What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-05 compared with 2022-05-10 · 254 added, 410 removed, 382 unchanged (63% of the section changed)

4 unchanged sentences

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, net of allowance for doubtful accounts of $ 64,000 as of June 30, 2022 and as of December 31, 2021

Accounts receivable, related party

1,597,000  

1,383,000  

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  

55,000  

Definite-lived intangible assets, net

Right-of-use assets

2,420,000  

2,648,000  

Equity investment in unconsolidated affiliate

6,169,000  

6,120,000  

$ 67,769,000  

$ 67,889,000  

Liabilities and Shareholders' Equity

1 unchanged sentence

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  

Total liabilities

4,328,000  

5,269,000  

Commitments and contingincies

2 unchanged sentences

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  

12,728,173 and 13,115,341 shares outstanding as of June 30, 2022 and December 31, 2021, respectively

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.

3 unchanged sentences

For the Three Months Ended

$ 17,661,000  

$ 23,161,000  

For the Six Months Ended

Cost of goods sold, excluding depreciation and amortization

11,219,000  

13,982,000  

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:

Loss on fixed assets

Equity in income of unconsolidated affiliate

49,000  

322,000  

Interest income, net

Total other income

50,000  

323,000  

Total other income/(loss)

Income before provision for income taxes

1,974,000  

4,726,000  

Provision for income taxes

452,000  

1,007,000  

$ 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).

Alpha Pro Tech, Ltd.

1 unchanged sentence

Equity (Unaudited)

For the Three Months Ended March 31, 2022

For the Six Months Ended June 30, 2022

Balance as of December 31, 2021

13,115,341  

$ 132,000  

$ 62,488,000  

$ 62,620,000  

1,522,000  

Common stock repurchased and retired

( 170,000 )  

( 2,000 )  

( 55,000 )  

( 699,000 )  

Stock-based compensation expense

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

Common stock repurchased and retired

Stock-based compensation expense

Options exercised

Balance as of June 30, 2022

For the Six Months Ended June 30, 2021

Balance as of December 31, 2020

13,419,847  

$ 135,000  

$ 409,000  

$ 59,476,000  

$ 60,020,000  

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  

Options exercised

89,494  

307,000  

308,000  

Balance as of March 31, 2021

13,323,341  

$ 134,000  

$ 61,648,000  

$ 61,782,000  

Common stock repurchased and retired

Stock-based compensation expense

Options exercised

Balance as of June 30, 2021

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

1 unchanged sentence

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Three Months Ended

For the Six Months Ended

Cash Flows From Operating Activities:

$ 1,522,000  

$ 3,719,000  

Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:

Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities:

Stock-based compensation

55,000  

101,000  

Depreciation and amortization

212,000  

198,000  

Equity in income of unconsolidated affiliate

( 49,000 )  

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 )  

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

Lease liabilities

( 227,000 )  

Net cash used in operating activities

( 1,179,000 )  

( 3,220,000 )

Net cash provided by (used in) operating activities

Cash Flows From Investing Activities:

Purchases of property and equipment

( 133,000 )  

Net cash used in investing activities

( 133,000 )  

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).

11 unchanged sentences

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.

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.

Future developments include the duration, scope and severity of the pandemic and new variants, including the Omicron 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.

Basis of Presentation and Revenue Recognition Policy

5 unchanged sentences

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 results of operations for the three and six months ended June 30, 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;

16 unchanged sentences

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.

The Company has determined as of June 30, 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 9 and Note 10 of these Notes to Condensed Consolidated Financial Statements (Unaudited) for information on revenue disaggregated by type and by geographic region.

10 unchanged sentences

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.

For the six months ended June 30, 2022 and 2021, 

no  stock options were granted under the 2004 Option Plan or the 2020 Incentive Plan.

The Company recognized $ 87,000  and $ 169,000  in stock-based compensation expense for the six months ended June 30, 2022 and 2021, respectively, related to outstanding options previously granted under the 2004 Option Plan.

For the six months ended June 30, 2022 and 2021, no restricted stock awards were granted under the 2020 Incentive Plan.

The Company recognized $ 54,000  in compensation expense associated with outstanding restricted stock awards for both six-month periods ended June 30, 2022 and 2021.

As of June 30, 2022, $ 25,000 of total unrecognized compensation cost related to outstanding restricted stock awards was expected to be recognized over a weighted-average remainder period of 0.24 years.

Alpha Pro Tech, Ltd.

6 unchanged sentences

The Company accounts for option forfeitures as they occur.

The following table summarizes stock option activity for the three months ended March 31, 2022:

The following table summarizes stock option activity for the six months ended June 30, 2022:

Weighted Average

1 unchanged sentence

Options outstanding, December 31, 2021

427,580  

$ 3.50  

Granted to employees and non-employee directors

Canceled/expired/forfeited

Options outstanding, March 31, 2022

427,580  

Options exercisable, March 31, 2022

322,580  

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.

Options outstanding, June 30, 2022

Options exercisable, June 30, 2022

As of June 30, 2022, $ 4,000 of total unrecognized compensation cost related to stock options was expected to be recognized over a weighted average period of 0.22 years.

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.

As of March 31, 2022 and December 31, 2021, inventories net of reserves consisted of the following:

Management has not identified any new standards that it believes merit further discussion at this time.

As of June 30, 2022 and December 31, 2021, inventories net of reserves consisted of the following:

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  

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Equity Investment in Unconsolidated Affiliate

6 unchanged sentences

In addition, the joint venture now supplies products for the Disposable Protective Apparel segment.

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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.

13 unchanged sentences

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.

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Management has determined that no impairment was required as of June 30, 2022 or December 31, 2021.

For the three months ended June 30, 2022 and 2021, the Company purchased $ 5,676,000 and $ 7,435,000 of inventories, respectively, from Harmony.

For the six months ended June 30, 2022 and 2021, the Company purchased $ 11,859,000 and $ 13,789,000 of inventories, respectively, from Harmony.

For the three months ended June 30, 2022 and 2021, the Company sold $ 0 and $ 451,000 of inventories, respectively, to Harmony.

For the six months ended June 30, 2022 and 2021, the Company sold $ 258,000 and $ 821,000 of inventories, respectively, to Harmony.

For the three months ended June 30, 2022 and 2021, the Company recorded equity in income of unconsolidated affiliate of $ 50,000 and $ 188,000 , respectively, related to Harmony.

For the six months ended June 30, 2022 and 2021, the Company recorded equity in income of unconsolidated affiliate of $ 99,000 and $ 510,000 , respectively, related to Harmony.

As of June 30, 2022, the Company’s investment in Harmony was $ 6,219,000 , which consisted of its original $ 1,450,000 investment and cumulative equity in income of unconsolidated affiliate of $ 5,788,000 , less $ 942,000 in repayments of the advance and $ 77,000 in dividends.

Accrued Liabilities

As of March 31, 2022 and December 31, 2021, accrued liabilities consisted of the following:

As of June 30, 2022 and December 31, 2021, accrued liabilities consisted of the following:

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  

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

Basic and Diluted Earnings Per Common Share

1 unchanged sentence

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:

EPS, which includes all such dilutive shares, for the three and six months ended June 30, 2022 and 2021:

For the Three Months Ended

For the Six Months Ended

Net income (numerator)

$ 1,522,000  

$ 3,719,000  

Shares (denominator):

Basic weighted average common shares outstanding

13,058,871  

13,342,398  

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:

$ 0.12  

$ 0.28  

$ 0.12  

$ 0.27  

Activity of Business Segments

10 unchanged sentences

The Company evaluates the performance of its segments and allocates resources to them based primarily on net sales.

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).

1 unchanged sentence

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:

The following table presents consolidated net sales for each segment for the three and six months ended June 30, 2022 and 2021:

For the Three Months Ended

For the Six Months Ended

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:

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table presents the reconciliation of consolidated segment income to consolidated net income for the three and six months ended June 30, 2022 and 2021:

For the Three Months Ended

For the Six Months Ended

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:

The following table presents the consolidated net property and equipment, goodwill and definite-lived intangible assets (“consolidated assets”) by segment as of June 30, 2022 and December 31, 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  

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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:

The following table summarizes the Company’s net sales by geographic region for the three and six months ended June 30, 2022 and 2021:

For the Three Months Ended

For the Six Months Ended

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.

Net sales by geographic region are based on the countries in which our customers are located.

For the three months ended June 30, 2022 and 2021, the Company generated approximately $ 542,000 and $ 103,000 , respectively, in sales from Canada.

For the six months ended June 30, 2022 and 2021, the Company generated approximately $ 1,016,000 and $ 2,258,000 , 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:

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table summarizes the locations of the Company’s long-lived assets by geographic region as of June 30, 2022 and December 31, 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  

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.

As of June 30, 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).

The Company has operating leases for the Company’s corporate office and manufacturing facilities, which expire at various dates through 

The Company’s primary operating lease commitments at 

March 31, 2022 related to the Company’s manufacturing facilities in Valdosta, Georgia;

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 June 30, 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.

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:

Remaining nine months of 2022

$ 757,000  

1,017,000  

484,000  

365,000  

As of June 30, 2022, the Company had operating lease right-of-use assets of $ 2,191,000 and operating lease liabilities of $ 2,243,000 .

As of June 30, 2022, we did not have any finance leases recorded on the Company’s condensed consolidated balance sheet.

Operating lease expense was approximately $ 308,000 and $ 626,000 , respectively, during the three and six months ended June 30, 2022.

The aggregate future minimum lease payments and reconciliation to lease liabilities as of June 30, 2022 were as follows:

Remaining six months of 2022

Total future minimum lease payments

2,623,000  

Less imputed interest

Total Lease liabilities

$ 2,473,000  

As of March 31, 2022, the weighted average remaining lease term of the Company’s operating leases was 

During the three months ended March 31, 2022, the weighted average discount rate with respect to these leases was 

As of June 30, 2022, the weighted average remaining lease term of the Company’s operating leases was 2.89 years.

During the three months ended June 30, 2022, the weighted average discount rate with respect to these leases was 4.07 %

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company accounts for income taxes using the asset and liability method.

1 unchanged sentence

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.

3 unchanged sentences

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.

Contingencies

On June 7, 2022, the Company filed a lawsuit (the “Lawsuit”) in Utah naming as defendants the vendors from which the Company ordered equipment for its facility in Utah (collectively the “Defendants”).

The Lawsuit relates to certain equipment ordered from Defendants and paid for by the Company, which Defendants never delivered.

In the Lawsuit the Company is seeking the following relief:

compensatory damages in the amount $ 490,000 , representing the money the Company paid for the machines it never received, lost profits in the form of mask sales it could have made if Defendants had delivered the machines on the promised date, and other monetary and equitable relief.

As of June 30, 2022, the Company has written off the $ 490,000 balance of the deposit paid for the equipment, pending any recovery in the Lawsuit.

As of the date hereof, no counterclaims have been asserted against the Company.

The Company believes there would not be any meritorious claims against the Company in the Lawsuit.

The Lawsuit is in its early stages and the final outcome, including the potential amount of any recovery for the Company’s claims, is uncertain.

Any potential recovery represents a gain contingency in accordance with ASC 450, Contingencies , that has not been recorded as the matter was not resolved as of June 30, 2022.

Any recovery will be recorded when received.

The Company is subject to certain claims and legal actions arising in the ordinary course of business.

The ultimate outcome of any pending or potential litigation against the Company cannot be predicted.

Management accrues contingent liabilities only when management concludes that it is both probable that a liability has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated.

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.

The Company has reviewed and evaluated whether subsequent events have occurred from the condensed consolidated balance sheet date of June 30, 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.

Alpha Pro Tech, Ltd.

5 unchanged sentences

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.

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 2023, and other information that is not historical information.

When used in this report, the words “estimates,”

10 unchanged sentences

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.

2 unchanged sentences

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.

2 unchanged sentences

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.

Global economic conditions could adversely affect the Company’s business and financial results.

 Our joint venture may present risks that are only present when third parties are involved.

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.

47 unchanged sentences

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.

To date, the inflationary cost pressure has been more pronounced in the Company’s logistics costs, but these supply chain challenges have had an 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.

2 unchanged sentences

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.

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 as the overall market for  housing starts has decreased 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.

Overall, the increase in sales of our PPE products resulting from the pandemic had a positive impact on our 2021 and, to a lesser extent, 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.

Due to the inherent uncertainty of the unprecedented evolving situation, we are unable to predict with any certainty the likely impact of the COVID-19 pandemic on our future operations.

Alpha Pro Tech, Ltd.

3 unchanged sentences

For the Three Months Ended

For the Six Months Ended

Selling, general and administrative expenses

1 unchanged sentence

Income before provision for income taxes

Three months ended March 31, 2022 compared to three months ended March 31, 2021

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%.

Three months ended June 30, 2022 compared to three months ended June 30, 2021

Consolidated sales for the three months ended June 30, 2022 decreased to $17,373,000, from $17,806,000 for the three months ended June 30, 2021, representing a decrease of $433,000, or 2.4%.

This decrease consisted of decreased sales in the Disposable Protective Apparel segment of $1,452,000, partially offset by increased sales in the Building Supply segment of $1,019,000.

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.

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®

Building Supply segment sales for the three months ended June 30, 2022 increased by $1,019,000, or 10.4%, to the highest quarter on record of $10,817,000, compared to $9,798,000 for the three months ended June 30, 2021.

The Building Supply segment increase during the three months ended June 30, 2022 was primarily due to a 7.7% increase in sales of housewrap and a 116.4% increase in sales of other woven material, partially offset by a decrease in sales of synthetic roof underlayment of 7.7% compared to the same period of 2021.

The sales mix of the Building Supply segment for the three months ended June 30, 2022 was approximately 40% for synthetic roof underlayment, 42% for housewrap and 18% for other woven material.

This compared to approximately 48% for synthetic roof underlayment, 43% for housewrap and 9% for other woven material for the three months ended June 30, 2021.

Our synthetic roof underlayment product line primarily includes REX SynFelt®, REX TECHNOply®

and TECHNO SB®, and our housewrap product line primarily 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.

Building Supply segment sales for the second quarter of 2022 resulted in the all-time highest quarter on record.

In addition, we have experienced record quarters in each of the past seven quarters, as compared to each respective prior year comparative quarter.

Also, we have experienced the four highest quarters on record over the past five quarters:

the second and third quarters of 2021 and the first and second quarters of 2022.

Alpha Pro Tech, Ltd.

In the second quarter of 2022, the Building Supply segment experienced growth over the same period last year, which was led by a quarterly record in sales of housewrap.

Premium housewrap was up, as we enjoyed entry into more multi-family and light commercial markets.

We also experienced additional growth with our entry level line of housewrap with additional market penetration on the retail side, as well as increased sales of our accessory items, which includes window and door flashing and seam tapes.

One of our growth strategies is to pursue additional market share of the multi-family building market, through the education of architects and introducing new products, which are currently in development, to meet the needs of ever changing building code requirements and customers’

Our synthetic roof underlayment sales in the second quarter of 2022 were negatively affected due a decline of sales in our premium REX SynFelt®

brand, which reflects an industry trend, and flat sales of our economy TECHNO SB®

brand as there has been an overall increase in inventory levels at the retail level on economy underlayment products.

The higher inventories as well as a general retraction in the building market are expected to continue into the third quarter but we do expect growth in the near future.

Other woven material sales increased in the second quarter of 2022 compared to the same period of 2021 by a significant 116.4% due to increased sales to our major customer and sales to a new other woven material customer.

We expect continued substantial growth in the remainder of 2022 with this product line.

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.

This equipment, which is expected to increase our production capacity, has been further delayed as a result of supply chain issues, and is now expected in the latter part of the third 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 segment products and anticipates continued growth in the remainder of 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.

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, as well as excess inventory in the market.

By adding dealers, distribution channels and products in the roofing sector, we remain optimistic with respect to achieving sales growth in the future.

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.

However, there is uncertainty in the economy in relation to interest rates and a possible recession that could impact the Building Supply segment.

Disposable Protective Apparel Segment

Sales for the Disposable Protective Apparel segment for the three months ended June 30, 2022 decreased by $1,452,000, or 18.1%, to $6,556,000, compared to $8,008,000 for the same period of 2021.

This segment decrease was due to a 28.9% decrease in sales of disposable protective garments, and a 0.7% decrease in sales of face masks, partially offset by a 172.1% increase in face shields.

Sales of disposable garments and face masks were affected due to reduced customer demand in the second quarter of 2022 compared to demand in the second quarter of 2021 associated with the COVID-19 pandemic.

Face shield demand was positively affected primarily by sales to one distributor.

The sales mix of the Disposable Protective Apparel segment for the three months ended June 30, 2022 was approximately 74% for disposable protective garments, 14% for face masks and 12% for face shields.

This sales mix is compared to approximately 85% for disposable protective garments, 11% for face masks and 4% for face shields for the three months ended June 30, 2021.

Sales for the disposable protective garments decreased in the second quarter of 2022, primarily due to record sales in the second quarter of 2021, resulting from strong orders received from our major international channel partner in 2020 in response to COVID-19.

Although our sales were down during the second quarter of 2022, our disposable protective garment sales were significantly higher than pre-pandemic levels.

We are continuing to work closely with our channel partners to uncover new end-customer sales opportunities.

Alpha Pro Tech, Ltd.

Sales of face mask sales in the second quarter of 2022 were basically flat compared to the same quarter of 2021.

Sales of face masks continue to be somewhat aided by the Omicron variants of COVID-19 and are still higher than pre-pandemic levels but, are expected to be low in the coming months as the market is saturated with face masks.

The increase in face shield sales in the second quarter of 2022 was also due to demand associated with the COVID-19 pandemic, primarily from one distributor.

Face shield sales in the second quarter of 2022 were significantly higher than pre-pandemic levels but are expected to be lower in the near term.

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 now expected to be at pre-pandemic levels or lower. 

In particular, face mask sales are expected to continue to decrease due to the saturated market. 

Six months ended June 30, 2022 compared to six months ended June 30, 2021

Consolidated sales for the six months ended June 30, 2022 decreased to $35,034,000 from $40,967,000 for the six months ended June 30, 2021, representing a decrease of $5,933,000, or 14.5%.

This decrease consisted of decreased sales in the Disposable Protective Apparel Segment of $8,849,000, partially offset by increased sales in the Building Supply segment of $2,916,000.

Building Supply Segment

Building Supply segment sales for the six months ended June 30, 2022 increased by $2,916,000, or 16.1%, to $21,054,000, compared to $18,138,000 for the same period of 2021.

The Building Supply segment increase was primarily due to an increase in sales of housewrap of 12.5%, an increase in sales of synthetic roof underlayment of 2.8%, and an increase in sales of other woven material of 116.4% compared to the same period of 2021.

Building Supply segment sales during the first six months of 2022 experienced continued significant growth due to strong demand for both our housewrap products, other non-woven products and to a lesser extent synthetic roof underlayment products.

The housewrap family of products continued to grow with a 12.5% year to date increase over the prior year to date due to growth in new market share as well as high demand for new home construction.

Other woven material sales increased year to date by a significant 116.4% due to increased sales to our major customer, as well as a new customer.

Synthetic roof underlayment sales increased by 2.8% compared to the first six months of 2021, which was primarily due to robust sales of our economy TECHNO family of products that have increased 11.6% year to date, partially offset by an industry-wide decline in premium synthetic roof underlayment sales.

The sales mix of the Building Supply segment for the six months ended June 30, 2022 was 44% for synthetic roof underlayment, 41% for housewrap and 15% for other woven material.

This compared to 50% for synthetic roof underlayment, 42% for housewrap and 8% for other woven material for the six months ended June 30, 2021.

Disposable Protective Apparel Segment

Sales for the Disposable Protective Apparel segment for the six months ended June 30, 2022 decreased by $8,849,000, or 38.8%, to $13,980,000, compared to $22,829,000 for the same period of 2021.

This segment decrease was due to a 35.0% decrease in sales of disposable protective garments, a 51.2% decrease in sales of face masks, and a 27.7% decrease in sales of face shields, all primarily due to increased customer demand associated with the pandemic in 2021.

Although sales of disposable protective garments, face masks and face shields are down year to date, they are above pre-pandemic levels.

The sales mix of the Disposable Protective Apparel segment for the six months ended June 30, 2022 was 63% for disposable protective garments, 23% for masks and 14% for shields.

This sales mix is compared to 59% for disposable protective garments, 29% for masks and 12% for shields for the six months ended June 30, 2021.

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.

Gross profit decreased by $620,000, or 9.9%, to $5,612,000 for the three months ended June 30, 2022, from $6,232,000 for the three months ended June 30, 2021.

The gross profit margin was 32.3% for the three months ended June 30, 2022, compared to 35.0% for the three months ended June 30, 2021.

Gross profit decreased by $3,357,000, or 21.8%, to $12,054,000 for the six months ended June 30, 2022, from $15,411,000 for the same period of 2021.

The gross profit margin was 34.4% for the six months ended June 30, 2022, compared to 37.6% for the same period of 2021.

Management believes that gross profit margin likely will continue to be negatively affected by significant increases in ocean freight and other transportation costs.

1 unchanged sentence

In the current environment, cost increases may rise more rapidly than our sales prices, which could continue to decrease gross profit.

In order to mitigate cost increases the Company will likely be increasing prices during the latter part of the third quarter of 2022.

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:

Selling, general and administrative expenses decreased by $134,000, or 3.2%, to $4,065,000 for the three months ended June 30, 2022, from $4,199,000 for the three months ended June 30, 2021.

As a percentage of net sales, selling, general and administrative expenses decreased to 23.4% for the three months ended June 30, 2022, down from 23.6% for the same period of 2021, primarily as a result of lower expenses.

The change in expenses by segment for the three months ended June 30, 2022 was as follows:

Disposable Protective Apparel was down $92,000, or 6.8%;

1 unchanged sentence

and corporate unallocated expenses were down $266,000, or 17.8%.

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.

The decrease in the Disposable Protective Apparel segment expenses was primarily related to decreased employee compensation, partially offset by an increase in marketing and commission expenses.

The increase in the Building Supply segment expenses was primarily related to increased employee compensation, marketing, travel insurance and general office expenses, partially offset by decreased commission expense.

The decrease in corporate unallocated expenses was primarily due to lower employee compensation, accrued bonuses and lower stock option expenses.

Selling, general and administrative expenses decreased by $406,000, or 4.6%, to $8,371,000 for the six months ended June 30, 2022, from $8,777,000 for the six months ended June 30, 2021.

As a percentage of net sales, selling, general and administrative expenses increased to 23.9% for the six months ended June 30, 2022, up from 21.4% for the same period of 2021, primarily as a result of lower net sales.

The change in expenses by segment for the six months ended June 30, 2022 was as follows:

Disposable Protective Apparel was down $545,000, or 17.9%;

Building Supply was up $587,000, or 21.8%;

and corporate unallocated expenses were down $448,000, or 14.7%.

The decrease in the Disposable Protective Apparel segment expenses was primarily related to decreased employee compensation, commission and general factory expenses, partially offset by increased rent and utilities.

The increase in the Building Supply segment expenses was related to increased employee compensation, marketing, travel, insurance and general office expenses, partially offset by decreased commission expense.

The decrease in corporate unallocated expenses was primarily due to decreased employee compensation, accrued bonuses, stock option expenses, and public company and general office expenses, partially offset by increased insurance 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.

A bonus amount of $46,000 was accrued for the three months ended June 30, 2022, compared to $106,000 for the three months ended June 30, 2021.

A bonus amount of $150,000 was accrued for the six months ended June 30, 2022, as compared to $355,000 for the same period of 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.

Depreciation and amortization expense increased by $24,000, or 11.8%, to $227,000 for the three months ended June 30, 2022, from $203,000 for the three months ended June 30, 2021.

Depreciation and amortization expense increased by $38,000, or 9.5%, to $439,000 for the six months ended June 30, 2022, from $401,000 for the same period of 2021.

The increase was primarily attributable to increased depreciation for machinery and equipment in the Building Supply segment.

Alpha Pro Tech, Ltd.

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.

Income from operations decreased by $510,000, or 27.9%, to $1,320,000 for the three months ended June 30, 2022, compared to $1,830,000 for the three months ended June 30, 2021.

The decreased income from operations was primarily due to a decrease in gross profit of $620,000 and an increase in depreciation and amortization expense of $24,000, partially offset by a decrease in selling, general and administrative expenses of $134,000.

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.

Income from operations as a percentage of net sales for the three months ended June 30, 2022 was 7.6%, compared to 10.3% for the same period of 2021.

Income from operations decreased by $2,989,000, or 48.0%, to $3,244,000 for the six months ended June 30, 2022, compared to $6,233,000 for the six months ended June 30, 2021.

The decreased income from operations was primarily due to a decrease in gross profit of $3,357,000, and an increase in depreciation and amortization expense of $38,000, partially offset by a decrease in selling, general and administrative expenses of $406,000.

Income from operations as a percentage of net sales for the six months ended June 30, 2022 was 9.3%, compared to 15.2% 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.

Other income decreased by $618,000, or 328.7%, to a loss of $430,000 for the three months ended June 30, 2022, from other income of $188,000 for the three months ended June 30, 2021.

The decrease was due to a loss on fixed assets of $490,000 and decrease in equity in income of unconsolidated affiliate of $138,000, partially offset by an increase in interest income of $10,000.

The loss on fixed assets was due to equipment for the Disposable Protective Apparel segment that was not delivered and the Company has recently filed a lawsuit in this matter.

See Part II, Item 1, “Legal Proceedings,”

for more information on the lawsuit.

Other income decreased by $891,000 to a loss of $380,000 for the six months ended June 30, 2022, from other income of $511,000 for the same period of 2021.

The decrease was primarily due a loss on fixed assets of $490,000 as discussed above, and a decrease in equity in income of unconsolidated affiliate of $411,000, partially offset by an increase in interest income of $10,000.

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%.

Income before provision for income taxes for the three months ended June 30, 2022 was $890,000, compared to income before provision for income taxes of $2,081,000 for the same period of 2021, representing a decrease of $1,128,000, or 55.9%.

This decrease in income before provision for income taxes was due to a decrease in income from operations of $510,000 and a decrease in other income of $618,000.

Alpha Pro Tech, Ltd.

Income before provision for income taxes for the six months ended June 30, 2022 was $2,864,000, compared to income before provision for income taxes of $6,744,000 for the six months ended June 30, 2021, representing a decrease of $3,880,000, or 57.5%.

This decrease in income before provision for income taxes was due to a decrease in income from operations of $2,989,000 and a decrease in other income of $891,000.

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 provision for income taxes for the three months ended June 30, 2022 was $197,000, compared to $347,000 for the same period of 2021.

The estimated effective tax rate was 22.1% for the three months ended June 30, 2022, compared to 17.3% for the three months ended June 30, 2021.

The Company does not record a tax provision on equity in income of unconsolidated affiliate, which reduces the effective tax rate.

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 provision for income taxes for the six months ended June 30, 2022 was $649,000, compared to $1,354,000 for the same period of 2021.

The estimated effective tax rate was 22.7% for the six months ended June 30, 2022, compared to 20.1% for the six months ended June 30, 2021.

The Company does not record a tax provision on equity in income of unconsolidated affiliate, which reduces the effective tax rate.

Net income for the three months ended June 30, 2022 was $693,000, compared to net income of $1,671,000 for the three months ended June 30, 2021, representing a decrease of $978,000, or 58.5%.

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.

The net income decrease for the three months ended June 30, 2022 compared to the same period of 2021 was due to a decrease in income from operations of $510,000 and a decrease in other income of $618,000, for a decrease in income before provision for income taxes of $1,128,000, partially offset by a decrease in provision for income taxes of $150,000.

The loss on assets of $490,000, mentioned above, significantly decreased our net income for the three months ended June 30, 2022.

Net income as a percentage of net sales for the three months ended June 30, 2022 was 4.0%, and net income as a percentage of net sales for the same period of 2021 was 9.4%.

Basic earnings per common share for the three months ended June 30, 2022, and 2021 were $0.05 and $0.13, respectively.

Diluted earnings per common share for the three months ended June 30, 2022 and 2021 were $0.05 and $0.12, respectively.

Alpha Pro Tech, Ltd.

Net income for the six months ended June 30, 2022 was $2,215,000, compared to net income of $5,390,000 for the same period of 2021, representing a decrease of $3,175,000, or 58.9%.

The net income decrease comparing the 2022 and 2021 periods was due to a decrease in income from operations of $2,989,000 and a decrease in other income of $891,000, for a decrease in income before provision for income taxes of $3,880,000, partially offset by a decrease in provision for income taxes of $705,000.

As mentioned above, the loss on assets has negatively impacted the net income for the first half of 2022.

Net income as a percentage of net sales for the six months ended June 30, 2022 was 6.3%, and net income as a percentage of net sales for the same period of 2021 was 13.2%.

Basic earnings per common share for the six months ended June 30, 2022 and 2021 were $0.17 and $0.41, respectively.

Diluted earnings per common share for the six months ended June 30, 2022 and 2021 were $0.17 and $0.40, 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.

As of June 30, 2022, the Company had cash and cash equivalents (“cash”) of $15,342,000 and working capital of $51,064,000.

As of June 30, 2022, the Company’s current ratio (current assets/current liabilities) was 21:1, compared to a current ratio of 20:1 as of December 31, 2021.

Cash decreased by 5.9%, or $965,000, to $15,342,000 as of June 30, 2022, compared to $16,307,000 as of December 31, 2021, and working capital increased by $733,000 from $50,331,000 as of December 31, 2021.

The decrease in cash from December 31, 2021 was due to cash used in investing activities of $222,000 and cash used in financing activities of $1,686,000, partially offset by cash provided by operating activities of $ 943,000.

Net cash provided by operating activities of $943,000 for the six months ended June 30, 2022  was due to net income of $2,215,000, impacted primarily by the following:

stock-based compensation expense of $87,000, depreciation and amortization expense of $439,000, equity in income of unconsolidated affiliate of $99,000, operating lease expense net of accretion of $457,000, an increase in accounts receivable of $3,269,000, an increase in prepaid expenses of $175,000, a decrease in inventory of $1,812,000, a decrease in accounts payable and accrued liabilities of $67,000, and a decrease in lease liabilities of $457,000, all compared to December 31, 2021.

Accounts receivable increased by $3,269,000, or 68.3%, to $8,049,000 as of June 30, 2022, from $4,780,000 as of December 31, 2021.

The increase in accounts receivable was primarily related to increased sales as compared to the fourth quarter of 2021.

The number of days that sales remained outstanding as of June 30, 2022, calculated by using an average of accounts receivable outstanding and annual revenue, was 44 days, compared to 24 days as of December 31, 2021.

Inventory decreased by $1,812,000, or 7.3%, to $23,157,000 as of June 30, 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 $1,651,000, or 10.2%, to $14,584,000 and a decrease in inventory for the Building Supply segment of $161,000, or 1.8%, to $8,573,000.

Prepaid expenses increased by $175,000, or 2.5%, to $7,118,000 as of June 30, 2022, from $6,943,000 as of December 31, 2021.

The increase was primarily due to increased prepayments for insurance and prepaid inventory.

Right-of-use assets as of June 30, 2022 decreased by $457,000 to $2,191,000 from $2,648,000 as of December 31, 2021 as a result of amortization of the balance.

Lease liabilities as of June 30, 2022 decreased by $457,000 to $2,243,000 from $2,700,000 as of December 31, 2021.

The recording of the lease liabilities was the result of adopting ASC 842, Leases.

1 unchanged sentence

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.

Accounts payable and accrued liabilities as of June 30, 2022 decreased by $67,000, or 3.8%, to $1,720,000, from $1,778,000 as of December 31, 2021.

The decrease was primarily due to a decrease in accrued bonuses, partially offset by an increase in trade accounts payable.

Net cash used in investing activities was $222,000 for the six months ended June 30, 2022, compared to net cash used in investing activities of $1,468,000 for the same period of 2021.

Investing activities for the six months ended June 30, 2022 consisted of the purchase of property and equipment of $222,000.

Investing activities for the six months ended June 30, 2021 consisted of the purchase of property and equipment of $1,468,000.

Net cash used in financing activities was $1,686,000 for the six months ended June 30, 2022, compared to net cash used in financing activities of $3,317,000 for the same period of 2021.

Net cash used in financing activities for the six months ended June 30, 2022 resulted from the payment of $1,716,000 for the repurchase of common stock, partially offset by the proceeds of $30,000 from the exercise of stock options.

Net cash used in financing activities for the six months ended June 30, 2021 resulted from the payment of $3,708,000 for the repurchase of common stock partially offset by the proceeds of $391,000 from the exercise of stock options.

As of June 30, 2022, we had $2,362,000 available for additional stock purchases under our stock repurchase program.

During the three months ended June 30, 2022, we repurchased 225,500 shares of common stock at a cost of $960,000.

As of June 30, 2022, we had repurchased a total of 18,945,417 shares of common stock at a cost of approximately $44,158,000 through our repurchase program.

We retire all stock upon repurchase.

1 unchanged sentence

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.

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 been delayed.

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 fourth quarter of 2021, and then in the second quarter of 2022, and is now expected in the latter part of the third quarter of 2022 and is expected to be operational in the fourth quarter of 2022.

The Company expects to fund the remaining balance from cash flow from operations.

1 unchanged sentence

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.

Management has not identified any new standards that it believes merit further discussion at this time.

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.

Alpha Pro Tech, Ltd.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements