ITEM 1. BUSINESS
GENERAL
ALPHA PRO TECH, LTD. (referred to herein as the "Company") was incorporated on February 17, 1983 pursuant to the British Columbia COMPANY ACT R.S.B.C. 1979, Chapter 59 (the "COMPANY ACT (BRITISH COLUMBIA)" under the name Princeton Resources Corp. The Company subsequently changed its name to Canadian Graphite Ltd. on July 27, 1988 and further changed its name to BFD Industries Inc. on July 4, 1989. Effective July 1, 1994, the Company changed its corporate domicile from Canada to the State of Delaware in the United States and changed its name to Alpha Pro Tech, Ltd. At that time, all of the Company's operating assets were transferred to its wholly owned subsidiary, Alpha Pro Tech, Inc. 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.
BUSINESS
The Company develops, manufactures and markets disposable protective apparel and consumer products for the cleanroom, food services, industrial, medical, dental 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; food industry apparel consisting of a line of automated shoecovers, sleeve protectors, aprons, and face shields; 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; 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 Unreal Lambskin(R) 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 focus on its other core businesses which include medical, dental and pet markets and to grow its industrial safety and food service businesses . 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.
The Company will continue to pursue the food service industry with its proprietary shoecover, which helps prevent employees from slipping and falling on slippery surfaces, found in restaurants, supermarkets and food processing facilities.
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 800 additional distributors, approximately 24 independent sales representatives and a Company sales and marketing force of 14 people.
PRODUCTS
The Company's principal product groups and products include the following:
Disposable Protective Apparel
* Shoecovers * Headcovers * Gowns * Coveralls * Lab Coats
Food Industry
* Automated Shoecovers * Sleeve Protectors * Aprons * Face Shields
Infection Control
* Face Masks * Face Shields
Extended Care
* Unreal Lambskin * Medi-Pads * Hospital Pads * Wheelchair accessories * Bedrail Pads * Knee and Elbow protectors
Consumer Products
* Pet Bedding * Pet Toys
DISPOSABLE PROTECTIVE APPAREL
The Apparel division was established April 1, 1994, in connection with the acquisition of the assets of Disposable Medical Products Inc. ("DMPI"). 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.
FOOD INDUSTRY
The Company has developed a line of safety products specifically for the food industry, including a shoecover produced on our patented automated shoecover machine in combination with our patented laminated material. These products enabled the Company to secure a Vendor Supply Agreement with a lender in the food service industry.
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.
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.
DISTRIBUTION
The Company relies primarily on a network of independent distributors for the sale of its products including the following:
* VWR Scientific Products * Allegiance Healthcare * McKesson HBOC * Medline Industries * Blain Supply * Owens and Minor * Durr/Bergin Brunswig Medical * Merck * Henry Schein
All of the above distributors to the best of the Company's knowledge sell competing products.
In 1996, the Company entered into an exclusive five year agreement to supply VWR Scientific Products with eye and face shields, masks and disposable apparel for sale to the Industrial/Cleanroom market place. The distribution agreement calls for VWR to purchase a minimum of $5 million in each of the years of the contract to retain exclusive distribution rights. This minimum figure has been attained for 1996 through 1999. In early 2000, the Company extended its exclusive agreement through 2002 with a minimum annual requirement of $10 million for VWR to retain exclusive distribution rights. On January 1 ,2001 this agreement was extended to December 31, 2003 and the minimum was increased to $12,500,000.
Sales to VWR Scientific Products represented 62.5% of total sales for 2000, 57.8% for 1999 and 51.1% for 1998. 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, however, with an exceptional high influx of orders in the last quarter of 2000 and the first two months of 2001, shipments are now running at approximately 45 days. The Company is presently expanding its capacity through strategic relationships with global suppliers and the increasing of capacity in its US and Mexican plants. The Company anticipates to be back to under 30 day delivery by the second quarter of 2001.
MANUFACTURING
The Company's mask production facility is located in a 27,000 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 Unreal Lambskin products.
The Company produces its disposable protective apparel in three facilities: a 40,000 square foot facility located at 1287 Fairway Drive in Nogales, Arizona which is used for cutting, warehousing and shipping, a 19,500 square foot facility at Kennedy Drive #6 in Sonora, Mexico which is used for assembly of shields and sewing, and a 30,000 square foot facility located at Ave. Abolardo L. Rodriguez y Novena, Benjamin Hill, Sonora Mexico, which is used for sewing.
The Company has a material coating and automated shoecover facility of 36,000 square feet located at 2224 Cypress Street, Valdosta, Georgia.
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, American Threshold, Medline Industries Inc. and Maxxium Medical. 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, Texten Corp., Glenoit Mills and Hudson Industries are the principal competitors, and in the consumer products market, principal competitors include Flexmat Corporation, Lazy Pet Company and Dogloo, Inc. 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.
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 and 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 continue 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 6 to 16 years before expiration.
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 1, 2001, the Company had 526 employees, including 20 persons at its head office in Markham, Ontario, Canada; 33 persons at its facemask production facility in Salt Lake City, Utah and 21 persons at its Extended Care production facility in Janesville, Wisconsin; 41 persons at its cutting, warehouse and shipping facility in Nogales, Arizona; 47 persons at its shield assembly and sewing operation in Nogales, Mexico; 329 at its sewing operation in Benjamin Hill, Mexico; and 21persons at its coating and automated shoecover facility in Valdosta, Georgia.
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 2000 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.
ITEM 2. PROPERTIES
The Companies' Head Office is located at 60 Centurian Drive, Suite 112, Markham, Ontario L3R 9R2. The approximate monthly costs are $3,800 under a lease expiring February 28, 2002. Twenty (20) 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 this head office.
The Company manufactures its surgical face masks at 903 West Center Street, Building C, North Salt Lake, Utah. The monthly rental is $6,810 for 27,000 square feet. This lease expires July 1, 2002 with successive 2-year renewal options at rents based on the U.S. Consumer Price Index.
A second manufacturing facility is located at 615 North Parker Drive, Janesville, Wisconsin. These premises of 25,000 square feet are leased for $7,000 monthly. The lease expires August 15, 2002. The Company's line of Extended Care products is manufactured in these facilities.
The Apparel division has its cutting operation, warehousing, and shipping facility at 1287 Fairway Drive, Nogales, Arizona. The monthly rental is $10,500 for 40,000 square feet. This lease expires November 30, 2002. Shield assembly and sewing is done at Kennedy Drive, # 6 in Sonora, Mexico. The monthly rental is $ 6,500 for 19,500 square feet. This lease expires June 30, 2002. Sewing is done at Ave. Abelardo L. Rodriguez Y. Novena, Benjamin Hill, Sonora, Mexico. The monthly rental is $7,200 for 30,000 square feet. This lease expires June 23,
The Coating 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.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
There are no pending legal proceedings against the Company.
ITEM 4.
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 2000.
PART II
ITEM 5.
ITEM 5. MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS PRICE RANGE OF SECURITIES
On March 8, 1993 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 "BFDIF." When the Company changed its name to Alpha Pro Tech Ltd. on July 1, 1994, its symbol was changed to 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:
At February 16, 2001 there were 473 shareholders of record, and approximately 2,800 beneficial owners.
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.
ITEM 6. SELECTED FINANCIAL DATA
ALPHA PRO TECH, LTD.
SELECTED FINANCIAL DATA
(1) Includes the operations of Ludan Corporation which was acquired effective April 1, 1995. See Note 12 in Notes to the Consolidated Financial Statements.
(2) Includes the operations of Disposable Medical Products, Inc. which was acquired on March 25, 1994. See Note 12 in Notes to the Consolidated Financial Statements.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL 2000 COMPARED TO FISCAL 1999
Alpha Pro Tech, Ltd. ("Alpha" or the "Company") reported record 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 net income increase of $331,000 is attributable primarily to an increase in gross profit of $907,000, due to higher sales and gross profit margin and decrease in net interest expense of $130,000, partially offset by an increase in selling, general and administrative expenses of $482,000, an increase in depreciation and amortization of $43,000 and an increase in income taxes of $181,000. Management expects a sixth consecutive record in sales and net income in 2001.
SALES Consolidated sales for the year ended December 31, 2000 increased to a record $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 4.8% 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. Management's expectation is that growth should continue, and as a result the Company's sales to this distributor should also remain strong.
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 sales 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. Industrial mask sales improved in the last two quarters of 2000 and are expected to remain strong into 2001.
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 0.7% 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. In 2000, the Company implemented a pet products telemarketing campaign and believes that sales should continue to strengthen into 2001.
The Medical market, which includes a line of face masks and fleece bed pads, is down by $462,000 or 12.7% year to date. Fleece bed pads sales are down and medical face masks sales are up. With the addition of independent sales representatives and an improved line of face masks, sales to new medical distributors are expected to improve over the next 12 months.
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, increased by $130,000 or 13.3% for the year ended December 31, 2000 as compared to the same period in 1999. Since late 1999, the Company has dedicated a sales representative to this market and sales should continue to strengthen.
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%. The Company expects Food Service sales to gain momentum and grow significantly in 2001. The Company has signed a Vendor Supply Agreement in 2000 with a leader in the food service industry who has more than 25,000 restaurants in 119 countries worldwide, to market its line of proprietary Food Service Safety Products to their restaurants. Alpha has initiated a widespread telemarketing and sampling campaign. The Company has participated and will continue to participate in local and regional meetings throughout the US along with Security, Human Resources, and Field Service directors from this industry leader. The Company is also working with insurance companies which specialize in insuring the Food Service industry, as well as other national Food Service chains.
Management believes that over the next twelve months, revenue will grow in all of its current markets, which include Industrial Cleanroom/Safety, Medical, Dental, Pet Supply and Food Service.
COST OF GOODS SOLD Cost of goods sold decreased 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. Management expects gross profit margin for fiscal 2001 to continue to be strong, due to a more global emphasis on purchasing and a continued emphasis on improving manufacturing processes and efficiency.
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 is 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. Management expects selling, general and administrative expenses as a percentage of net sales to decrease as sales increase.
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.
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, 1999. 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 expense 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.
PROVISION FOR INCOME TAX Provision for income tax increased by $181,000 or 1005.6% 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 the third quarter in 2000.
NET INCOME Net income for the year ended December 31, 2000 was a record $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 Company in 1999 initiated a 401 (k) Retirement Savings Plan. Employees who have attained age 21 and completed at least one year of service with the Company are eligible to make contributions to the 401 (k) Plan of up to 12% of the employees compensation. The employee's fully vested benefit under the plan may be distributed to the employee upon retirement, death, disability or termination of employment or upon reaching age 59 1/2. Under the 401 (k) Plan the Company is contributing 1/2 of 1% for employees contributing 1% of their compensation and 1% for employees contributing 2% or more of their compensation. For the year ended December 31, 2000 the Company has accrued $14,200 compared to $15,300 for the year ended December 31, 1999.
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.
FISCAL 1999 COMPARED TO FISCAL 1998
The Company reported net income for the year ended December 31, 1999 of $1,129,000 as compared to net income of $316,000 for the year ended December 31, 1998, representing an improvement of $813,000 or 257.3%. The net income increase of $813,000 is attributable primarily to an increase in gross profit of $733,000, due to a 12.5% increase in sales, a Decrease in depreciation and amortization of $40,000, a decrease in net interest expense of $69,000, partially offset by an increase in selling, general and administrative expenses of $11,000 and an increase in provision for incomes taxes of $18,000.
SALES Consolidated net sales for the year ended December 31, 1999 increased to $20,235,000 from $17,985,000 in 1998, representing an increase of $2,250,000 or 12.5%.
Net sales for the Apparel Division for the year ended December 31, 1999 were $12,883,000 as compared to $11,685,000 for the same period of 1998. The Apparel Division sales increase of $1,198,000 or 10.3% was primarily due to increased sales to the Company's largest distributor. This distributor has reported sales increases of the Company's products for six consecutive quarters. Net sales to this distributor were 57.8% and 51.1% of total consolidated net sales for 1999 and 1998, respectively.
Mask and eye shield sales increased by $915,000 or 22.0% to $5,073,000 in 1999 from $4,158,000 in 1998. This increase is primarily the result of growth in industrial mask sales, and to a lesser extent medical mask sales, partially offset by a decline of sales in the dental distributor market. The industrial mask sales increase is primarily the result of sales to the Company's largest distributor. As a result of the introduction of the Medical Division in 1999, medical mask sales improved 8.1% in 1999.
Sales from the Company's Extended Care Unreal Lambskin(R) and other related products, which includes a line of pet beds, increased by $137,000 or 6.4% to $2,279,000 in 1999 compared to $2,142,000 in the same period in 1998. The increase in sales of $137,000 is primarily the result of increased pet product sales and to a lesser extent to medical fleece sales. In 1999, the Company implemented a pet products telemarketing campaign.
In 1999, sales for all three divisions of the Company improved over the previous year, as compared to 1998 in which only one division, the Apparel Division, improved over the prior year.
COST OF GOODS SOLD Cost of goods sold increased to $12,250,000 for the year ended December 31,1999 from $10,733,000 for the same period in 1998. As a percentage of net sales, cost of goods sold increased to 60.5% in 1999 from 59.7% in 1998. Gross profit margin Decreased to 39.5% for the year ended December 31, 1999 from 40.3% for the same period in 1998.
The decline in gross profit margin to 39.5% from 40.3% is a result of mask manufacturing inefficiencies due to the growth of the mask sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased by a modest $11,000 to $6,352,000 for the year ended December 31, 1999 from $6,341,000 for the year ended December 31, 1998. As a percentage of net sales, selling, general and administrative expenses Decreased to 31.4% in 1999 from 35.3% in 1998. The increase in selling, general and administrative expenses primarily consists of increased payroll related costs of $342,000; increased professional fees of $28,000; increased rent expense of $19,000; increased factory expenses of $42,000 and increased general office and insurance expenses of $62,000. This is partially offset by Decreased marketing, commissions, and travel expenses of $359,000; Decreased public company expenses of $102,000, including investor relations, options/warrants issued for services, annual report and annual meeting costs, stock transfer costs, and costs associated with SEC reporting requirements; and Decreased telecommunication expenses of $21,000.
DEPRECIATION & AMORTIZATION Depreciation and amortization expense Decreased by $40,000 to $362,000 for the year ended December 31, 1999 from $402,000 for the same period in 1998. This Decrease is primarily attributable to assets in the mask division being fully depreciated.
INCOME FROM OPERATIONS Income from operations increased by $762,000 or 149.7%, to $1,271,000 for the year ended December 31, 1999 as compared to income from operations of $509,000 for the year ended December 31, 1998. The increase in income from operations is due to an increase in gross profit of $733,000, a Decrease in depreciation and amortization of $40,000, partially offset by a modest increase in selling, general and administrative expenses of $11,000.
NET INTEREST Net interest expense Decreased by $69,000 or 35.8% to $124,000 for the year ended December 31, 1999 from $193,000 for the year ended December 31, 1998. The Decrease in net interest expense is due to lower borrowings, Decreased interest on capital leases and increased interest income. Interest income increased by $3,000, to $39,000 for 1999 from $36,000 in 1998. The Company has extended until December 31, 2001, its $2,900,000 credit facility with an asset-based lender, consisting of a line of credit of up to $2,500,000 and a term note of $400,000, with interest at prime plus 1.75% on the credit line and at prime plus 2.25% on the term note.
PROVISION FOR INCOME TAX Provision for income tax consists of the Company's alternative minimum taxable (AMT) income. Net operating losses (NOLs) from prior years were utilized during 1999 to offset all other income tax expense.
NET INCOME Net income for the year ended December 31, 1999 was $1,129,000 compared to net income of $316,000 for the year ended December 31, 1998, an improvement of $813,000 or 257.3%. The net income increase of $813,000 is comprised of an increase in income from operations of $762,000 and a Decrease in interest expense of $69,000, partially offset by an increase in provision for income taxes of $18,000.
The Company in 1999 initiated a 401(k) Retirement Savings Plan. Employees who have attained age 21 and completed at least one year of service with the Company are eligible to make contributions to the 401(k) Plan of up to 12% of the employees compensation. The employee's fully vested benefit under the plan may be distributed to the employee upon retirement, death, disability or termination of employment or upon reaching age 59 1/2. Under the 401(k) Plan the Company is contributing 1/2 of 1% for employees contributing 1% of their compensation and 1% for employees contributing 2% or more of their compensation. For the year ended December 31, 1999 the company has accrued $15,300.
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 $125,000 was earned in 1999 as compared to $32,000 in 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 2000, the Company had cash of $1,131,000 and working capital of $5,475,000. During the year ended December 31, 2000, cash increased by $346,000 and accounts payable and accrued liabilities decreased by $405,000. The increase in the Company's cash is primarily due to income from operations and a decrease in inventory, partially offset by capital expenditures of $872,000 and a reduction in borrowings of $427,000. In 2000, the Company re-negotiated its credit facility to a traditionally based line of credit from an asset-based loan. The Company has a $4,041,000 credit facility with the bank, of which $494,000 is outstanding at December 31, 2000, 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 2002, the term note expires in April 2003 and the equipment loan expires in November 2005. At December 31, 2000, the Company had not borrowed on its line of credit.
Net cash provided by operations was $2,091,000 for the year ended December 31, 2000 compared to $1,677,000 for the same period of 1999. The Company's generation of cash from operations for the year ended December 31, 2000 is due primarily to the increase in net income, a decrease in inventory, and a decrease in prepaid expenses and other assets, partially offset by an increase in accounts receivable and a decrease in accounts payable and accrued liabilities.
The Company's investing activities have consisted primarily of expenditures for fixed assets of $872,000 and increases in intangible assets of $24,000 for a total of $896,000 for the year ended December 31, 2000 compared to $479,000 for the year ended December 31, 1999.
The Company anticipates that its mask manufacturing capabilities are to be further improved in 2001 at an estimated cost of $400,000. The Company also anticipates that its automated shoecover manufacturing capabilities are to be further improved in 2001 at an estimated cost of $150,000. The Company intends to lease equipment whenever possible.
During the year ended December 31, 2000, the Company's cash used in financing resulted primarily from net decreases in the Company's loan payable of $427,000, decreases in capital leases of $130,000 and the buy-back of 374,100 of the Company's common share at a cost of $506,000 and the exercise of options to purchase 236,667 shares of the Company's common shares in which the Company received $214,000. The Company announced in December 1999 that it was authorized to buy-back up to $500,000 of its own shares. In January 2001, the Company announced today that its Board of Directors has authorized the repurchase of an additional $500,000 worth of shares of the Company's outstanding Common Stock. As of February 28, 2001, the Company has bought back 436,600 common shares at a cost of $571,800.
The Company believes that cash generated from operations, its current cash balance, and the funds available under its asset-based borrowings, will be sufficient to satisfy the Company's projected working capital and planned capital expenditures for at least 12 months.
YEAR 2000
We met our Year 2000 project objectives and completed the project prior to year-end. We have not experienced any disruption in our operations as a result of non-compliance of vendors, financial institutions, or other third parties or external systems. At this time, the possibility of a third-party risk arising, which could have a material risk on the company, is not reasonably likely to occur. In 1998 we developed a Year 2000 program to identify, evaluate, test, upgrade, or replace each of our computer based systems in connection with Year 2000 readiness. We completed the process of modifying, upgrading, remediating and replacing major computer related systems that were identified as potentially non-compliant in June 1999. In 1999 we requested letters of compliance from critical external suppliers to determine the status of their efforts to become Year 2000 compliant. Total costs associated with our Year 2000 project were funded with operating cash flow and approximated $50,000, of which approximately $20,000 was incurred in 1998 and approximately $30,000 was incurred in 1999.
ITEM 8.
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.
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, 2001), 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 2001.
PART IV
ITEM 14.
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 OF THIS FORM 10-K
(b) Exhibit Index
- --------------------------------------------------
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)
**** Filed herewith
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: February 26, 2001 By: /s/ SHELDON HOFFMAN ----------------- -------------------- Sheldon Hoffman Chief Executive Officer, Principal Financial Officer and Director
Date: February 26, 2001 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 February 28, 2000.
/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
ALPHA PRO TECH, LTD.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
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.
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, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, 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 February 26, 2001
ALPHA PRO TECH, LTD
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
ALPHA PRO TECH, LTD
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of these consolidated financial statements.
ALPHA PRO TECH, LTD
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
The accompanying notes are an integral part of these consolidated financial statements.
ALPHA PRO TECH, LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
NON-CASH INVESTING AND FINANCING ACTIVITY:
None.
The company incurred capital lease obligations for machinery and equipment of $56,000.
The Company incurred capital lease obligations for machinery and equipment of $53,000.
The accompanying notes are an integral part of these consolidated financial statements.
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:
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.
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
REVENUE RECOGNITION Sales are recognized when goods are shipped to customers. 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.
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
RECLASSIFICATIONS Certain 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 require 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, restricted cash, accounts receivable, notes receivable, accounts payable and notes payable approximate their respective book values at December 31, 2000 and 1999.
3. INVENTORIES
Inventories consist of the following:
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
Included in the above amounts are the following assets under capital lease obligations:
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
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 December 31, 2001. Notes payable at December 31, 1999 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 zero was outstanding and $1,867,060 was available at December 31, 2000. The credit facility bears interest at prime plus 1.00%, which totaled 10.5% at December 31, 2000 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 $225,000 term note collateralized by equipment. The Company's outstanding balance on this term note was $178,000 at December 31, 2000. The term note is due in monthly installments of $7,000 with interest at prime plus 1.00%, which totaled 10.5% at December 31, 2000, 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.
The Company obtained an equipment loan in November 2000 and the outstanding balance at December 31, 2000 was $316,000. Payments are due in monthly installments of $7,000 with a fixed interest rate of 10.25%, maturing November 2005.
Future maturities of notes payable are as follows:
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
8. SHAREHOLDERS' EQUITY
WARRANT ACTIVITY
For each of the three years ended December 31, 2000 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, 2000. 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, 1999, 4.5 million shares were reserved for issuance under these plans and 3.7 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.
Option activity for the three years ended December 31, 2000 is as follows:
All options are fully exercisable.
The following summarizes information about stock options outstanding at December 31, 2000:
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
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:
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 2000, 1999 and 1998 were $0.62, $0.22 and $0.27 respectively.
9. INCOME TAXES
The provision for income taxes consists of the following:
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
Deferred tax assets (liabilities) are comprised of the following at December 31.
The net deferred tax liability as of December 31, 2000 and 1999 is reflected in the balance sheets as follows:
The provision for income taxes for 2000 consists of the Company's current tax liability and the changes in deferred taxes, including the benefit of the elimination of the valuation allowance. The valuation allowance offsetting the deferred tax asset in 1999 has been released pursuant to SFAS 109 as the Company has fully utilized the federal net operating losses (NOLs) for United States tax purposes as of December 31, 2000. Some state NOLs remain to be utilized in the future. All unutilized Canadian NOLs expired as of December 31, 2000.
The provision for income taxes differs from the amount that would be obtained by applying the United States statutory rate to the income before income taxes as a result of the following:
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
10. LEASE COMMITMENTS AND OBLIGATIONS
The Company leases manufacturing facilities under non-cancelable operating leases expiring through November 2002.
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, 2000, 1999 and 1998 was $636,000, $619,000 and $654,000, 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, 2000 are $41,000.
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 $183,000 was earned in 2000 as compared to $125,000 in 1999.
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.
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
The following table shows net sales for each segment for the years ended December 31, 2000, 1999 and 1998:
A reconciliation of total segment net income to total consolidated net income for the years ended December 31, 2000, 1999 and 1998 is presented below:
The following reflects sales and long-lived asset information by geographic area as of and for the years ended December 31, 2000, 1999 and 1998:
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.
ALPHA PRO TECH, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - --------------------------------------------------------------------------------
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 62.5%, 57.8% and 51.1% of total net revenue for 2000, 1999 and 1998, respectively. Trade receivables from this distributor were 67.9% and 43.1% of total trade receivables for 2000 and 1999, 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, 2000 and 1999 are notes receivable of $36,000 and $27,000, respectively from officers of the Company.
ALPHA PRO TECH, LTD. AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS