ALPHA PRO TECH LTD - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 10549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 2001

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

Commission file number - 019893

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ALPHA PRO TECH, LTD.
(exact name of registrant as specified in its charter)

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Delaware 63-1009183
- ---------------------------- ----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.
incorporation or organization

Suite 112, 60 Centurian Drive
Markham, Ontario L3R 9R2
- ----------------------------- -------
Address of principal offices Zip Code

Registrant's telephone number including area code: 905-479-0654

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

Common Shares Par Value $.01 Per Share
--------------------------------------
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----

The number of registrant's Common Shares outstanding as of February 28, 2002 was
23,546,809

The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 2002 was $21,192,128 based on the average bid
and asked price on that date.

Documents incorporated by reference and the Part of the Form 10-K into which the
document is incorporated are as follows: Registrant's definitive proxy statement
for its 2001 Annual Meeting of Stockholders, which will be filed with the
Securities and Exchange Commission on or before April 30, 2002 (incorporated by
reference under Part III).

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
or Regulation S-K (Sec. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K.
---

1

PART I

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING INFORMATION

This Annual Report on Form 10-K contains forward-looking statements that are
made pursuant to the Safe Harbor provisions of the Private Securities Litigation
Reform Act of 1995. Forward-looking statements involve risks, uncertainties and
assumptions as described from time to time in registration statements, annual
reports and other periodic reports and filings of the Company filed with the
Securities and Exchange Commission. All statements, other than statements of
historical facts, which address the Company's expectations of sources of capital
or which express the Company's expectation for the future with respect to
financial performance or operating strategies, can be identified as
forward-looking statements. As a result, there can be no assurance that the
Company's future results will not be materially different from those described
herein as "believed," "anticipated," "estimated" or "expected," which reflect
the current views of the Company with respect to future events. We caution
readers that these forward-looking statements speak only as of the date hereof.
The Company hereby expressly disclaims any obligation or undertaking to release
publicly any updates or revisions to any such statements to reflect any change
in the Company's expectations or any change in events, conditions or
circumstances on which such statement is based.

ITEM 1. BUSINESS
================================================================================

GENERAL

ALPHA PRO TECH, LTD. (the "Company") was incorporated in the State of Delaware
on July 1,1994 as a successor to a business that was organized in 1983. The
Company's executive offices are located at 60 Centurian Drive, Suite 112,
Markham Ontario, Canada L3R 9R2, and its telephone number is (905) 479-0654. The
Company's web site is located at www.alphaprotech.com. Information contained on
our web site is not part of this report.

BUSINESS

The Company develops, manufactures and markets disposable protective apparel and
consumer products for the cleanroom, industrial, medical, dental, food service
and consumer markets. The Company operates through three divisions: apparel;
mask and shield; and extended care. The Company's products are primarily sold
under the "Alpha Pro Tech" brand name, but are also sold for use under private
label.

The Company's products are classified into five groups: Disposable protective
apparel consisting of a complete line of shoecovers, headcovers, gowns,
coveralls and labcoats; infection control products consisting of a line of face
masks and face shields; extended care products consisting of a line of mattress
overlays, wheelchair covers, geriatric chair surfaces, operating room table
surfaces and pediatric surfaces; food industry apparel consisting of a line of
automated shoecovers, sleeve protectors, aprons, and face shields; and consumer
products consisting of a line of pet bedding and pet toys. The Company's
products as classified above are grouped into three segments. The Apparel
segment consisting of disposable protective apparel and food industry apparel;
the Mask/Shield segment consisting of infection control products; and the
Extended Care segment consisting of extended care products and consumer
products.

The Company's current strategy is to not only grow its cleanroom business
through its exclusive agreement with VWR Scientific Products, but to also focus
on its other core businesses which include medical, dental, industrial safety,
pet and food service. As part of its current strategy, emphasis is being placed
on developing innovative products and processes and sourcing raw materials and
finished goods globally which are expected to increase capacity and gross
margins.

2

The Company's products are used primarily in hospitals, clean rooms,
laboratories, industrial and dental offices and are distributed principally in
the United States through a network presently consisting of 2 purchasing groups,
9 major distributors, approximately 900 additional distributors, approximately
24 independent sales representatives and a Company sales and marketing force of
12 people.

PRODUCTS

The Company's principal product groups and products include the following:

Disposable Protective Apparel

* Shoecovers
* Headcovers
* Gowns
* Coveralls
* Lab Coats

Infection Control

* Face Masks
* Face Shields

Extended Care

* Unreal Lambskin
* Medi-Pads
* Hospital Pads
* Wheelchair accessories
* Bedrail Pads
* Knee and Elbow protectors

Food Industry

* Automated Shoecovers
* Sleeve Protectors
* Aprons
* Face Shields

Consumer Products

* Pet Bedding
* Pet Toys

3

DISPOSABLE PROTECTIVE APPAREL

The Apparel division was established April 1, 1994. The products manufactured
include many different styles of shoecovers, headcovers, gowns, coveralls, lab
coats, and other miscellaneous products. These are manufactured in Mexico and
China.

MASKS AND FACE SHIELDS

The facemasks come in a wide variety of filtration efficiencies and styles. The
Company's patented Positive Facial Lock(R) feature provides a custom fit to the
face to prevent blow-by for better protection. Combine this feature with the
Magic Arch (R), that holds the mask away from the nose and mouth and creates a
breathing chamber, and you have a quality disposable facemask.

The term "blow-by" is used to describe the potential for infectious material
entering or escaping a facemask without going through the filter as a result of
gaps or openings in the face mask.

All of the face shields are made from an optical-grade polyester film, and have
a permanent anti-fog feature. This provides the wearer with extremely
lightweight, distortion-free protection that can be worn for hours and will not
fog up from humidity and/or perspiration. An important feature of all eye and
face shields is that they are disposable. This eliminates a chance of cross
infection between patients and saves hospitals the expense of sterilization
after every use.

EXTENDED CARE

The Extended Care Division began with the Company's Unreal Lambskin(R) pressure
sore and bed patient monitoring system product lines. The Unreal Lambskin (R) is
used to prevent decubitus ulcers or bedsores on long term care patients. The bed
patient monitoring system offers nurses an alarm system that can tell when
patients try to get out of bed. This helps nursing and other extended and long
term care facilities to comply with the Omnibus Reconciliation Act (OBRA) of
1987 mandate to work towards using no restraints to control residents or
patients in these facilities.

FOOD INDUSTRY

A patented automated shoecover machine in combination with a patented laminated
material has allowed the Company to develop a shoecover that is being used by
McDonald's Corporation through a Supply Agreement and is being tested by a
number of other restaurant chains. The balance of the food industry products are
manufactured by the apparel division.

CONSUMER PRODUCTS

The Consumer Product Division uses the Company's existing medical products and
technologies for general consumer purposes. The Unreal Lambskin (R) is being
packaged for the retail pet bed market and pet toys.

MARKETS

The Company's products are sold to the following markets: Infection Control
Products, (Masks and Shields) and disposable protective apparel are sold to the
Medical and Dental market and the Industrial and Cleanroom markets; Unreal
Lambskin and Medi-Pads are sold to the Extended Care market; Pet Bedding and Pet
Toys are sold to the Consumer market; and automated shoecovers are sold to the
Food Industry, Medical, Industrial and Cleanroom market. The Company has
expanded its marketing efforts for the Food Industry to include apparel, such as
sleeve protectors and aprons as well as shields.

4

DISTRIBUTION

The Company relies for the sale of its products primarily on a network of
independent distributors which include the following:

* VWR Scientific
* Allegiance Healthcare
* McKesson HBOC
* Medline Industries
* Blain Supply
* Owens and Minor
* Cameron & Barkley
* Berkeley Medical Resources
* Henry Schein, Inc.

These nine major United States distributors to the best of the Company's
knowledge, all sell competing products.

Sales to our largest customer represented 65.2% of total sales for 2001, 62.5%
for 2000, and 57.85% for 1999.

The Company's agreements with its largest distributor provides for exclusive
distribution rights with respect to eye and face shields, masks and disposable
apparel for sale to the Industrial/Cleanroom market place. In order to retain
such exclusivity, the distributor has agreed to purchase at least 95% of the
prior years distributor sales at cost. Since the beginning of its relationship
with such supplier, the minimum requirement has been met each year.

The loss of this customer would have a material adverse effect on the Company's
business.

The Company does not generally have backlog orders, as orders are usually placed
for shipment and shipped within 30 days. The Company anticipates no problem in
fulfilling orders as they are placed.

MANUFACTURING

The Company's mask production facility is located in a 24,500 square foot
building at 903 West Center Street, Bldg. E, North Salt Lake, Utah.

A 25,000 square foot facility located at 615 North Parker Drive, Janesville,
Wisconsin is used to manufacture the Company's Extended Care products and
consumer products including a line of pet beds and pet toys.

The Company's disposable protective apparel production is located in three
facilities, a 50,000 sq. ft. facility located at 1287 Fairway Drive in Nogales,
Arizona which is used for cutting, warehousing and shipping and a 30,000 sq. ft.
facility located at Ave. Abolardo L. Rodriguez y Novena, Benjamin Hill, Sonora
Mexico, which is used for sewing. The lease on a third facility, a 19,500 square
foot facility at Kennedy Drive #6 in Sonora, Mexico, expires on June 30,
2002.This facility recently became vacant and is not being renewed due to an
emphasis on China manufactured goods.

In 2001 the Company began subcontracting the manufacturing of some of its goods
previously manufactured in Mexico to contractors in China. These goods are
manufactured pursuant to the Company's specifications and quality assurance
guidelines. Certain proprietary products are being made in China using material
supplied by the Company.

The Company has a material coating and automated shoecover facility of 36,000
square feet located at 2224 Cypress Street, Valdosta, Georgia.

5

The Company has multiple suppliers of the materials used to produce its
products. In that regard, the Company currently has no problems, and does not
anticipate any problems, with respect to the sources and availability of the
materials needed to produce its products. The business of the Company is not
subject to seasonal considerations. It is necessary for the Company to have
adequate finished inventory in stock, and the Company generally maintains a
two-to-three month supply of product.

COMPETITION

The Company faces substantial competition from numerous other companies,
including some companies with greater marketing and financial resources. The
Company's major competitor in the medical and dental markets is Kimberly Clark
of Fort Worth, Texas. Other large competitors would include Minnesota Mining and
Manufacturing Corporation (3M), Johnson & Johnson, White Knight/Precept,
Allegiance Health Care Corp., and Medline Industries Inc. The Company's major
competitors in the industrial and cleanroom market are Kimberly Clark, 3M,
Kappler USA, Dupont and Allegiance Health Care. In the extended care market,
Skil-care, Glenoit Mills and JT Posey Co. are the principal competitors, and in
the consumer products market, principal competitors include Flexmat Corporation
and Lazy Pet Company. The Company has entered the food service market with a new
type of product, and expects competition from companies who provide floor
treatment and manufacturers of safety boots such as Shoes For Crews and Traction
Plus. However, the Company believes that the quality of its products, along with
the price and service provided, will allow it to remain competitive in the
disposable apparel market.

Allegiance Health Care Corp. and Medline Industries Inc. are distributors of the
Company's products.

The Company is not required to obtain regulatory approval from the U.S. Food and
Drug Administration ("FDA") with respect to the sale of its products. The
Company's products are, however, subject to prescribed "good manufacturing
practices" as defined by the FDA and its manufacturing facilities are inspected
by the FDA every two years to assure compliance with such "good manufacturing
practices." The Company is marketing a Particulate Respirator that meets the new
O.S.H.A. respirator guidelines and which has been approved by the National
Institute for Safety and Health (NIOSH). This product is designed to help
prevent the breathing in of the tuberculosis virus.

The Company does not anticipate that any federal, state and local provisions
which have been or may be enacted or adopted regulating the discharge of
materials into the environment, or otherwise relating to the protection of the
environment, will have any material effect upon the capital expenditures,
earnings or competitive position of its business.

PATENTS AND TRADEMARKS

PATENTS

The Company's policy is to protect its intellectual property rights, products,
designs and processes through the filing of patents in the United States and
where appropriate in Canada and other foreign countries. At present, the Company
has 14 United States patents relating to its MEDS, Add-A-Mask, Coverall, 1/2
Coverall, Combo Cone, Combo, Positive Facial Lock and Shieldmate products, a
U.S. patent on the automated shoecover and the shoecover process and a fluid
impervious and non-slip fabric for the Company's Aqua Trak shoecover. In
addition, the Company has a U.S. patent on a method to fold and put on sterile
garments. The Company believes that its patents may offer a competitive
advantage, but there can be no assurance that any patents, issued or in process,
will not be circumvented or invalidated. The Company also intends to rely on
trade secrets and proprietary know-how to maintain and develop its commercial
position.

The various United States patents issued have remaining durations of
approximately 5 to 15 years before expiration.

6

TRADEMARKS

Many of the Company products are sold under various trademarks and trade names
including Alpha Pro Tech. The Company believes that many of its trademarks and
trade names have significant recognition in its principal markets and takes
customary steps to register or otherwise protect its rights in its trademarks
and trade names.

EMPLOYEES

As of February 28, 2002, the Company had 342 employees, including 17 persons at
its head office in Markham, Ontario, Canada; 32 persons at its facemask
production facility in Salt Lake City, Utah, 22 persons at its Extended Care
production facility in Janesville, Wisconsin; 37 persons at its cutting,
warehouse and shipping facility in Nogales, Arizona; 196 at its sewing and
shield assembly operation in Benjamin Hill, Mexico; 25 persons at its coating
and automated shoecover facility in Valdosta, Georgia; a sales and marketing
staff of 12 and 1 person in China.

None of the Company's employees in the United States and Canada are subject to
collective bargaining agreements. However, a collective bargaining agreement
with the Confederation of Mexican Workers, exists for its Mexican employees.
Benefits are reviewed annually by May and the 2001 agreement was signed with
moderate benefit increases. Wages are set by the Government of Mexico. The
Company considers its relations with the union and its employees to be good.

ITEM 2. PROPERTIES

The Companies' Head Office is located at 60 Centurian Drive, Suite 112, Markham,
Ontario L3R 9R2. The approximate monthly costs are $4,200 under a lease expiring
February 28, 2003. Seventeen (17) employees of the Company, including the
President, Alexander Millar, Chief Executive Officer, Sheldon Hoffman and Senior
Vice President-Finance and Administration, Lloyd Hoffman work out of the head
office.

The Company manufactures its surgical face masks at 903 West Center Street,
Building C, North Salt Lake, Utah. The monthly rental is $6,200 for 24,500
square feet. This lease expires July 1, 2002 with successive 2-year renewal
options with rental rate increases based on the U.S. Consumer Price Index. The
Company expects to renew this lease.

A second manufacturing facility is located at 615 North Parker Drive,
Janesville, Wisconsin. These premises of 25,000 square feet are leased for
$7,400 monthly. The lease expires August 15, 2002. The Company's line of
Extended Care and consumer products is manufactured at this facility. The
Company expects to renew this lease.

The Apparel division has its cutting operation, warehousing, and shipping
facility at 1287 Fairway Drive, Nogales, Arizona. The monthly rental is $14,200
for 50,000 square feet. This lease expires November 30, 2002. Sewing and shield
assembly is done at Ave. Abelardo L. Rodriguez Y. Novena, Benjamin Hill, Sonora,
Mexico. The monthly rental is $8,500 for 30,000 square feet. This lease expires
June 23, 2004. A third facility, a 19,500 square foot plant at Kennedy Drive #6
in Sonora, Mexico is vacant due to an emphasis on China manufactured goods. The
monthly rental is $6,700 for 19,500 square feet. This lease expires June 30,
2002 and will not be renewed.

The Coating and Automated Shoecover Division has its facility at 2224 Cypress
Street, Valdosta, Georgia. The monthly rental is $4,500 for 36,000 square feet.
This lease expires June 1, 2005.

The Company believes that these arrangements are adequate for its present needs
and that other premises, if required, are readily available.

7

ITEM 3. LEGAL PROCEEDINGS

There are no pending legal proceedings against the Company.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matter was submitted to a vote of security holders during the fourth quarter
of 2001

PART II

ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF
SECURITIES

Through April 3, 2001, the Common Shares of the Company were cleared for
quotation on the National Association of Securities Dealers (NASD) Over the
Counter (OTC) Bulletin Board under the symbol "APTD."

The high and low range of bid prices for the Common Shares of the Company for
the quarters indicated as reported by the NASD were as follows:

Beginning April 4, 2001 the Common Shares of the Company were cleared for
trading on the American Stock Exchange (Amex) under the symbol "APT."

The high and low range of bid prices for the Common Shares of the Company for
the quarters indicated as reported by the Amex were as follows:

2001 Second Quarter $ 1.01 $ 1.40
Third Quarter 0.65 1.20
Fourth Quarter 0.84 1.05

2002 First Quarter 0.84 1.05
(Thru February 28, 2002)

As of February 28, 2002 there were 479 shareholders of record, and approximately
2,800 beneficial owners.

8

DIVIDEND POLICY

The holders of the Company's Common Shares are entitled to receive such
dividends as may be declared by the board of directors of the Company from time
to time to the extent that funds are legally available for payment thereof. The
Company has never declared nor paid any dividends on any of its Common Shares.
It is the current policy of the Board of Directors to retain any earnings to
provide for the development and growth of the Company. Consequently, the Company
has no intention to pay cash dividends in the foreseeable future.

ITEM 6. SELECTED FINANCIAL DATA

ALPHA PRO TECH, LTD.

SELECTED FINANCIAL DATA
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9

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

FISCAL 2001 COMPARED TO FISCAL 2000

Alpha Pro Tech, Ltd. ("Alpha" or the "Company") reported income before provision
for income taxes for the year ended December 31, 2001 of $1,206,000 as compared
to $1,659,000 for the year ended December 31, 2000, representing a decrease of
$453,000 or 27.3%. The decrease is attributable primarily to an increase in
selling, general and administrative expenses of $647,000, and an increase in
depreciation and amortization of $71,000, partially offset by an increase in
gross profit of $194,000, due to higher sales and gross profit margin and a
decrease in other expenses of $71,000.

Alpha reported net income for the year ended December 31, 2001 of $786,000 as
compared to $1,460,000 for the year ended December 31, 2000, representing a
decrease of $674,000 or 46.2%. The decrease is attributable to a decrease in
income before provision for income taxes of $453,000 discussed above and an
increase in income taxes of $221,000. Fiscal 2001 was the fourth consecutive
year of profitability and management expects to remain profitable in 2002.

SALES Consolidated sales for the year ended December 31, 2001 increased to
$21,333,000 from $21,130,000 for the year ended December 31, 2000, representing
an increase of $203,000 or 1.0%. Consolidated sales for the eight months ended
August 31, 2001 were 10.8% ahead of the same period in 2000. The company
attributes the lower than normal sales for the last four months of 2001 to the
events of September 11th, which disrupted normal business and caused an economic
downturn in most industries. Orders booked in 2002 have returned to normal
levels and management expects increased sales in 2002, which would be the
seventh consecutive year.

Sales for the Apparel Division for the year ended December 31, 2001 were
$14,091,000 as compared to $13,507,000 for the same period of 2000. The Apparel
Division sales increase of $584,000 or 4.3% was due primarily to increased sales
to the Company's largest distributor. This distributor has reported record
annual sales for the sixth consecutive year to its customers of the Company's
products. Management expects the Company's sales to this distributor should
remain strong and continue to grow.

Mask and eye shield sales decreased by $152,000 or 2.8% to $5,209,000 in 2001
from $5,361,000 in 2000. The decrease is primarily the result of a decline in
industrial mask sales, partially offset by growth in medical mask and medical
shield sales and dental mask sales.

Sales from the Company's Extended Care and other related products, which
includes a line of pet beds, decreased by $229,000 or 10.1% to $2,033,000 for
the year ended December 31, 2001 from $2,262,000 for the year ended December 31,
2000. The decrease in sales of $229,000 is primarily the result of a decrease in
sales of consumer fleece products including pet beds and a decrease in medical
fleece product sales.

10

The Medical market, which includes a line of face masks, eye shield and fleece
bed pads, increased by $154,000, or 4.8% year to date, to $3,333,000 for the
year ended December 31, 2001 as compared to $3,179,000 for the year ended
December 31, 2000. Medical face masks and eye shield sales increased during
2001, but fleece bed pads sales decreased. Medical mask and eye shield sales
should improve over the next twelve months.

Dental market sales increased by approximately $57,000 or 3.7%, to $1,593,000
for the year ended December 31, 2001 as compared to $1,536,000 for the same
period in 2000. In 2001 the Company hired a Dental sales specialist and the
results of his efforts are expected to improve the Company's dental market
revenue in 2002.

Sales in the Pet Supply market, in which the Company markets a line of pet beds
decreased $34,000 or 3.5%, to $941,000 for the year ended December 31, 2001,
compared to $975,000 for same period in 2000.

In the Food Service market, sales for the year ended December 31, 2001 were
$231,000 compared to $175,000 in the same period of 2000, an increase of $56,000
or 32.0%. The Company continues to work with its existing customers, and in
January 2002, announced a new distribution agreement with a food service
distributor to sell and distribute Alpha Pro Tech's line of personal safety
products starting February 2002. The Company has also introduced new products to
its major customer that continue to generate positive feedback. Management is
confident that increased exposure and new product launches to the Food Service
sector will result in added revenues over the next twelve months.

Management believes that the Company is positioned to grow revenue in its
markets of Industrial Safety, Clean Room, Medical, Dental and Food Service in
fiscal 2002.

COST OF GOODS SOLD Cost of goods sold, excluding depreciation and amortization,
increased to $12,247,000 for the year ended December 31, 2001 from $12,238,000
for the same period in 2000. As a percentage of net sales, cost of goods sold
decreased to 57.4% in 2001 from 57.9% in 2000. Gross profit margin increased to
42.6% for the year ended December 31, 2001 from 42.1% for the same period in
2000.

Gross profit margin in 2001 was negatively affected by severance payouts of
approximately $80,000 to 86 employees on the closing of one facility in Mexico
and a reduction of employees in a second facility in Mexico. The Company decided
in the first half of 2001 to downsize its operations in Mexico in order to shift
some of its manufacturing to China. Excluding the severance payouts, gross
margin would have increased to 43.0% for the year ended December 31, 2001 from
42.1% for the same period in 2000.

Management expects gross profit margin to continue to improve over the next
twelve months due to an increased emphasis on products being manufactured in
China.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative
expenses increased by $647,000 or 9.5% to $7,481,000 for the year ended December
31, 2001 from $6,834,000 for the year ended December 31, 2000. As a percentage
of net sales, selling, general and administrative expenses increased to 35.1% in
the year ended December 31, 2001 from

11

32.3% for the same period in 2000. The increase in selling, general and
administrative expenses primarily consists of increased payroll related costs of
$350,000; increased travel and commission expenses of $73,000; increased rent
and utilities of $78,000, and increased insurance and general office expenses of
$72,000.

Management expects selling, general and administrative expenses as a percentage
of net sales to decrease as sales increase in 2002.

DEPRECIATION AND AMORTIZATION Depreciation and amortization expense increased by
$71,000 to $476,000 for the year ended December 31, 2001 from $405,000 for the
same period in 2000. The increase is primarily attributable to the acquisition
of a new extrusion coating machine and new mask machines.

INCOME FROM OPERATIONS Income from operations decreased by $524,000 or 31.7%, to
$1,129,000 for the year ended December 31, 2001 as compared to income from
operations of $1,653,000 for the year ended December 31, 2000. The decrease in
income from operations is due to an increase in selling, general and
administrative expenses of $647,000, an increase in depreciation and
amortization of $71,000, partially offset by an increase in gross profit of
$194,000.

Income from operations for 2001 was adversely affected by two events. The first
being total severance payouts and other costs of approximately $134,000 on the
closing of one facility in Mexico and a reduction of employees in a second
Mexican facility for a total reduction of 144 employees. The Company decided in
the first half of 2001 to downsize its Mexican operations in order to shift some
of its manufacturing to China. The second event was September 11th, which
significantly affected sales for the last four months of the year. Consolidated
sales for the eight months ended August 31, 2001 were 10.8% ahead of the same
period in 2000. The company attributes the lower than normal sales for the last
four months of 2001 to the events of September 11th, which disrupted normal
business and caused an economic downturn in most all industries.

NET INTEREST Net interest expense increased by $27,000 to $21,000 for the year
ended December 31, 2001 from net interest income of $6,000 for the year ended
December 31, 2000. Interest expense increased by $3,000 to $14,000 for the year
ended December 31, 2001 from $11,000 for the year ended December 31, 2000. The
increase in net interest expense is due to higher borrowings, decreased interest
income, partially offset by lower interest rates, and a decreased number of
outstanding capital leases. Interest income decreased by $25,000, to $36,000 for
the year ended December 31, 2001 from $61,000 in the same period of 2000 due to
an overall decrease in interest rates.

INCOME BEFORE PROVISION FOR INCOME TAXES Income before provision for income
taxes for the year ended December 31, 2001 was $1,206,000 as compared to
$1,659,000 for the year ended December 31, 2000, representing a decrease of
$453,000 or 27.3%. The net decrease of $453,000 for the year ended December 31,
2001, compared to the same period in 2000 is attributable primarily, to an
increase in selling, general and administrative expenses of $647,000 and an
increase in depreciation and amortization of $71,000, partially offset by an
increase in gross profit of $194,000 and a decrease in other expenses of
$71,000.

12

PROVISION FOR INCOME TAXES The provision for income taxes for the year ended
December 31, 2001 was $420,000, as compared to $199,000 for the year ended
December 31, 2000. The increase in income taxes is due to net operating losses
(NOL's) from prior years being utilized during three quarters of 2000. The
estimated tax rate is 34% in 2001.

NET INCOME Net income for the year ended December 31, 2001 was $786,000 compared
to net income of $1,460,000 for the year ended December 31, 2000, a decrease of
$674,000 or 46.2%. The net income decrease of $674,000 is comprised of a
decrease in income from operations of $524,000, of which $134,000 ($80,000 in
cost of goods sold and $54,000 in SG&A) relates to severance payouts on
downscaling Mexican facilities and moving manufacturing to China and an increase
in net interest expense of $27,000 and an increase in income taxes of $221,000,
partially offset by a decrease in other expenses of $98,000.

The chief executive officer and president are entitled to a combined bonus equal
to 10% of the pre-tax profits of the company. A bonus of $134,000 has been
accrued in 2001 as compared to $183,000 in 2000.

FISCAL 2000 COMPARED TO FISCAL 1999

Alpha Pro Tech, Ltd. reported income before provision for income taxes for the
year ended December 31, 2000 of $1,659,000 as compared to $1,147,000 for the
year ended December 31, 1999, representing an increase of $512,000 or 44.63%.
The increase is attributable primarily to higher sales and gross profit margin
of $907,000 and a decrease in net interest expense of $130,000, partially offset
by an increase in selling, general and administrative expenses of $482,000 and
an increase in depreciation and amortization of $43,000.

Alpha reported net income for the year ended December 31, 2000 of $1,460,000 as
compared to net income of $1,129,000 for the year ended December 31, 1999,
representing an improvement of $331,000 or 29.3%. The increase is attributable
to an increase in income before provision for income taxes of $512,000 and
offset by an increase in income taxes of $181,000.

SALES Consolidated sales for the year ended December 31, 2000 increased to
$21,130,000 from $20,235,000 for the year ended December 31, 1999, representing
an increase of $895,000 or 4.4%.

Sales for the Apparel Division for the year ended December 31, 2000 were
$13,507,000 as compared to $12,883,000 for the same period of 1999. The Apparel
Division sales increase of $624,000 or 4.9% was due to increased sales to the
Company's largest distributor. This distributor has reported record annual sales
for the fifth consecutive year to its customers of the Company's products.

Mask and eye shield sales increased by $288,000 or 5.7% to $5,361,000 in 2000
from $5,073,000 in 1999. This increase is primarily the result of growth in
dental mask of 10.2%, growth in medical mask sales of 8.6%, partially offset by
a decline in industrial mask sales of 3.4%. The industrial mask sales decrease
is the result of a soft second quarter.

13

Sales from the Company's Extended Care Unreal Lambskin(R) (and other related
products, which includes a line of pet beds), decreased by $17,000 or 0.8% to
$2,262,000 for the year ended December 31, 2000 from $2,279,000 for the year
ended December 31, 1999. The slight decrease in sales of $17,000 is primarily
the result of a decrease in medical fleece product sales partially offset by an
increase in pet bed sales.

The Medical market, which includes a line of face masks and fleece bed pads,
were down by $462,000 or 12.7% for the year ended December 31, 2000, compared to
the same period in 1999. Fleece bed pads sales decreased and medical face masks
sales increased during the year ended December 31, 2000.

Dental market sales increased by approximately $143,000 or 10.2% for the year
ended December 31, 2000 as compared to the same period in 1999. The Company is
working with national dental distributors to increase the Company's share of the
Dental market.

Sales in the Pet supply market, in which the Company markets a line of pet beds,
were up $130,000 or 13.3% for the year ended December 31, 2000 as compared to
the same period in 1999.

In the Food Service market, sales for the year ended December 31, 2000 were
$175,000 compared to $56,000 in the same period of 1999, an increase of $119,000
or 212.5%.

COST OF GOODS SOLD Cost of goods sold increased to $12,238,000 for the year
ended December 31, 2000 from $12,250,000 for the same period in 1999. As a
percentage of net sales, cost of goods sold decreased to 57.9% in 2000 from
60.5% in 1999. Gross profit margin increased to 42.1% for the year ended
December 31, 2000 from 39.5% for the same period in 1999.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative
expenses increased by $482,000 or 7.6%, to $6,834,000 for the year ended
December 31, 2000, from $6,352,000 for the year ended December 31, 1999. As a
percentage of net sales, selling, general and administrative expenses increased
to 32.3% in the year ended December 31, 2000 from 31.4% in the same period of
1999. The increase in selling, general and administrative expenses primarily
consists of increased payroll related costs of $392,000; increased public
company expenses of $50,000, including investor relations, stock exchange
listing fees, options/warrants issued for services, annual report and annual
meeting costs, stock transfer costs and costs associated with SEC reporting
requirements; and increased marketing, commissions and travel expenses of
$256,000. This was partially offset by decreased office, telephone, factory,
insurance and general expenses of $154,000, decreased professional fees of
$40,000 and decreased rent of $22,000.

DEPRECIATION & AMORTIZATION Depreciation and amortization expense increased by
$43,000 to $405,000 for the year ended December 31, 2000 from $362,000 for the
same period in 1999. The increase is primarily attributable to increased
depreciation on the automated shoecover machines and the introduction of new
mask machines.

14

INCOME FROM OPERATIONS Income from operations increased by $382,000 or 30.1%, to
$1,653,000 for the year ended December 31, 2000 as compared to income from
operations of $1,271,000 for the year ended December 31, 2000. The increase in
income from operations is due to an increase in gross profit of $907,000,
partially offset by an increase in selling, general and administrative expenses
of $482,000 and an increase in depreciation and amortization of $43,000.

NET INTEREST Net interest expense decreased by $130,000 or 104.8% to net
interest income of $6,000 for the year ended December 31, 2000 from net interest
expenses of $124,000 for the year ended December 31, 1999. The decrease in net
interest expense is due to lower borrowings, lower interest rate, decreased
interest on capital leases and increased interest income. Interest income
increased by $22,000, to $61,000 for the year ended December 31, 2000 from
$39,000 in the same period of 1999. In 2000, the Company re-negotiated its
credit facility from an asset-based loan to a traditionally based line of
credit. The Company has a $4,041,000 credit facility with the bank, consisting
of a line of credit of up to $3,500,000, a term note of $225,000 and a equipment
loan of $316,000, with interest at prime plus 1.0% on the credit line, prime
plus 1.0% on the term loan and a 10.25% fixed rate on the equipment loan. The
line of credit expires in May 2003, the term note expires in April 2003 and the
equipment loan expires in November 2005.

PROVISION FOR INCOME TAXES Provision for income taxes increased by $181,000 or
1,005.6% to $199,000 for the year ended December 31, 2000 from $18,000 for the
year ended December 31, 1999. The increase in income tax is due to net operating
losses (NOL's) from prior years being utilized during all of 1999 and only
through three quarter in 2000.

NET INCOME Net income for the year ended December 31, 2000 was $1,460,000
compared to net income of $1,129,000 for the year ended December 31, 1999, an
improvement of $331,000 or 29.3%. The net income increase of $331,000 is
comprised of an increase in income from operations of $382,000, a decrease in
interest expense of $130,000, partially offset by an increase in income taxes of
$181,000.

The chief executive officer and president are entitled to a combined bonus equal
to 10% of the pre-tax profits of the company. A bonus of $183,000 has been
accrued in 2000 as compared to $125,000 in 1999.

15

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2001, the Company had cash of $1,372,000 and working capital
of $6,445,000. During the year ended December 31, 2001, cash increased by
$241,000 and accounts payable and accrued liabilities increased by $136,000. The
increase in the Company's cash is primarily due to a decrease in accounts
receivable, income from operations, and net proceeds from notes payable,
partially offset by to a significant increase in inventories, the purchase of
property and equipment and the repurchase of common stock. The Company has a
$4,301,000 credit facility with a bank, 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% on the credit line, prime plus 1.0% on the term loan
and an 8.5% fixed rate on the equipment loans. At December 31, 2001, the prime
interest rate was 4.75%. The line of credit expires in May 2003, the term note
expires in April 2003 and the equipment loans expire between December 2005, and
September 2006. At December 31, 2001, the Company's unused line of credit is
$2,266,000.

Net cash provided from operations was $1,305,000 for the year ended December 31,
2001 compared to $2,091,000 for the same period of 2000. The Company's
generation of cash from operations of $1,305,000 for the year ended December 31,
2001 is down primarily due to a decrease in net income, an increase in
inventory, an increase in prepaid expenses and other assets partially offset by
a decrease in accounts receivable.

The Company's investing activities have consisted primarily of expenditures for
property and equipment of $1,143,000 increases in intangible assets of $15,000
partially offset by proceeds of $113,000 on the sale of fixed assets, for a
total of $1,045,000 for the year ended December 31, 2001 compared to $896,000
for the year ended December 31, 2000.

The Company expects to purchase $200,000 in 2002 for additional equipment. The
Company intends to lease equipment whenever possible.

During the year ended December 31, 2001, the Company's cash used in financing
activities resulted primarily from the buy-back of 471,700 of Company's common
shares at a cost of $506,000 and payments on capital leases of $32,000,
partially offset by a net increase in the Company's loans payable of $461,000
and the exercise of options to purchase 76,000 shares of the Company's common
stock for which the Company received $58,000. The Company announced in December
1999 that the Board of Directors approved the buy-back of up to $500,000 of its
outstanding common stock. In January 2001, the Company announced that its Board
of Directors had approved the buy-back of an additional $500,000 of the
Company's outstanding common stock. As of December 31, 2001, the Company has
bought back 877,900 common shares at a cost of $1,036,000.

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 and planned capital
expenditures for the foreseeable future.

16

NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 141, "Business Combinations",
which is effective for all business combinations for which the date of
acquisition is after June 30, 2001. SFAS No. 141 also establishes specific
criteria for the recognition of intangible assets. The Company will adopt SFAS
No. 141 for acquisitions completed after June 30, 2001 in preparing its
financial statements. The Company did not make any acquisitions in 2001.

In June 2001, the FASB issued No. 142, "Goodwill and Other Intangible Assets",
which is effective for financial statements issued for fiscal years beginning
after December 15, 2002 and interim periods within those fiscal years. SFAS No.
142 primarily addresses the accounting for goodwill and intangible assets
subsequent to their acquisition. The Company does not believe that the adoption
of SFAS No. 142 will have significant effect on the earnings and financial
position of the Company.

In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations", which is effective for financial statements issued for fiscal
years beginning after June 15, 2002 and interim periods within those fiscal
years. SFAS No. 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. It applies to legal obligations associated with the
retirement of long-lived assets that result from the acquisition, construction,
development, and (or) the normal operation of a long-lived asset, except for
certain obligations of lessees. The Company has evaluated this new pronouncement
and has determined that it will not have any effect on its financial position
and results of operations.

In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment of
Disposal of Long-Lived Assets", which is effective for financial statements
issued for fiscal years beginning after December 15, 2001 and interim periods
within those fiscal years. SFAS No. 144 addresses financial accounting and
reporting for the disposal of long-lived assets. The Company is currently
evaluating the potential impact, if any, the adoption of SFAS No. 144 will have
on its financial position and results of operations.

ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK

We manufacture some products in Mexico and subcontract the manufacture of some
products in China. The Company's results of operations could be negatively
effected by factors such as changes in foreign currency exchange rates due to
stronger economic conditions in those countries.

The Company doesn't expect any significant effect on its results of operations
from inflationary or interest and currency rate fluctuations.

17

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated financial statements and the Report of Independent Accountants
thereon are set forth under Item 14 (a) (1) of this Form 10-K.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE

NONE

PART III

The information pursuant to Items 10, 11, 12 and 13 is omitted from this report
(in accordance with Federal Instruction G for Form 10-K), since the Company is
filing with the Commission (by no later than April 30, 2002), a definitive proxy
statement pursuant to Regulation 14A, which involves the election of directors
at the annual shareholders' meeting of the Company which is expected to be held
in June of 2002.

18

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K

(a) 1 and 2 Financial Statements and Financial Statement Schedules

SEE INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES APPEARING ON
PAGE F-1 OF THIS FORM 10-K

(b) Exhibit Index

ITEM 16. EXHIBITS

(3) (a) Certificate of Incorporation dated February 17, 1983
(b) Certificate of Change of Name dated July 27, 1988
(c) Certificate of Change of Name dated July 4, 1989
(d) Memorandum
(e) Articles (equivalent to By-Laws)
(f) Certificate of Incorporation of Alpha Pro Tech, Ltd. dated
June 15, 1994*
(g) Application for Certificate of Registration and Articles of
Continuance - State of Wyoming - Filed June 24, 1994 *
(h) Certificate of Registration and Articles of Continuance of
Secretary of State, State of Wyoming, dated June 24, 1994 *
(i) Certificate of Secretary of State of Wyoming dated June 24,
1995 *
(j) Certificate of Amendment of Certificate of Incorporation of
Alpha Pro Tech, Ltd., dated June 24, 1994 *
(k) Article of Merger of BFD Industries, Inc., a Wyoming
Corporation and Alpha Pro Tech, Ltd., a Delaware
Corporation, effective July 1, 1994 *
(l) Certificate of Ownership and Merger which merges BFD
Industries with and into Alpha Pro Tech, Ltd., a Delaware
Corporation effective July 1, 1994 *

(4) (a) Form of Common Stock Certificate **

(10) (a) Form of Director's Stock Option Agreement
(b) Form of Employee's Stock Option Agreement
(c) Employment Agreement between the Company and Al Millar
dated June, 1989
(c)(i) Employment Agreement between the Company and Donald E.
Bennett, Jr. **
(c)(ii) Employment Agreement between the Company and Michael
Scheerer ***
(d) Lease Agreement between White Dairy Company, Inc. and the
Company for lease of the premises situated at 2724-7th
Avenue South, Birmingham, Alabama, 35233, dated March 1990
and amendment thereto dated April, 1990
(e) BFD Industries Limited Partnership Agreement between 881216
Ontario Inc. and Bernard Charles Sherman dated May 17, 1990
(f) Asset Purchase Agreement between the Company and the BFD
Industries Limited Partnership dated May 17, 1990
(g) Purchase Agreement between the Company, Bernard Charles
Sherman and Apotex, Inc. dated June 21, 1991 and amendment
thereto made August 30, 1991
(h) Professional Services Agreement between the Company and
Quanta Corporation dated September, 1991
(i) Sales and Marketing Agreement between the Company and MDC
Corp., dated October 4, 1991
(j) National Account Marketing Agreement between the Company
and National Contracts, Inc. dated October 7, 1991
(k) Group Purchasing Agreement between the Company and Premier
Hospitals Alliance, Inc. dated November 1, 1991

19

(l) Letter of Intent between the Company and the shareholders of
Alpha Pro Tech, Inc. dated December 11, 1991 and amendment
thereto dated February 19, 1992
(m) Group Purchasing Agreement between the Company and AmeriNet
Incorporated dated January, 1992
(n) Group Purchasing Agreement between the Company and Magnet,
Inc.
(o) Share Purchase Agreement re Acquisition of Alpha Pro Tech,
Inc.
(p) VWR Scientific Products Corporation Distribution Agreement
dated January 1, 2000****
(q) Business Relationship/Confidentially Agreement between the
Company and McDonald's Corporation dated February 1, 2000
and First Amendment thereto *****

- ----------------------------------------

Unless otherwise noted, all of the foregoing exhibits are incorporated by
reference to Form 10 Registration Statement (File No. 0-1983) filed on February
25, 1992.

* Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 1994 (File No. 019893)

** Incorporated by reference to Registration Statement on Form S-1,
(File No. 33-93894) which became effective August 10, 1995

*** Incorporated by reference to Post-Effective Amendment No. 1 filed
January 30, 1997 to Registration Statement on Form S-1 (File No.
33-93894)

**** Incorporated by reference to Annual Report on Form 10-K for the year
ended December 31, 2000 (File No. 01-9893)

***** Filed herewith

20

SIGNATURES

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

ALPHA PRO TECH, LTD.

Date: March 14, 2002 By: S/SHELDON HOFFMAN
---------------- -----------------
Sheldon Hoffman
Chief Executive Officer,
Principal Financial Officer
and Director

Date: March 14, 2002 By: :S/LLOYD HOFFMAN
---------------- -----------------
Lloyd Hoffman
Senior Vice President,
Controller and Principal
Accounting Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registration and
in the capacities indicated on March 14, 2002.

S/DONALD E. BENNETT, JR.
------------------------
Donald E. Bennett, Jr. Director

S/SHELDON HOFFMAN
-----------------
Sheldon Hoffman, Director

S/ROBERT H. ISALY
-----------------
Robert H. Isaly, Director

S/ALEXANDER W. MILLAR
---------------------
Alexander W. Millar, Director

S/ DR. JOHN RITOTA
------------------
Dr. John Ritota, Director

S/ RUSS MANOCK
--------------
Russ Manock, Director

21

ALPHA PRO TECH, LTD.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

All other schedules are omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto.

F - 1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of
Alpha Pro Tech, Ltd.

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Alpha
Pro Tech, Ltd. and its subsidiaries at December 31, 2001 and 2000, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedule listed in the accompanying index presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedule are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP
Salt Lake City, Utah
March 14, 2002

F - 2

ALPHA PRO TECH, LTD.

CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------

The accompanying notes are an integral part of these consolidated financial
statements.

F - 3

ALPHA PRO TECH, LTD.

CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------

The accompanying notes are an integral part of these consolidated
financial statements.

F - 4

ALPHA PRO TECH, LTD.

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------

The accompanying notes are an integral part of these consolidated
financial statements.

F - 5

ALPHA PRO TECH, LTD.

CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------

NON-CASH INVESTING AND FINANCING ACTIVITY:

2001
Reduction of income tax payable and increase in additional paid-in capital due
to tax effect of stock options exercised of $336,000.

2000
None.

1999
The company incurred capital lease obligations for machinery and equipment of
$56,000.

The accompanying notes are an integral part of these consolidated
financial statements.

F - 6

ALPHA PRO TECH, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

1. THE COMPANY

Alpha Pro Tech, Ltd. (the Company) manufactures and distributes a variety
of disposable mask, shield, shoecover and apparel products and woundcare
(fleece) products. Most of the Company's disposable apparel, mask and
shield products and woundcare products are distributed to medical, dental,
industrial and clean room markets, predominantly in the United States of
America.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of the Company and its wholly-owned subsidiary, Alpha Pro Tech, Inc. (APT),
as well as APT's wholly-owned subsidiary, DPI De Mexico (DPI). All
significant intercompany accounts and transactions have been eliminated.

INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. Provision is made for slow-moving,
obsolete or unusable inventory.

PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization and is depreciated and amortized using the straight-line
method over the shorter of the respective useful lives of the assets or the
related lease terms as follows:

Factory equipment 9-20 years
Office furniture and equipment 5-7 years
Leasehold improvements 4-6 years
Vehicles 5 years

Expenditures for renewals and betterments are capitalized whereas costs of
maintenance and repairs are charged to operations in the period incurred.

INTANGIBLE ASSETS
The excess of purchase price over the estimated fair value of assets
acquired and liabilities assumed has been recorded as goodwill and is being
amortized using the straight-line method over 8 years. Patent rights and
trademarks are recorded at cost and are amortized using the straight-line
method over their estimated useful lives of 8-17 years.

LONG-LIVED ASSETS
Impairment of long-lived assets is determined in accordance with Statement
of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and of Long- Lived Assets to be Disposed
Of." SFAS 121 requires that long-lived assets and certain identifiable
intangible assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of such assets may not be
recoverable.

STOCK OPTIONS ISSUED FOR SERVICES
Options to purchase common stock and warrants to purchase common stock that
are granted to nonemployees in exchange for services are valued at their
estimated fair value at the measurement date and are expensed over the
period the services are rendered. Effective January 1, 2000, the Company's
policy is to no longer grant stock options and warrants to nonemployees.

F - 7

ALPHA PRO TECH, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

REVENUE RECOGNITION
Sales are recognized when goods are shipped to customers, upon which time
title and risk of loss passes. Sales are reduced for anticipated sales
returns and allowances.

STOCK BASED COMPENSATION
As allowed by Statement of Financial Accounting Standards No. 123 (SFAS
123), "Accounting for Stock-based Compensation," which recommends, but does
not require, a method based on the fair value of equity instruments awarded
to employees to account for stock-based compensation, the Company applies
the intrinsic value method prescribed by APB Opinion No. 25, "Accounting
for Stock Issued to Employees" to account for its stock-based compensation.
The Company also provides pro forma disclosure in the notes to the
financial statements of the differences between the fair value method and
the intrinsic value method as required by SFAS 123 (Note 8).

INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income
Taxes." This statement requires an asset and liability approach for
accounting for income taxes. A valuation allowance is recorded to reduce
the carrying amounts of deferred tax assets unless it is more likely than
not such assets will be realized (Note 9).

NET INCOME PER SHARE
The following table provides a reconciliation of both the net income and
the number of shares used in the computations of "basic" earnings per share
("EPS"), which utilizes the weighted average number of shares outstanding
without regard to potential shares, and "diluted" EPS, which includes all
such shares.

TRANSLATION OF FOREIGN CURRENCIES
The Company has adopted the United States dollar as its functional
currency. Transactions in foreign currencies during the reporting periods
are translated into the functional currency at the exchange rate prevailing
at the transaction date. Monetary assets and liabilities in foreign
currencies at each period end are translated at the exchange rate in effect
at that date and are immaterial in amount. Transaction gains or losses on
foreign exchange are reflected in net income for the periods presented and
are not significant in amount.

F - 8

ALPHA PRO TECH, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

RECLASSIFICATIONS
Certain 2000 and 1999 balances have been reclassified to conform to the
current year's presentation.

USE OF ESTIMATES
The preparation of these consolidated financial statements in conformity
with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements
and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from these estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments including cash, accounts
receivable, notes receivable, accounts payable and notes payable
approximate their respective book values at December 31, 2001 and 2000.

NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. ("SFAS") 141, BUSINESS
COMBINATIONS. SFAS 141 requires that the purchase method of accounting be
used for all business combinations for which the date of acquisition is
after June 30, 2001. SFAS 141 also establishes specific criteria for the
recognition of intangible assets. The Company will adopt SFAS 141 for
acquisitions completed after June 30, 2001 in preparing its financial
statements.

In June 2001, the FASB issued SFAS No. 142, GOODWILL AND OTHER INTANGIBLE
ASSETS. SFAS 142 primarily addresses the accounting for goodwill and
intangible assets subsequent to their acquisition. SFAS 142 is effective
for fiscal years beginning after December 15, 2001. The Company will adopt
SFAS 142 as of January 1, 2002 and has determined that the adoption of SFAS
No. 142 will not have a significant effect on the earnings and financial
position of the Company. As of December 31, 2001, the Company had
unamortized goodwill of $55,000.

In June 2001, the FASB issued SFAS No. 143, ACCOUNTING FOR ASSET RETIREMENT
OBLIGATIONS, which addresses financial accounting and reporting for
obligations associated with the retirement of tangible long-lived assets
and the associated asset retirement costs. The Company has evaluated this
new pronouncement and has determined that it will not have any effect on
its financial position and results of operations.

In August 2001, the FASB issued SFAS No. 144, ACCOUNTING FOR THE IMPAIRMENT
OF DISPOSAL OF LONG-LIVED ASSETS, which addresses financial accounting and
reporting for the disposal of long-lived assets. The Company is currently
evaluating the potential impact, if any, the adoption of SFAS No. 144 will
have on its financial position and results of operations.

F - 9

ALPHA PRO TECH, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

3. INVENTORIES

Inventories consist of the following:

4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following:

Included in the above amounts are the following assets under
capital lease obligations:

F - 10

ALPHA PRO TECH, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

5. INTANGIBLE ASSETS

Intangible assets consist of the following:

6. ACCRUED LIABILITIES

Accrued liabilities consist of the following:

7. NOTES PAYABLE

In December 1997, the Company, through its wholly owned subsidiary APT,
entered into a three-year credit facility with an asset-based lender. The
facility has been subsequently extended until May 15, 2003. Notes payable
at December 31, 2001 represent outstanding amounts against the facility.
Pursuant to the terms of the credit agreement, the Company has a line of
credit for up to $3,500,000 based on eligible accounts receivable and
inventory, of which $355,000 and $0 was outstanding and $1,911,000 and
$1,867,060 was available at December 31, 2001 and 2000, respectively. The
credit facility bears interest at prime plus .5%, which totaled 5.25% and
10.0% at December 31, 2001 and 2000, respectively and is collateralized by
accounts receivable, inventory, trademarks, patents, property, and 66.67%
of the issued and outstanding shares of DPI.

The Company also has a $400,000 term note collateralized by equipment. The
Company's outstanding balance on this term note was $92,000 and $178,000 at
December 31, 2001 and 2000, respectively. The term note is due in monthly
installments of $7,000 with interest at prime plus 1.00%, which totaled
5.75% and 10.5% at December 31, 2001 and 2000, respectively, maturing July
1, 2003.

The Company paid $29,000 in loan origination fees to obtain the above
credit facilities. Under the terms of the agreement, the Company pays a
0.5% loan fee annually.

F - 11

ALPHA PRO TECH, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

The Company has a $316,000 equipment loan. The outstanding balance on this
loan was $263,000 and $316,000 at December 31, 2001 and 2000, respectively.
This note is due in monthly installments of $7,000 with a fixed interest
rate of 8.5% maturing November 2005.

The Company obtained an equipment loan in April 2001 and the outstanding
balance at December 31, 2001 and 2000 was $139,000 and $316,000,
respectively. Payments are due in monthly installments of $3,000 with a
fixed interest rate of 8.5% maturing April 2006.

The Company obtained an equipment loan in June 2001 and the outstanding
balance at December 31, 2001 was $106,000. Payments are due in monthly
installments of $2,000 with a fixed interest rate of 8.5%, maturing June
2006.

Future maturities of notes payable are as follows:

2002 $ 185,000
2003 482,000
2004 125,000
2005 136,000
2006 27,000
-----------
$ 955,000
-----------

8. SHAREHOLDERS' EQUITY

WARRANT ACTIVITY

For each of the three years ended December 31, 2001 the Company had
outstanding warrants to purchase 119,048 shares of common stock at an
exercise price of $1.75 per share. No warrants have been exercised during
the three years ended December 31, 2001. All warrants expire on July 1,
2004.

OPTION ACTIVITY

During 1993, the Company adopted stock option plans for employees and
directors of the Company. As of December 31, 2001, 4.5 million shares were
reserved for issuance under these plans and 4.0 million options have been
granted. The exercise price of the options is determined based on the fair
market value of the stock on the date of grant, and the options generally
vest immediately.

F - 12

ALPHA PRO TECH, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

Option activity for the three years ended December 31, 2001 is as follows:

All options are fully exercisable.

The following summarizes information about stock options outstanding at
December 31, 2001:

Had compensation expense for the Company's employee/director options been
determined based on the fair value of the options at the grant date, the
Company's pro forma net income and pro forma net income per share would
have been as follows:

F - 13

ALPHA PRO TECH, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

For the purpose of the above pro forma disclosures, the fair value of each
employee/director stock option was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions:

The weighted-average grant date fair values of employee/director options
granted during 2001, 2000 and 1999 were $0.46, $0.62 and $0.22
respectively.

9. INCOME TAXES

The provision for income taxes consists of the following:

Deferred tax assets (liabilities) are comprised of the following at
December 31.

F - 14

ALPHA PRO TECH, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

The net deferred tax liability as of December 31, 2001 and 2000 is
reflected in the balance sheets as follows:

The provision for income taxes differs from the amount that would be
obtained byapplying the United States statutory rate to the income before
income taxes as a result of the following:

10. LEASE COMMITMENTS AND OBLIGATIONS

The Company leases manufacturing facilities under non-cancelable operating
leases expiring through November 2004.

The following summarizes future minimum lease payments required under
non-cancelable operating leases:

Total rent expense incurred by the Company under operating leases for the
years ended December 31, 2001, 2000 and 1999 was $716,000, $636,000 and
$619,000, respectively.

The Company also leases certain manufacturing and office equipment under
capital leases expiring between April 2001 and December 2002. Total
remaining obligations under capital leases at December 31, 2001 are $9,000.

The Company does not have any pension, profit sharing or similar plans
established for its employees; however, the chief executive officer and
president are entitled to a combined bonus equal to 10% of the pre-tax
profits of the company. A bonus of $134,000 was accrued for 2001 and
$183,000 was accrued in 2000.

F - 15

ALPHA PRO TECH, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

11. ACTIVITY OF BUSINESS SEGMENTS

The Company classifies its businesses into three fundamental segments:
Apparel, consisting of a complete line of disposable clothing such as
overalls, frocks, lab coats, hoods, bouffant caps, and shoecovers
(including the Aqua Track and spunbond shoecovers); Mask and eye shields,
consisting principally of medical, dental and industrial masks and eye
shields; and Extended Care Unreal Lambskin(R), consisting principally of
fleece and other related products which includes a line of pet beds.

The accounting policies of the segments are the same as those described
previously under "Summary of Significant Accounting Policies." Segment data
excludes charges allocated to head office and corporate sales/marketing
departments. The Company evaluates the performance of its segments and
allocates resources to them based primarily on net sales.

The following table shows net sales for each segment for the years ended
December 31, 2001, 2000 and 1999:

A reconciliation of total segment net income to total consolidated net
income for the years ended December 31, 2001, 2000 and 1999 is presented
below:

F - 16

ALPHA PRO TECH, LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

The following reflects sales and long-lived asset information by geographic
area as of and for the years ended December 31, 2001, 2000 and 1999:

Sales by region are based on the countries in which the customers are
located. The Company did not generate sales from any single foreign country
that was significant to the Company's consolidated sales.

12. MAJOR CUSTOMER AND CONCENTRATION OF CREDIT RISK

The Company sells significant amounts of product to a large distributor on
credit terms. Net sales to this distributor were 65.2%, 62.5% and 57.8% of
total net revenue for 2001, 2000 and 1999, respectively. Trade receivables
from this distributor were 54.5% and 67.9% of total trade receivables for
2001 and 2000, respectively. Management believes that adequate provision
has been made for risk of loss on all credit transactions.

13. RELATED PARTY TRANSACTIONS

Included in the notes receivable and other assets balance at December 31,
2001 and 2000 are notes receivable of $55,000 and $36,000, respectively
from officers of the Company.

F - 17

ALPHA PRO TECH, LTD. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

F - 18