ALPHA PRO TECH LTD 10-Q

apt20220331_10q.htm     UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549   FORM 10-Q     ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the quarterly period ended March 31, 2022   OR   ☐  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934   For the transition period from to .   Commission File No. 01-15725   Alpha Pro Tech, Ltd.   (Exact Name of Registrant as Specified in Its Charter)   Delaware , U.S.A. 63-1009183 (State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)     60 Centurian Drive, Suite 112   Markham , Ontario , Canada L3R 9R2 (Address of Principal Executive Offices) (Zip Code)   Registrant’s telephone number, including area code: ( 905 ) 479-0654   Securities registered pursuant to Section 12(b) of the Act:   Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, $0.01 par value APT NYSE American   Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐   Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐   Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.   Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☒             Emerging growth company ☐           If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐   Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒   Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.   Class   Outstanding May 3 2022 Common Stock, $0.01 par value   12,969,391 shares                            Alpha Pro Tech, Ltd.   Index   PART I. FINANCIAL INFORMATION         ITEM 1. Financial Statements page         Condensed Consolidated Balance Sheets (Unaudited) 1         Condensed Consolidated Statements of Comprehensive Income (Unaudited) 2         Condensed Consolidated Statements of Shareholders’ Equity (Unaudited) 3         Condensed Consolidated Statements of Cash Flows (Unaudited) 4         Notes to Condensed Consolidated Financial Statements (Unaudited) 5       ITEM 2. Management’s Discussion and Analysis of Financial  Condition and Results of Operations 13       ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 20       ITEM 4. Controls and Procedures 21       PART II. OTHER INFORMATION         ITEM IA. Risk Factors 21       ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 22       ITEM 6. Exhibits 23       SIGNATURES 24     EXHIBITS         Alpha Pro Tech, Ltd.       PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Condensed Consolidated Balance Sheets (Unaudited)       March 31,     December 31,       2022     2021 (1)   Assets                 Current assets:                 Cash and cash equivalents   $ 14,239,000     $ 16,307,000   Accounts receivable, net of allowance for doubtful accounts of $71,000 as of March 31, 2022 and $64,000 as of December 31, 2021     7,211,000       3,397,000   Accounts receivable, related party     1,597,000       1,383,000   Inventories     23,883,000       24,969,000   Prepaid expenses     6,207,000       6,943,000   Total current assets     53,137,000       52,999,000                     Property and equipment, net     5,985,000       6,064,000   Goodwill     55,000       55,000   Definite-lived intangible assets, net     3,000       3,000   Right-of-use assets     2,420,000       2,648,000   Equity investment in unconsolidated affiliate     6,169,000       6,120,000   Total assets   $ 67,769,000     $ 67,889,000                     Liabilities and Shareholders' Equity                 Current liabilities:                 Accounts payable   $ 522,000     $ 528,000   Accrued liabilities     542,000       1,250,000   Lease liabilities     887,000       883,000   Total current liabilities     1,951,000       2,661,000                     Lease liabilities, net of current portion     1,586,000       1,817,000   Deferred income tax liabilities, net     791,000       791,000   Total liabilities     4,328,000       5,269,000   Commitments and contingincies                     Shareholders' equity:                 Common stock, $.01 par value: 50,000,000 shares authorized; 12,945,341 and 13,115,341 shares outstanding as of March 31, 2022 and December 31, 2021, respectively     130,000       132,000   Additional paid-in capital     -       -   Retained earnings     63,311,000       62,488,000   Total shareholders' equity     63,441,000       62,620,000   Total liabilities and shareholders' equity   $ 67,769,000     $ 67,889,000     (1) The condensed consolidated balance sheet as of December 31, 2021 has been prepared using information from the audited consolidated balance sheet as of that date.   See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).   1 Alpha Pro Tech, Ltd.       Condensed Consolidated Statements of Comprehensive Income (Unaudited)       For the Three Months Ended       March 30,       2022     2021                     Net sales   $ 17,661,000     $ 23,161,000                     Cost of goods sold, excluding depreciation and amortization     11,219,000       13,982,000   Gross profit     6,442,000       9,179,000                     Operating expenses:                 Selling, general and administrative     4,306,000       4,578,000   Depreciation and amortization     212,000       198,000   Total operating expenses     4,518,000       4,776,000                     Income from operations     1,924,000       4,403,000                     Other income:                 Equity in income of unconsolidated affiliate     49,000       322,000   Interest income, net     1,000       1,000   Total other income     50,000       323,000                     Income before provision for income taxes     1,974,000       4,726,000                     Provision for income taxes     452,000       1,007,000                     Net income   $ 1,522,000     $ 3,719,000                                       Basic earnings per common share   $ 0.12     $ 0.28                     Diluted earnings per common share   $ 0.12     $ 0.27                     Basic weighted average common shares outstanding     13,058,871       13,342,398                     Diluted weighted average common shares outstanding     13,159,490       13,717,404     See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).   2 Alpha Pro Tech, Ltd.       Condensed Consolidated Statements of Shareholders ’ Equity (Unaudited)   For the Three Months Ended March 31, 2022                       Additional                       Common Stock     Paid-in     Retained               Shares     Amount     Capital     Earnings     Total   Balance as of December 31, 2021     13,115,341     $ 132,000     $ -     $ 62,488,000     $ 62,620,000   Net income     -       -       -       1,522,000       1,522,000   Common stock repurchased and retired     ( 170,000 )     ( 2,000 )     ( 55,000 )     ( 699,000 )     ( 756,000 ) Stock-based compensation expense     -       -       55,000       -       55,000   Balance as of March 31, 2022     12,945,341     $ 130,000     $ -     $ 63,311,000     $ 63,441,000       For the Three Months Ended March 31, 2021                       Additional                       Common Stock     Paid-in     Retained               Shares     Amount     Capital     Earnings     Total   Balance as of December 31, 2020     13,419,847     $ 135,000     $ 409,000     $ 59,476,000     $ 60,020,000   Net income     -       -       -       3,719,000       3,719,000   Common stock repurchased and retired     ( 186,000 )     (2,000 )     ( 817,000 )     (1,547,000 )     ( 2,366,000 ) Stock-based compensation expense     -       -       101,000       -       101,000   Options exercised     89,494       1,000       307,000       -       308,000   Balance as of March 31, 2021     13,323,341     $ 134,000     $ -     $ 61,648,000     $ 61,782,000     See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).   3 Alpha Pro Tech, Ltd.       Condensed Consolidated Statements of Cash Flows (Unaudited)       For the Three Months Ended March 31,       2022     2021   Cash Flows From Operating Activities:                 Net income   $ 1,522,000     $ 3,719,000   Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:                 Stock-based compensation     55,000       101,000   Depreciation and amortization     212,000       198,000   Equity in income of unconsolidated affiliate     ( 49,000 )     ( 322,000 ) Operating lease expense, net of accretion     228,000       220,000   Changes in operating assets and liabilities:                 Accounts receivable, net     ( 3,814,000 )     1,384,000   Accounts receivable, related party     ( 214,000 )     ( 370,000 ) Inventories     1,086,000       ( 2,029,000 ) Prepaid expenses     736,000       ( 4,011,000 ) Accounts payable and accrued liabilities     ( 714,000 )     ( 1,795,000 ) Customer advance payments of orders     -       ( 96,000 ) Lease liabilities     ( 227,000 )     ( 219,000 )                   Net cash used in operating activities     ( 1,179,000 )     ( 3,220,000 )                   Cash Flows From Investing Activities:                 Purchases of property and equipment     ( 133,000 )     ( 130,000 )                   Net cash used in investing activities     ( 133,000 )     ( 130,000 )                   Cash Flows From Financing Activities:                 Proceeds from exercise of stock options     -       308,000   Repurchase of common stock     ( 756,000 )     ( 2,366,000 )                   Net cash used in financing activities     ( 756,000 )     ( 2,058,000 )                   Decrease in cash and cash equivalents     ( 2,068,000 )     ( 5,408,000 )                   Cash and cash equivalents, beginning of the period     16,307,000       23,292,000                     Cash and cash equivalents, end of the period   $ 14,239,000     $ 17,884,000     See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).   4 Alpha Pro Tech, Ltd.     Notes to Condensed Consolidated Financial Statements (Unaudited)     1. The Company   Alpha Pro Tech, Ltd. (“Alpha Pro Tech,” the “Company,” “we”, “us” or “our”) is in the business of protecting people, products and environments. The Company accomplishes this by developing, manufacturing and marketing a line of building supply products for the new home and re-roofing markets and a line of disposable protective apparel for the cleanroom, industrial, pharmaceutical, medical and dental markets.   The Building Supply segment consists of construction weatherization products, such as housewrap, housewrap accessories, namely tape and flashing, and synthetic roof underlayment, as well as other woven material.   The Disposable Protective Apparel segment consists of a complete line of disposable protective garments (shoecovers, bouffant caps, coveralls, gowns, frocks and lab coats), face masks and face shields. All of our disposable protective apparel products, including face masks and face shields, are sold through similar distribution channels, are single-use and disposable, have the purpose of protecting people, products and environments, and have to be produced in Food and Drug Administration (“FDA”) approved facilities, regardless of the market served.   The Company’s products are sold under the "Alpha Pro Tech" brand name as well as under private label, and are predominantly sold in the United States of America (“US”).   The ongoing novel coronavirus (COVID- 19 ) pandemic has adversely affected global economies, financial markets and the overall environment in which we do business. Overall, the increase in sales of our Disposable Protective Apparel segment products resulting from the pandemic has had a positive impact on our year-to-date results, but the positive impact in 2022 is less than in 2021 and 2020, as the effects of COVID- 19 are normalizing. The extent of the pandemic’s effect on our future operational and financial performance will depend in large part on future developments, which cannot be predicted with confidence at this time. Future developments include the duration, scope and severity of the pandemic and new variants, including the Omicron variant, the actions taken to contain or mitigate its impact, the impact on governmental programs and budgets, the development of treatments or vaccines, and the efficacy of mass vaccinations, and the resumption of widespread economic activity in certain sectors. Due to the inherent uncertainty of the unprecedented and rapidly evolving situation, we are unable to predict with any certainty the likely impact of the COVID- 19 pandemic on our future operations.     2. Basis of Presentation and Revenue Recognition Policy   The interim financial information included in this report is unaudited; however, the information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for the fair presentation of the consolidated financial position, results of operations and cash flows for the interim periods reflected herein. These interim condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, omit certain information and note disclosures that would be necessary to present the statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The interim condensed consolidated financial statements should be read in conjunction with the Company’s current year SEC filings, as well as the Company’s consolidated financial statements for the year ended December 31, 2021, which are included in the Company’s Annual Report on Form 10 -K for the fiscal year ended December 31, 2021 ( the “2021 Form 10 -K”), filed with the SEC on March 11, 2022. The results of operations for the three months ended March 31, 2022 in this Quarterly Report on Form 10 -Q are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet as of December 31, 2021 was prepared using information from the audited consolidated balance sheet contained in the 2021 Form 10 -K; however, it does not include all disclosures required by U.S. GAAP for annual consolidated financial statements.   5 Alpha Pro Tech, Ltd.     Notes to Condensed Consolidated Financial Statements (Unaudited)   Net sales includes revenue from products and shipping and handling charges, net of estimates for product returns and any related sales incentives. Our customer contracts have a single performance obligation: transfer control of products to customers. Revenue is measured as the amount of consideration that we expect to receive in exchange for transferring control of products. All revenue is recognized when we satisfy our performance obligations under the applicable contract. We recognize revenue in connection with transferring control of the promised products to the customer, with revenue being recognized at the point in time when the customer obtains control of the products, which is generally when title passes to the customer upon delivery to a third party carrier for FOB shipping point arrangements and to the customer for FOB destination arrangements, at which time a receivable is created for the invoice sent to the customer. Shipping and handling activities are performed prior to the customer obtaining control of the goods, and are accounted for as fulfillment activities and are not a promised good or service. Shipping and handling charges billed to customers are included in revenue. Shipping and handling costs, associated with the distribution of the Company’s product to the customers, are recorded in cost of goods sold and are recognized when control of the product is transferred to the customer, which is generally when title passes to the customer upon delivery to a third party carrier for FOB shipping point arrangements and to the customer for FOB destination arrangements. We estimate product returns based on historical return rates and estimate rebates based on contractual agreements. Using probability assessments, we estimate sales incentives expected to be paid over the term of the contract. Sales taxes and value added taxes in foreign and domestic jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from net sales. The Company manufactures certain private label goods for customers and has determined that control does not pass to the customer at the time of manufacture, based upon the nature of the private labelling. The Company has determined as of March 31, 2022 that it had no material contract assets, and concluded that its contract liabilities (primarily rebates) had the right of offset against customer receivables. See Note 10 and Note 11 of these Notes to Condensed Consolidated Financial Statements (Unaudited) for information on revenue disaggregated by type and by geographic region.     3. Stock-Based Compensation   The Company previously granted stock options to employees and non-employee directors under a stock option plan (the “2004 Option Plan”). Stock options have been granted with exercise prices at or above the fair market value of the underlying shares of common stock on the date of grant. Options vest and expire according to terms established at the grant date.   At the Company’s 2020 Annual Meeting of Shareholders held on June 9, 2020, the Company’s shareholders approved the Alpha Pro Tech, Ltd. 2020 Omnibus Incentive Plan (the “2020 Incentive Plan”). The 2020 Incentive Plan provides for the grant of incentive and nonqualified stock options, stock appreciation rights, awards of restricted stock and restricted stock units, performance share awards, cash awards and other equity-based awards to employees (including officers), consultants and non-employee directors of the Company and its affiliates. A total of 1,800,000 shares of the Company’s common stock were reserved for issuance under the 2020 Incentive Plan, plus the number of shares underlying any award granted under the 2004 Option Plan that expires, terminates or is cancelled or forfeited under the terms of the 2004 Option Plan. As a result of the approval of the 2020 Incentive Plan, no future equity awards will be made pursuant to the 2004 Option Plan. Although no new awards may be granted under the 2004 Option Plan, all previously granted awards under the 2004 Option Plan will continue to be governed by the terms of the 2004 Option Plan.   The Company records compensation expense for the fair value of stock-based awards determined as of the grant date, including employee stock options and restricted stock awards over the determined requisite service period, which is generally ratably over the vesting term.   For the  three  months ended  March 31, 2022 and 2021,   no  stock options were granted under the 2004  Option Plan or the  2020  Incentive Plan. The Company recognized $ 28,000  and $ 74,000  in stock-based compensation expense for the  three  months ended  March 31, 2022 and 2021,  respectively, related to outstanding options previously granted under the  2004  Option Plan. For the  three  months ended  March 31, 2022 and 2021,   no  restricted stock awards were granted under the  2020  Incentive Plan. The Company recognized $ 27,000  and $ 27,000  in compensation expense associated with outstanding restricted stock awards for the  three  months ended  March 31, 2022 and 2021,  respectively. As of March 31, 2021, $ 52,000 of total unrecognized compensation cost related to outstanding restricted stock awards was expected to be recognized over a weighted-average remainder period of 0.49 years.   6 Alpha Pro Tech, Ltd.     Notes to Condensed Consolidated Financial Statements (Unaudited)   The Company uses the Black-Scholes option-pricing model to value the options. The Company uses historical data to estimate the expected life of the options. The risk-free interest rate for periods within the contractual life of an award is based on the US Treasury yield curve in effect at the time of grant. The estimated volatility is based on historical volatility and management’s expectations of future volatility. The Company uses an estimated dividend payout of zero, as the Company has not paid dividends in the past and, at this time, does not expect to do so in the future. The Company accounts for option forfeitures as they occur. The following table summarizes stock option activity for the three months ended March 31, 2022:               Weighted Average               Exercise Price       Options     Per Option                     Options outstanding, December 31, 2021     427,580     $ 3.50   Granted to employees and non-employee directors     -       -   Exercised     -       -   Canceled/expired/forfeited     -       -   Options outstanding, March 31, 2022     427,580       3.50   Options exercisable, March 31, 2022     322,580       3.47     As of March 31, 2022, $ 9,000 of total unrecognized compensation cost related to stock options was expected to be recognized over a weighted average period of 0.47 years.     4. Recent Accounting Pronouncements   In December 2019, the FASB issued ASU No. 2019 - 12, Income Taxes (Topic 740 ): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019 - 12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. Adoption of the new standard in January 2021 did not have a material impact on our consolidated financial statements.   Management periodically reviews new accounting standards that are issued. Management has not identified any other new standards that it believes merit further discussion at this time.     5. Inventories   As of March 31, 2022 and December 31, 2021, inventories net of reserves consisted of the following:       March 31,     December 31,       2022     2021                     Raw materials   $ 12,625,000     $ 13,545,000   Work in process     4,765,000       3,890,000   Finished goods     6,493,000       7,534,000       $ 23,883,000     $ 24,969,000     7 Alpha Pro Tech, Ltd.     Notes to Condensed Consolidated Financial Statements (Unaudited)     6. Equity Investment in Unconsolidated Affiliate     In 2005, Alpha ProTech Engineered Products, Inc. (a subsidiary of Alpha Pro Tech, Ltd.) entered into a joint venture with a manufacturer in India, Maple Industries and associates, for the production of building products. Under the terms of the joint venture agreement, a private company, Harmony Plastics Private Limited (“Harmony”), was created with ownership interests of 41.66 % owned by Alpha ProTech Engineered Products, Inc. and 58.34 % owned by Maple Industries and associates.   This joint venture positions Alpha ProTech Engineered Products, Inc. to respond to current and expected increased product demand for housewrap and synthetic roof underlayment and provides future capacity for sales of specialty roofing component products and custom products for industrial applications requiring high quality extrusion coated fabrics. In addition, the joint venture now supplies products for the Disposable Protective Apparel segment.   The capital from the initial funding and a bank loan, which loan is guaranteed exclusively by the individual shareholders of Maple Industries and associates and collateralized by the assets of Harmony, were utilized to purchase the original manufacturing facility in India. Harmony currently has four facilities in India ( three owned and one rented), consisting of: ( 1 ) a 113,000 square foot building for manufacturing building products; ( 2 ) a 73,000 square foot building for manufacturing coated material and sewing proprietary disposable protective apparel; ( 3 ) a 16,000 square foot facility for sewing proprietary disposable protective apparel; and ( 4 ) a 93,000 square foot facility (rented) for manufacturing Building Supply segment products. All additions have been financed by Harmony with no guarantees from the Company.   In accordance with ASC 810, Consolidation, the Company assesses whether or not related entities are variable interest entities (“VIEs”). For those related entities that qualify as VIEs, ASC 810 requires the Company to determine whether or not the Company is the primary beneficiary of the VIE, and, if so, to consolidate the VIE. The Company has determined that Harmony is not a VIE and is, therefore, considered to be an unconsolidated affiliate.   The Company records its investment in Harmony as “equity investment in unconsolidated affiliate” in the accompanying condensed consolidated balance sheets. The Company records its equity interest in Harmony’s results of operations as “equity in income of unconsolidated affiliate” in the accompanying condensed consolidated statements of comprehensive income. The Company periodically reviews its investment in Harmony for impairment. Management has determined that no impairment was required as of March 31, 2022 or December 31, 2021.   For the three months ended March 31, 2022 and 2021, the Company purchased $ 6,183,000 and $ 6,354,000 of inventories, respectively, from Harmony. For the three months ended March 31, 2022 and 2021, the Company sold $ 258,000 and $ 370,000 of inventories, respectively, to Harmony. For the three months ended March 31, 2022 and 2021, the Company recorded equity in income of unconsolidated affiliate of $ 49,000 and $ 322,000 , respectively, related to Harmony.   As of March 31, 2022, the Company’s investment in Harmony was $ 6,169,000 , which consisted of its original $ 1,450,000 investment and cumulative equity in income of unconsolidated affiliate of $ 5,738,000 , less $ 942,000 in repayments of the advance and $ 77,000 in dividends.   8 Alpha Pro Tech, Ltd.     Notes to Condensed Consolidated Financial Statements (Unaudited)     7. Accrued Liabilities   As of March 31, 2022 and December 31, 2021, accrued liabilities consisted of the following:       March 31,     December 31,       2022     2021                     Payroll expenses and taxes payable   $ 276,000     $ 187,000   Commissions and bonuses payable and general accrued liabilities     266,000       1,063,000   Total accrued liabilities   $ 542,000     $ 1,250,000       8. Basic and Diluted Earnings Per Common Share   The following table provides a reconciliation of both net income and the number of shares used in the computation of “basic” earnings per common share (“EPS”), which utilizes the weighted average number of common shares outstanding without regard to dilutive shares, and “diluted” EPS, which includes all such dilutive shares, for the three months ended March 31, 2022 and 2021:       For the Three Months Ended       March 31,       2022     2021   Net income (numerator)   $ 1,522,000     $ 3,719,000                     Shares (denominator):                 Basic weighted average common shares outstanding     13,058,871       13,342,398   Add: dilutive effect of common stock options     100,619       375,006                     Diluted weighted average common shares outstanding     13,159,490       13,717,404                     Earnings per common share:                 Basic   $ 0.12     $ 0.28   Diluted   $ 0.12     $ 0.27       9. Activity of Business Segments   The Company operates through two business segments:   ( 1 ) Building Supply: consisting of a line of construction supply weatherization products. The construction supply weatherization products consist of housewrap and synthetic roof underlayment, as well as other woven material. The majority of the Company’s equity in income of unconsolidated affiliate (Harmony) is included in the total segment income for the Building Supply segment.   ( 2 ) Disposable Protective Apparel: consisting of a complete line of disposable protective garments, including shoecovers (including the Aqua Trak® and spunbond shoecovers), bouffant caps, coveralls, frocks, lab coats, gowns and hoods, as well as face masks and face shields for the pharmaceutical, cleanroom, industrial, medical and dental markets. A portion of the Company’s equity in income of unconsolidated affiliate (Harmony) is included in the total segment income for the Disposable Protective Apparel segment.   Segment data excludes charges allocated to the principal executive office and other unallocated corporate overhead expenses and income tax. The Company evaluates the performance of its segments and allocates resources to them based primarily on net sales.   9 Alpha Pro Tech, Ltd.     Notes to Condensed Consolidated Financial Statements (Unaudited)   The accounting policies of the segments are the same as those described previously under Summary of Significant Accounting Policies (see Note 2 ). Segment data excludes charges allocated to the principal executive office and other corporate unallocated expenses and income taxes. The Company evaluates the performance of its segments and allocates resources to them based primarily on net sales.   The following table presents consolidated net sales for each segment for the three months ended March 31, 2022 and 2021:       For the Three Months Ended       March 31,       2022     2021   Building Supply   $ 10,237,000     $ 8,340,000   Disposable Protective Apparel     7,424,000       14,821,000   Consolidated net sales   $ 17,661,000     $ 23,161,000     The following table presents the reconciliation of consolidated segment income to consolidated net income for the three months ended March 31, 2022 and 2021:       For the Three Months Ended       March 31,       2022     2021   Building Supply   $ 1,667,000     $ 1,551,000   Disposable Protective Apparel     1,701,000       4,750,000   Total segment income     3,368,000       6,301,000                     Unallocated corporate overhead expenses     1,394,000       1,575,000   Provision for income taxes     452,000       1,007,000   Consolidated net income   $ 1,522,000     $ 3,719,000     The following table presents the consolidated net property and equipment, goodwill and definite-lived intangible assets (“consolidated assets”) by segment as of March 31, 2022 and December 31, 2021:       March 31,     December 31,       2022     2021                     Building Supply   $ 3,556,000     $ 3,600,000   Disposable Protective Apparel     1,394,000       1,419,000   Total segment assets     4,950,000       5,019,000                     Unallocated corporate assets     1,093,000       1,103,000   Total consolidated assets   $ 6,043,000     $ 6,122,000     10 Alpha Pro Tech, Ltd.     Notes to Condensed Consolidated Financial Statements (Unaudited)     10. Financial Information about Geographic Areas   The following table summarizes the Company’s net sales by geographic region for the three months ended March 31, 2022 and 2021:       For the Three Months Ended       March 31,       2022     2021   Net sales by geographic region                 United States   $ 17,076,000     $ 20,898,000   International     585,000       2,263,000                     Consolidated net sales   $ 17,661,000     $ 23,161,000     Net sales by geographic region are based on the countries in which our customers are located.  For the three months ended March 31, 2022 and 2021, the Company generated approximately $ 474,000 and $ 2,115,000 respectively, in sales from Canada. No country other than the United States was significant to the Company’s consolidated net sales.   The following table summarizes the locations of the Company’s long-lived assets by geographic region as of March 31, 2022 and December 31, 2021:       March 31,     December 31,       2022     2021   Long-lived assets by geographic region                 United States   $ 4,668,000     $ 4,623,000   International     1,418,000       1,441,000                     Consolidated total long-lived assets   $ 5,985,000     $ 6,064,000     11. Related Party Transactions   As of March 31, 2022, the Company had no related party transactions, other than the Company’s transactions with its unconsolidated affiliate, Harmony. See Note 6 of these Notes to Condensed Consolidated Financial Statements (Unaudited).     12. Leases   The Company has operating leases for the Company’s corporate office and manufacturing facilities, which expire at various dates through  2025. The Company’s primary operating lease commitments at  March 31, 2022 related to the Company’s manufacturing facilities in Valdosta, Georgia; Nogales, Arizona; and Salt Lake City, Utah, as well as the Company’s corporate headquarters in Markham, Ontario, Canada.   As of March 31, 2022, the Company had operating lease right-of-use assets of $ 2,420,000  and operating lease liabilities of $ 2,473,000 . As of March 31, 2022, we did not have any finance leases recorded on the Company’s condensed consolidated balance sheet. Operating lease expense was approximately $ 279,000 during the  three months ended March 31, 2022.   11 Alpha Pro Tech, Ltd.     Notes to Condensed Consolidated Financial Statements (Unaudited)   The aggregate future minimum lease payments and reconciliation to lease liabilities as of March 31, 2022 were as follows:       March 31,       2022   Remaining nine months of 2022   $ 757,000   2023     1,017,000   2024     484,000   2025     365,000   Total future minimum lease payments     2,623,000   Less imputed interest     ( 150,000 ) Total Lease liabilities   $ 2,473,000     As of March 31, 2022, the weighted average remaining lease term of the Company’s operating leases was  2.89 years. During the three months ended March 31, 2022, the weighted average discount rate with respect to these leases was  4.07 %.     13. Income taxes   The Company accounts for income taxes using the asset and liability method. A valuation allowance is recorded to reduce the carrying amounts of deferred income tax assets unless it is more likely than not that such assets will be realized. The Company’s policy is to record any interest and penalties assessed by the Internal Revenue Service as a component of the provision for income taxes. The Company provides allowances for uncertain income tax positions when it is more likely than not that the position will not be sustained upon examination by the tax authority.    Alpha Pro Tech, Ltd. and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions.   An employer generally does not claim a corporate income tax deduction (which would be in an amount equal to the amount of income recognized by the employee) upon the exercise of its employee's incentive stock options (“ISOs”) unless the employee does not meet the holding period requirements and sells early, making a disqualifying disposition, or if the options otherwise do not qualify as ISOs under applicable tax laws. With non-qualified stock options (“NQSOs”), on the other hand, the employer is typically eligible to claim a deduction upon its employee's exercise of the NQSOs.     14. Subsequent Events   The Company has reviewed and evaluated whether subsequent events have occurred from the condensed consolidated balance sheet date of March 31, 2022 through the filing date of this Quarterly Report on Form 10 -Q that would require accounting or disclosure and has concluded that there are no such subsequent events.   12 Alpha Pro Tech, Ltd.         ITEM 2.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and the notes to our unaudited condensed consolidated financial statements, which appear elsewhere in this report, as well as our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC”) on March 11, 2022 (the “2021 Form 10-K”).   Special Note Regarding Forward-Looking Statements   Certain information set forth in this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of federal securities laws. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions, including, without limitation, our expected orders, production levels and sales in 2022 and other information that is not historical information. When used in this report, the words “estimates,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes” and variations of such words or similar expressions are intended to identify forward-looking statements. We may make additional forward-looking statements from time to time. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise. All forward-looking statements, whether written or oral and whether made by us or on our behalf, are expressly qualified by this special note.   The following are some of the risks that could affect our financial performance or that could cause actual results to differ materially from those expressed or implied in our forward-looking statements:     ● Global economic conditions could adversely affect the Company’s business and financial results.   ● The effects of the COVID-19 pandemic, including effects on the business and operations of those within our supply chain and on global economic conditions generally, which have had, and could continue to have, a material adverse effect on our business, financial results and results of operations.   ● The loss of any large customer or a reduction in orders from any large customer could reduce our net sales and harm our operating results.   ● We rely on suppliers and contractors, and our business could be seriously harmed if these suppliers and contractors are not able to meet our requirements.   ● Risks associated with international manufacturing could have a significant effect on our business.   ● Our joint venture may present risks that are only present when third parties are involved.   ● Our success depends in part on protection of our intellectual property, and our failure to protect our intellectual property could adversely affect our competitive advantage, our brand recognition and our business.   ● Our industry is highly competitive, which may negatively affect our ability to grow our customer base and generate sales.   ● The Company’s results are affected by competitive conditions and customer preferences.   ● The Company’s growth objectives are largely dependent on the timing and market acceptance of our new product offerings, including our ability to continually renew our pipeline of new products and to bring those products to market.   ● Security breaches and other disruptions to the Company’s information technology infrastructure could interfere with the Company’s operations, compromise information belonging to the Company and our customers and suppliers and expose the Company to liability, which could adversely impact the Company’s business and reputation.   ● The Company’s future results may be affected by various legal and regulatory proceedings and legal compliance risks.   ● Our common stock price is volatile, which could result in substantial losses for individual shareholders.   The foregoing list of risks is not exclusive. For a more detailed discussion of the risk factors associated with our business, see the risks described in Part I, Item IA, “Risk Factors,” in the 2021 Form 10-K. These and many other factors could affect the Company’s future operating results and financial condition and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by the Company or on its behalf.   13 Alpha Pro Tech, Ltd.       Special Note Regarding Smaller Reporting Company Status   We are filing this report as a “smaller reporting company” (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended). As a result of being a smaller reporting company, we are allowed and have elected to omit certain information from this Management’s Discussion and Analysis of Financial Condition and Results of Operations; however, we have provided all information for the periods presented that we believe to be appropriate.   Where to find more information about us. We make available, free of charge, on our website ( http://www.alphaprotech.com ) our most recent Annual Report on Form 10-K, our most recent Quarterly Report on Form 10-Q, any Current Reports on Form 8-K furnished or filed since our most recent Annual Report on Form 10-K, and any amendments to such reports, as soon as reasonably practicable following the electronic filing of such reports with the SEC. In addition, in accordance with SEC rules, we provide paper copies of our filings free of charge upon request.   Critical Accounting Policies and Estimates   The preparation of our financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of net sales and expenses during the periods reported. We base estimates on past experience and on various other assumptions that are believed to be reasonable under the circumstances. Our estimates are subject to uncertainties associated with the ongoing COVID-19 pandemic. The application of these accounting policies on a consistent basis enables us to provide timely and reliable financial information. Our significant accounting policies and estimates are more fully described in Note 2 – “Summary of Significant Accounting Policies” in the notes to our consolidated financial statements in Item 8. of the 2021 Form 10-K. Since December 31, 2021, there have been no material changes to our critical accounting policies and estimates as described in the 2021 Form 10-K.   OVERVIEW   Alpha Pro Tech is in the business of protecting people, products and environments. We accomplish this by developing, manufacturing and marketing a line of high-value, disposable protective apparel products for the cleanroom, industrial, pharmaceutical, medical and dental markets. We also manufacture a line of building supply construction weatherization products. Our products are sold under the “Alpha Pro Tech” brand name, as well as under private label.   Our products are grouped into two business segments: (i) the Building Supply segment, consisting of construction weatherization products, such as housewrap and synthetic roof underlayment as well as other woven material; and (ii) the Disposable Protective Apparel segment, consisting of disposable protective garments (including shoecovers, bouffant caps, coveralls, gowns, frocks and lab coats), face masks and face shields.   Our target markets include pharmaceutical manufacturing, bio-pharmaceutical manufacturing and medical device manufacturing, lab animal research, high technology electronics manufacturing (which includes the semi-conductor market), medical and dental distributors, and construction, building supply and roofing distributors.   Our products are used primarily in cleanrooms, industrial safety manufacturing environments, health care facilities, such as hospitals, laboratories and dental offices, and building and re-roofing sites. Our products are distributed principally in the United States through a network consisting of purchasing groups, national distributors, local distributors, independent sales representatives and our own sales and marketing force.   14 Alpha Pro Tech, Ltd.       Impact of the Novel Coronavirus (COVID-19)   After the start of the COVID-19 pandemic in early 2020, we experienced a significant surge in customer demand for our proprietary N-95 Particulate Respirator face mask product and other personal protective equipment (“PPE”) products as a result of COVID-19. We experienced a dramatic increase in revenue from sales of PPE products during 2020 and to a lesser extent during 2021, especially with respect to face masks and disposable protective garments, including shoecovers, coveralls, gowns, lab coats and bouffant caps.   In an effort to meet the unprecedented demand, and to aid communities around the world in responding to the ongoing healthcare crisis, the Company ramped up production during the first quarter of 2020 of our PPE products, in particular our N-95 face mask, which is manufactured by the Company in the United States. We addressed the growing customer demand for PPE products by increasing and improving the human, mechanical, and supply chain components behind production, but even with these increases and improvements, customer demand for PPE products exceeded industry supply from time to time.   Since 2020, we have encountered a number of constraints within our supply chain due to government-mandated shutdowns, raw materials shortages and shipping delays. Although we continue to work to alleviate these supply chain issues by securing additional supply sources, in the event of subsequent shutdowns, shortages or delays, our production and sales could be further impacted. Further, we have experienced increases in the costs of raw materials, and if the prices of raw materials continue to rise more rapidly than our sales prices, our profits may be impacted negatively.   Global shortages in important components and logistics challenges have resulted in, and will continue to cause, inflationary cost pressure in the Company’s supply chain. To date, the inflationary cost pressure has been more pronounced in the Company’s logistics costs, but these supply chain challenges have had a [limited] impact on the Company’s results of operations and ability to deliver products and services to its customers. However, if shortages in important supply chain materials or logistics challenges continue, the Company could fail to meet product demand. Additionally, if inflationary pressures in logistics or component costs persist, we may not be able to quickly or easily adjust pricing, reduce costs, or implement countermeasures, all of which would adversely impact our business, financial condition, results of operations, or cash flows.   We are continuing to serve our customers while taking every precaution to provide a safe work environment for our employees, and we have enacted enhanced operating protocols to assure their safety and well-being. We believe that we may have to take further actions that we determine are in the best interests of our employees or as required by federal, state, or local authorities. Although we will continue to adhere to restrictions imposed by local governments in the jurisdictions in which we operate, government regulations have impacted workforce availability and expense in certain of the Company’s manufacturing facilities, and we expect this to continue for some time. While this remains a fluid situation, all of our U.S. manufacturing sites are currently operating at or above normal production rates.    COVID-19 has resulted in a downturn in the global financial markets and a slowdown in the global economy. This economic environment may impact some of our customers’ ability to pay or lead them to request extended payment terms, and we have experienced cost increases from some of our suppliers. Additionally, we expect that demand for our Building Supply segment products could be negatively impacted if we experience a decrease in housing starts and increased uncertainty in the housing market and the economy in general, although to date we have not experienced any material negative impact in our Building Supply segment.   The impact of the COVID-19 pandemic continues to unfold. Overall, the increase in sales of our PPE products resulting from the pandemic had a positive impact on our 2021 and 2022 financial results. The extent of the pandemic’s effect on our future operational and financial performance will depend in large part on future developments, including the duration, scope and severity of the pandemic and new variants, the actions taken to contain or mitigate its impact, the impact on governmental programs and budgets, the development of treatments or vaccines, and the efficacy of mass vaccinations, and the resumption of widespread economic activity in certain sectors. Due to the inherent uncertainty of the unprecedented and rapidly evolving situation, we are unable to predict with any certainty the likely impact of the COVID-19 pandemic on our future operations.   15 Alpha Pro Tech, Ltd.       Management will continue to carefully monitor the current dynamic market conditions and work to respond to them swiftly and effectively.   RESULTS OF OPERATIONS   The following table sets forth certain operational data as a percentage of net sales for the periods indicated:       For the Three Months Ended March 31,       2022     2021   Net sales     100.0 %     100.0 % Gross profit     36.5 %     39.6 % Selling, general and administrative expenses     24.4 %     19.8 % Income from operations     10.9 %     19.0 % Income before provision for income taxes     11.2 %     20.4 % Net income     8.6 %     16.1 %   Three months ended March 31, 2022 compared to three months ended March 31, 2021   Sales. Consolidated sales for the three months ended March 31, 2022 decreased to $17,661,000, from $23,161,000 for the three months ended March 31, 2021, representing a decrease of $5,500,000, or 23.7%. This decrease consisted of decreased sales in the Disposable Protective Apparel segment of $7,397,000, partially offset by increased sales in the Building Supply segment of $1,897,000.   Disposable Protective Apparel Segment   Sales for the Disposable Protective Apparel segment for the three months ended March 31, 2022 decreased by $7,397,000, or 49.9%, to $7,424,000, compared to $14,821,000 for the same period of 2021. This segment decrease was due to a 59.4% decrease in sales of face masks, a 52.2% decrease in face shields and a 41.2% decrease in sales of disposable protective garments, all primarily due to reduced customer demand in the first quarter of 2022 compared to demand in the first quarter of 2021 associated with the COVID-19 pandemic.   The sales mix of the Disposable Protective Apparel segment for the three months ended March 31, 2022 was approximately 53% for disposable protective garments, 31% for face masks and 16% for face shields. This sales mix is compared to approximately 45% for disposable protective garments, 38% for face masks and 17% for face shields for the three months ended March 31, 2021.   The decrease in face mask sales in the first quarter of 2022, primarily our proprietary N-95 Particulate Respirator face mask, resulted from very significant customer demand associated with the COVID-19 pandemic in the same period of 2021. Face mask sales in the first quarter of 2022, which were aided by the Omicron variant of COVID-19, were significantly higher than all quarterly sales since the first quarter of 2021. Excluding the first quarter of 2021, face mask sales in the first quarter of 2022 were higher than any other quarter on record with the exception of quarters of past pandemics in 2020 (COVID-19) and 2009 (H1N1) and the outbreak in 2003 (SARS).   The decrease in face shield sales in the first quarter of 2022 was also due to the decline in demand compared to the same period in 2021 associated with the COVID-19 pandemic. As with face mask sales, face shield sales in the first quarter of 2022 were significantly higher than all quarterly sales since the first quarter of 2021 and higher than all other quarters on record except for quarters in 2020 (COVID-19) and a quarter in the early nineties.   16 Alpha Pro Tech, Ltd.       Due to COVID-19 variants and other challenges related to efforts to reduce the duration, scope and severity of the pandemic, sales of face masks and face shields are expected to remain higher than pre-pandemic levels in the short term, but it is uncertain how long this will continue.   Sales for the disposable protective garments decreased in the first quarter of 2022, primarily due to record sales in the first and second quarters of 2021 resulting from strong orders received from our major international channel partner in 2020 in response to COVID-19. Sales in the first quarter of 2022, as with sales in the second half of 2021, were negatively affected as inventory levels in the supply chain, primarily with our partner mentioned above, were higher than historical. Open orders from this partner have recently improved, indicating that their inventory levels have likely normalized. Although our sales were down during the first quarter of 2022 and more in line with pre-pandemic levels, this partner’s sales to its end users for the same period were significantly higher than pre-pandemic levels. We are working closely with all of our channel partners to uncover new end-customer sales opportunities.   Building Supply Segment   Building Supply segment sales for the three months ended March 31, 2022 increased by $1,897,000, or 22.7%, to the highest quarter on record of $10,237,000, compared to $8,340,000 for the three months ended March 31, 2021. The Building Supply segment increase during the three months ended March 31, 2022 was primarily due to a 13.9% increase in sales of synthetic roof underlayment, an 18.4% increase in sales of housewrap and a 116.2% increase in sales of other woven material compared to the same period of 2021.   The sales mix of the Building Supply segment for the three months ended March 31, 2022 was approximately 48% for synthetic roof underlayment, 40% for housewrap and 12% for other woven material. This compared to approximately 52% for synthetic roof underlayment, 41% for housewrap and 7% for other woven material for the three months ended March 31, 2021. Our synthetic roof underlayment product line includes REX SynFelt®, REX TECHNOply® and TECHNO SB®, and our housewrap product line consists of REX Wrap®, REX Wrap® Plus and REX Wrap Fortis®.   Building Supply segment sales have had record quarters in each of the past six quarters, with the highest quarters on record in the second and then third quarters of 2021 and now in the first quarter of 2022. In addition, the fourth quarter of 2020 and the first and fourth quarters of 2021 were quarterly records, at that time, compared to any prior year comparative quarter.   Building Supply segment sales during the first quarter of 2022 experienced continued significant growth due to strong demand for both our synthetic roof underlayment and housewrap products. Synthetic roof underlayment sales increased by 13.9% compared to the first quarter of 2021, which was primarily due to robust sales of our TECHNO SB®25 product line. The housewrap family of products continued to grow with an 18.4% first quarter increase over the prior-year quarter due to growth in new market share as well as high demand for new home construction. Other woven material sales increased in the first quarter of 2022 compared to the same period of 2021 by a significant 116.2% due to increased sales to our major customer.   The Company has committed to increasing production capacity in our Building Supply segment by investing approximately $4.0 million in new equipment, a part of which became operational in the latter part of the third quarter of 2021. This equipment, which is expected to increase our production capacity, has been delayed as a result of supply chain issues, and is now expected in the latter part of the second quarter of 2022 and is expected to be operational in the following quarter.   Management is encouraged by the current demand for the Company’s Building Supply products and anticipates continued growth in 2022. The Company has continued to enjoy increased sales, and being vertically integrated and having control of our manufacturing, unlike most of our competitors, aides in minimizing the effects of worldwide supply chain issues. The synthetic roofing market was strong in 2021 and into early 2022, although the Company has recently seen some retraction in new home starts and re-roofing expenditures. By adding dealers, distribution channels and products in the roofing sector, we remain optimistic with respect to achieving sales growth in 2022. Assuming new home construction remains high, we expect our housewrap sales will continue to grow despite the aforementioned retraction, as our distribution channels continue to expand and we introduce new products for this market.   17 Alpha Pro Tech, Ltd.       Gross Profit. Gross profit decreased by $2,737,000, or 29.8%, to $6,442,000 for the three months ended March 31, 2022, from $9,179,000 for the three months ended March 31, 2021. The gross profit margin was 36.5% for the three months ended March 31, 2022, compared to 39.6% for the three months ended March 31, 2021.   Management believes that gross profit margin likely will continue to be negatively affected by significant increases in ocean freight and other transportation costs. Additionally, our portfolio of products has been affected by much higher than normal raw material costs and increased labor costs. In the current environment, cost increases may rise more rapidly than our sales prices, which could continue to decrease gross profit.   Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $272,000, or 5.9%, to $4,306,000 for the three months ended March 31, 2022, from $4,578,000 for the three months ended March 31, 2021. However, as a percentage of net sales, selling, general and administrative expenses increased to 24.4% for the three months ended March 31, 2022, up from 19.8% for the same period of 2021, primarily as a result of lower net sales.   The change in expenses by segment for the three months ended March 31, 2022 was as follows: Disposable Protective Apparel was down $453,000, or 27.0%; Building Supply was up $363,000, or 26.9%; and corporate unallocated expenses were down $182,000, or 11.8%. The decrease in the Disposable Protective Apparel segment expenses was primarily related to decreased employee compensation, marketing and commission expenses. The increase in the Building Supply segment expenses was primarily related to increased employee compensation, marketing and travel expenses. The decrease in corporate unallocated expenses was primarily due to lower accrued bonuses and lower public company expenses.   In accordance with the terms of his employment agreement, the Company’s current President and Chief Executive Officer is entitled to an annual bonus equal to 5% of the pre-tax profits of the Company, excluding bonus expense, up to a maximum of $1.0 million. A bonus amount of $104,000 was accrued for the three months ended March 31, 2022, compared to $249,000 for the three months ended March 31, 2021.   Depreciation and Amortization. Depreciation and amortization expense increased by $14,000, or 7.1%, to $212,000 for the three months ended March 31, 2022, from $198,000 for the three months ended March 31, 2021. The increase was primarily attributable to increased depreciation for machinery and equipment in the Building Supply segment.   Income from Operations. Income from operations decreased by $2,479,000, or 56.3%, to $1,924,000 for the three months ended March 31, 2022, compared to $4,403,000 for the three months ended March 31, 2021. The decreased income from operations was primarily due to a decrease in gross profit of $2,737,000 and an increase in depreciation and amortization expense of $14,000, partially offset by a decrease in selling, general and administrative expenses of $272,000. Income from operations as a percentage of net sales for the three months ended March 31, 2022 was 10.9%, compared to 19.0% for the same period of 2021.   Other Income. Other income decreased by $273,000, or 84.5%, to $50,000 for the three months ended March 31, 2022, from $323,000 for the three months ended March 31, 2021. The decrease was due to a decrease in equity in income of unconsolidated affiliate of $273,000.   Income before Provision for Income Taxes. Income before provision for income taxes for the three months ended March 31, 2022 was $1,974,000, compared to income before provision for income taxes of $4,726,000 for the same period of 2021, representing a decrease of $2,752,000, or 58.2%. This decrease in income before provision for income taxes was due to a decrease in income from operations of $2,479,000 and a decrease in other income of $273,000.   18 Alpha Pro Tech, Ltd.       Provision for Income Taxes . The provision for income taxes for the three months ended March 31, 2022 was $452,000, compared to $1,007,000 for the same period of 2021. The estimated effective tax rate was 22.9% for the three months ended March 31, 2022, compared to 21.3% for the three months ended March 31, 2021. The Company does not record a tax provision on equity in income of unconsolidated affiliate, which reduces the effective tax rate.   Net Income. Net income for the three months ended March 31, 2022 was $1,522,000, compared to net income of $3,719,000 for the three months ended March 31, 2021, representing a decrease of $2,197,000, or 59.1%. The decrease in net income was largely associated with the surge in product demand due to the COVID-19 pandemic. The net income decrease comparing the 2022 and 2021 periods was due to a decrease in income before provision for income taxes of $2,752,000, partially offset by a decrease in provision for income taxes of $555,000. Net income as a percentage of net sales for the three months ended March 31, 2022 was 8.6%, and net income as a percentage of net sales for the same period of 2021 was 16.1%. Basic earnings per common share for the three months ended March 31, 2022, and 2021 were $0.12 and $0.28, respectively. Diluted earnings per common share for the three months ended March 31, 2022 and 2021 were $0.12 and $0.27, respectively.   LIQUIDITY AND CAPITAL RESOURCES   As of March 31, 2022, the Company had cash and cash equivalents (“cash”) of $14,239,000 and working capital of $51,186,000. As of March 31, 2022, the Company’s current ratio (current assets/current liabilities) was 27:1, compared to a current ratio of 20:1 as of December 31, 2021. Cash decreased by 12.7%, or $2,068,000, to $14,239,000 as of March 31, 2022, compared to $16,307,000 as of December 31, 2021, and working capital increased by $855,000 from $50,331,000 as of December 31, 2021. The decrease in cash from December 31, 2021 was due to cash used in operating activities of $ 1,179,000, cash used in investing activities of $133,000 and cash used in financing activities of $756,000.   Net cash used in operating activities of $1,179,000 for the three months ended March 31, 2022 was due to net income of $1,522,000, impacted primarily by the following: stock-based compensation expense of $55,000, depreciation and amortization expense of $212,000, equity in income of unconsolidated affiliate of $49,000, operating lease expense net of accretion of $228,000, an increase in accounts receivable of $3,814,000, a decrease in prepaid expenses of $736,000, a decrease in inventory of $1,086,000, a decrease in accounts payable and accrued liabilities of $714,000, and a decrease in lease liabilities of $227,000, all compared to December 31, 2021.   Accounts receivable increased by $4,028,000, or 84.3%, to $8,808,000 as of March 31, 2022, from $4,780,000 as of December 31, 2021. The increase in accounts receivable was related to increased sales as compared to the fourth quarter of 2021. The number of days that sales remained outstanding as of March 31, 2022, calculated by using an average of accounts receivable outstanding and annual revenue, was 35 days, compared to 24 days as of December 31, 2021.   Inventory decreased by $1,086,000, or 4.3%, to $23,883,000 as of March 31, 2022, from $24,969,000 as of December 31, 2021. The decrease was due to a decrease in inventory for the Disposable Protective Apparel segment of $1,508,000, or 9.3%, to $14,728,000 offset by an increase in inventory for the Building Supply segment of $421,000 or 4.8%, to $9,155,000.   Prepaid expenses decreased by $736,000, or 10.6%, to $6,207,000 as of March 31, 2022, from $6,943,000 as of December 31, 2021. The decrease was primarily due to decrease in prepayments for tax payments and prepaid inventory.   Right-of-use assets as of March 31, 2022 decreased by $228,000 to $2,420,000 from $2,648,000 as of December 31, 2021 as a result of amortization of the balance.   Lease liabilities as of March 31, 2022 decreased by $227,000 to $2,473,000 from $2,700,000 as of December 31, 2021. The recording of the lease liabilities was the result of adopting ASC 842, Leases. The decrease in the lease liabilities was the result of lease payments made during the year.   19 Alpha Pro Tech, Ltd.       Accounts payable and accrued liabilities as of March 31, 2022 decreased by $714,000, or 40.2%, to $1,064,000, from $1,778,000 as of December 31, 2021. The decrease was primarily due to a decrease in accrued bonuses and a decrease in trade accounts payable.   Net cash used in investing activities was $133,000 for the three months ended March 31, 2022, compared to net cash used in investing activities of $130,000 for the same period of 2021. Investing activities for the three months ended March 31, 2022 consisted of the purchase of property and equipment of $133,000. Investing activities for the three months ended March 31, 2021 consisted of the purchase of property and equipment of $130,000.   Net cash used in financing activities was $756,000 for the three months ended March 31, 2022, compared to net cash used in financing activities of $2,058 for the same period of 2021. Net cash used in financing activities for the three months ended March 31, 2022 resulted from the payment of $756,000 for the repurchase of common stock. Net cash used in financing activities for the three months ended March 31, 2021 resulted from the payment of $2,366,000 for the repurchase of common stock partially offset by the proceeds of $308,000 from the exercise of stock options.   As of March 31, 2022, we had $1,322,000 available for additional stock purchases under our stock repurchase program. During the three months ended March 31, 2022, we repurchased 170,000 shares of common stock at a cost of $756,000. As of March 31, 2022, we had repurchased a total of 18,719,917 shares of common stock at a cost of approximately $43,198,000 through our repurchase program. We retire all stock upon repurchase. Future repurchases are expected to be funded from cash on hand and cash flows from operating activities.   We have committed to increasing production capacity in our Building Supply segment by investing approximately $4.0 million in new equipment, a part of which became operational in the latter part of the third quarter of 2021. As a result of delays in the supply chain the most expensive piece of equipment, for which an approximately $1,000,000 balance remains outstanding, has had a further delay. This amount has not been prepaid and will be paid in full upon delivery of equipment. The equipment was originally anticipated to arrive in the latter part of the fourth quarter of 2021 and is now expected in the latter part of the second quarter of 2022 and is expected to be operational in the third quarter of 2022. The Company expects to fund the remaining balance from cash flow from operations.   We believe that our current cash balance and expected cash flow from operations will be sufficient to satisfy our projected working capital and planned capital expenditures for the foreseeable future.    Recent Accounting Pronouncements   In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. Adoption of the new standard in January 2021 did not have a material impact on our consolidated financial statements.   Management periodically reviews new accounting standards that are issued. Management has not identified any other new standards that it believes merit further discussion at this time.   ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   As a smaller reporting company, we are not required to provide the information otherwise required by this Item.   20 Alpha Pro Tech, Ltd.       ITEM 4. CONTROLS AND PROCEDURES   Evaluation of Disclosure Controls and Procedures .   Under the supervision and with the participation of our management, including our President and Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of March 31, 2022, pursuant to the evaluation of these controls and procedures required by Rule 13a-15 of the Exchange Act. Disclosure controls and procedures are the controls and other procedures that we have designed to ensure that we record, process, summarize and report in a timely manner the information that we must disclose in reports that we file with or submit to the SEC under the Exchange Act, and such controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.   In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and that we are required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures.   Based on the evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report.   Changes in Internal Control Over Financial Reporting   During the quarter to which this report relates, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.   PART II. OTHER INFORMATION   ITEM 1A. RISK FACTORS   A list of factors that could materially affect our business, financial condition or operating results is described in Part I, Item 1A, “Risk Factors” in the 2021 Form 10-K. There have been no material changes to our risk factors from those disclosed in Part I, Item 1A, “Risk Factors” in the 2021 Form 10-K.   21 Alpha Pro Tech, Ltd.       ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS   ISSUER PURCHASES OF EQUITY SECURITIES   The following table sets forth purchases made by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act:       Issuer Purchases of Equity Securities   Period   Total Number of Shares Purchased     Average Price Paid per Share     Total Number of Shares Purchased as Part of Publicly Announced Program (1)     Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (1)   January 1 - 31, 2022     25,000     $ 5.15       25,000     $ 1,948,000   February 1 - 28, 2022     40,000       4.45       40,000       1,768,000   March 1 - 31, 2022     105,000       4.22       105,000       1,322,000         170,000     $ 4.41       170,000             (1) Pursuant to the Company’s share repurchase program, on December 15, 2021, the Company announced that the Board of Directors had authorized a $2,000,000 expansion of the Company’s existing share repurchase program. All of the shares included in this table were purchased pursuant to this program. The share repurchase program expires on December 15, 2022.   SECURITIES SOLD   We did not sell unregistered equity securities during the period covered by this report.   22 Alpha Pro Tech, Ltd.       ITEM 6. EXHIBITS          3.1.1(P) Certificate of Incorporation of Alpha Pro Tech, Ltd., incorporated by reference to Exhibit 3(f) to Form 10-K for the year ended December 31, 1994, filed on March 31, 1995 (File No. 000-19893). 3.1.2(P) Certificate of Amendment of Certificate of Incorporation of Alpha Pro Tech, Ltd., incorporated by reference to Exhibit 3(j) to Form 10-K for the year ended December 31, 1994, filed on March 31, 1995 (File No. 000-19893). 3.1.3(P) Certificate of Ownership and Merger (BFD Industries, Inc. into Alpha Pro Tech, Ltd.), incorporated by reference to Exhibit 3(l) to Form 10-K for the year ended December 31, 1994, filed on March 31, 1995 (File No. 000-19893). 3.2(P) Bylaws of Alpha Pro Tech, Ltd., incorporated by reference to Exhibit 3(g) to Form 10-K for the year ended December 31, 1994, filed on March 31, 1995 (File No. 000-19893). 31.1 Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended. 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – President and Chief Executive Officer. 32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer. 101 Interactive Data Files for Alpha Pro Tech, Ltd’s Form 10-Q for the period ended March 31, 2022, formatted in Inline XBRL. 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).   (P) Indicates a paper filing with the SEC.   23 Alpha Pro Tech, Ltd.     SIGNATURES   Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.         ALPHA PRO TECH, LTD.             DATE: May 10, 2022   /s/ Lloyd Hoffman         Lloyd Hoffman          President and Chief Executive Officer                       DATE:  May 10, 2022   /s/ Colleen McDonald         Colleen McDonald         Chief Financial Officer     24