |                                                                                                                                                                        |   |   |
|    | (a)                                                 | Registrant held its Annual Meeting of Shareholders June 14, 2002.                                                                                                           |   |   |
|    |                                                |                                                                                                                                                                        |   |
|    | (b)                                                 | The following persons were elected Directors pursuant to the votes  indicated:                                                                                              |
|    |                                                |                                                                                                                                                                        |   |
|    | Name                                                | For                                                                                                                                                                         |   | Against |
|    |                                                |                                                                                                                                                                        |   |   |
|    | Sheldon Hoffman                                     | 21,256,837                                                                                                                                                                  |   | 125,842 |
|    |                                                |                                                                                                                                                                        |   |   |
|    | Alexander Millar                                    | 21,256,837                                                                                                                                                                  |   | 125,842 |
|    |                                                |                                                                                                                                                                        |   |   |
|    | Donald Bennett, Jr.                                 | 21,256,837                                                                                                                                                                  |   | 125,842 |
|    |                                                |                                                                                                                                                                        |   |   |
|    | Robert Isaly                                        | 21,256,837                                                                                                                                                                  |   | 125,842 |
|    |                                                |                                                                                                                                                                        |   |   |
|    | John Ritota                                         | 21,256,837                                                                                                                                                                  |   | 125,842 |
|    |                                                |                                                                                                                                                                        |   |   |
|    | Russell Manock                                      | 21,256,837                                                                                                                                                                  |   | 125,842 |
|    |                                                |                                                                                                                                                                        |   |
|    |                                                |                                                                                                                                                                        |   |
|    | (c)                                                 | The only other matter to be voted upon was the ratification of the  appointment of PricewaterhouseCoopers LLP as the Registrant’s independent  accountants as follows: |
|    |                                                |                                                                                                                                                                        |   |
|    | For                                                 | Against                                                                                                                                                                     |   | Abstain |
|    |                                                |                                                                                                                                                                        |   |   |
|    | 21,305,087                                          | 55,790                                                                                                                                                                      |   | 21,802 |
|         |                                                     |                                                                                                                                                                             |        |  |  |  |  |

 

 

 

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**SIGNATURES**

 

 

Pursuant to the requirements of Section 13 or 15 (d)of the Securities Exchange Act of 1934, the Registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 

 
|   |               |   |   |   | Alpha Pro  Tech, Ltd. |
|--------|--------------------|--------|--------|--------|-----------------------|
|   |               |   |   |   |                  |   |
|   |               |   |   |   |                  |   |
| DATE:  | **August 9, 2002** |   |   |   | BY:                   | **Sheldon Hoffman** |
|   |               |   |   |   |                  |   |
|   |               |   |   |   |                  | SHELDON  HOFFMAN |
|   |               |   |   |   |                  | CHIEF  EXECUTIVE OFFICER |
|   |               |   |   |   |                  | PRINCIPAL  FINANCIAL OFFICER |

 

 

 

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