What changed in this filing

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Item 2. Management’s Discussion and Analysis

2025-05-08 compared with 2024-11-07 · 121 added, 152 removed, 82 unchanged (77% of the section changed)

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 year ended December 31, 2023, filed with the SEC on March 13, 2024 (the “2023 Form 10-K”).

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, 2024, filed with the SEC on March 12, 2025 (the “2024 Form 10-K”).

Special Note Regarding Forward-Looking Statements

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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.

Tariff policies and potential countermeasures could increase our costs and disrupt our global supply chain, which could negatively impact the results of our operations.

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.

Environmental laws and regulations may subject us to significant liabilities.

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.

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We are subject to risks related to climate change and natural disasters or other events beyond our control.

Uncertainties with respect to the development, deployment, and use of artificial intelligence.

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.

1 unchanged sentence

Our common stock price is volatile, which could result in substantial losses for individual shareholders.

Alpha Pro Tech, Ltd.

The foregoing list of risks is not exclusive.

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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.

Alpha Pro Tech, Ltd.

Special Note Regarding Smaller Reporting Company Status

14 unchanged sentences

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 and infection control products for the cleanroom, industrial, pharmaceutical, medical and dental markets through our wholly-owned subsidiary, Alpha Pro Tech, Inc.

We also manufacture a line of building supply construction weatherization products through our wholly-owned subsidiary, Alpha ProTech Engineered Products, Inc.

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:

(1) the Building Supply segment, consisting of construction weatherization products, such as housewrap, housewrap accessories including window and door flashing, and seam tape, synthetic roof underlayment and synthetic roof underlayment accessories, as well as other woven materials;

and (2) 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.

All financial information presented in this report reflects the current segmentation.

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.

(i) the Building Supply segment, consisting of construction weatherization products, such as housewrap, housewrap accessories, synthetic roof underlayment and synthetic roof underlayment accessories, 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 construction companies and building supply and roofing distributors;

companies in pharmaceutical manufacturing, bio-pharmaceutical manufacturing, medical device manufacturing, lab animal research, and high technology electronics manufacturing (which includes the semi-conductor market);

and medical and dental 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.

1 unchanged sentence

Alpha Pro Tech, Ltd.

Recent developments in U.S.

trade policy have introduced uncertainty regarding the future of global trade relations.

Following the inauguration of the second Trump administration, there have been numerous announcements made and actions taken related to tariff increases and other trade restrictions regarding imports into the U.S.

President Trump has indicated that his administration is likely to impose significant tariffs on imported goods, including a 145% tariff on Chinese imports, a tariff on goods from Mexico and up to 10% or 20% on all other U.S.

imports, including tariffs of 10% on products we import from India.

Given that we currently source very little from China, this may be a benefit in regards to our competition that does import from China, but any new or increased tariffs, quotas, embargoes, or other trade barriers affecting other countries from which we do source supplies or our global network of third-party suppliers could impact our supply chain and cost structure.

Additionally, retaliatory measures by affected countries could further disrupt our operations or reduce our competitiveness in international markets.

An escalation in trade tensions or the implementation of broader tariffs, trade restrictions or retaliatory measures on our products or components originating from countries outside the U.S.

could adversely impact our ability to source necessary components, manufacture products at competitive cost, or sell our products at prices customers are willing to pay.

Any such developments could materially and adversely affect our business operations, results of operations and cash flows.

We continue to monitor these changing tariffs and trade restrictions.

If new tariffs or trade restrictions are imposed, we may need to adjust our pricing, increase inventory levels, or seek alternative suppliers, any of which could materially affect our revenue, gross margins, and overall financial performance.

RESULTS OF OPERATIONS

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For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Ended March 31,

Selling, general and administrative expenses

1 unchanged sentence

Income before provision for income taxes

Three and Nine months ended September 30, 2024 compared to Three and Nine months ended September 30, 2023

Consolidated sales for the three months ended September 30, 2024 , decreased to $14,251,000, from $16,053,000 for the three months ended September 30, 2023, representing a decrease of $1,802,000, or 11.2%.

This decrease consisted of decreased sales in the Building Supply segment of $2,651,000, partially offset by increased sales in the Disposable Protective Apparel segment of $849,000.

Building Supply segment sales for the three months ended September 30, 2024 decreased by $2,651,000, or 23.2%, to $8,798,000 compared to a record sales quarter of $11,449,000, for the three months ended September 30, 2023.

The Building Supply segment decrease during the three months ended September 30, 2024, was primarily due a 16.2% decrease in sales of housewrap, a 25.1% decrease in sales of synthetic roof underlayment, and a 27.2% decrease in sales of other woven material, each compared to the same period of 2023.

The sales mix of the Building Supply segment for the three months ended September 30, 2024 was approximately 46% for housewrap, 41% for synthetic roof underlayment and 13% for other woven material.

This compared to approximately 43% for housewrap, 43% for synthetic roof underlayment and 14% for other woven material for the three months ended September 30, 2023.

Our synthetic roof underlayment product line primarily includes REX SynFelt®, REX TECHNOply® TECHNO SB and our housewrap product line primarily consists of REX Wrap®, REX Wrap Plus® and REX™ Wrap Fortis.

Housewrap accessories consist of REXTREME Window and Door Flashing and REX™ Premium Seam Tape and our synthetic roof underlayment accessories consist of our new self- adhered TECHNOplus and REX Ultra HT.

The housing market continues to show weakness, with housing starts down 4.0% in the third quarter of 2024 compared to the prior year period.

While sales in the third quarter of 2024 were lower than earlier quarters in the year, the performance of the core building products (housewrap and synthetic roof underlayment) for the full year of 2024 has been encouraging despite a number of headwinds.

During the first six months of 2024, housing starts trailed 2023 by 2.7% while our core building product sales remained nearly flat.

In the third quarter of 2024, our largest customers contributed to most of the decline but those customers, which represent a majority of our business, were up approximately 9% for the first six months of 2024.

In July 2024, housing starts were down 14.3%, leading to our largest customers reducing shipments and adjusting their inventory positions, resulting in decreased sales in the third quarter of 2024.

Despite the drop in housing starts in 2024, the percentage decline of sales to those large customers was lower than the percentage decline of housing starts.

Presenting an additional challenge in 2024, multi-family housing starts for the first nine months were down 30.5% compared to 2023 and the lowest in ten years.

Other woven material sales decreased by 27.2% in the third quarter of 2024 compared to the same period of 2023, due to decreased sales to a customer that was acquired by another company.

The Company is pursuing new opportunities for other woven material sales that may improve sales, but management does not expect other woven material sales to be a growth driver in the short term.

Management is encouraged for the remainder of 2024, as our robust inventory and plant location in Georgia will allow us to assist in the southeast rebuild after hurricanes Helene and Milton.

Since the first storm, we have seen a surge in synthetic roof underlayment orders, which we expect to have a positive effect on the fourth quarter of 2024.

We expect growth in the Building Supply segment when uncertainty in the housing market abates.

For the three months ended March 31, 2025 compared to the three months ended March 31, 2024

Consolidated sales for the three months ended March 31, 2025, increased to $13,822,000, from $13,482,000 for the three months ended March 31, 2024, representing an increase of $340,000, or 2.5%.

This increase consisted of increased sales in the Building Supply segment of $132,000 and increased sales in the Disposable Protective Apparel segment of $208,000.

Building Supply Segment

Building Supply segment sales for the three months ended March 31, 2025, increased by $132,000, or 1.6%, to $8,372,000 compared to $8,240,000 for the three months ended March 31, 2024.

The Building Supply segment increase during the three months ended March 31, 2025, was primarily due to a 21.8% increase in sales of synthetic roof underlayment and an 89.3% increase in sales of other woven material, partially offset by a 20.9% decrease in sales of housewrap compared to the same period of 2024.

The sales mix of the Building Supply segment for the three months ended March 31, 2025, was approximately 48% for synthetic roof underlayment, 45% for housewrap and 7% for other woven material.

This compared to approximately 40% for synthetic roof underlayment, 56% for housewrap and 4% for other woven material for the three months ended March 31, 2024.

Our synthetic roof underlayment product line primarily includes REX SynFelt®, REX TECHNOply® and TECHNO SB and our synthetic roof underlayment accessories consist of our new self-adhered TECHNOplus Ice & Water and REX Hi Temp.

Our housewrap product line primarily consists of REX Wrap®, REX Wrap Plus® and REX™ Wrap Fortis.

Housewrap accessories consist of REXTREME Window and Door Flashing and REX™ Premium Seam Tape.

Alpha Pro Tech, Ltd.

Disposable Protective Apparel segment sales for the three months ended September 30, 2024 increased by $849,000, or 18.4%, to $5,453,000, compared to $4,604,000 for the same period of 2023.

This segment increase was due to a 6.9% increase in sales of disposable protective garments, a 124.3% increase in sales of face masks and a 204.5% increase in sales of face shields.

The sales mix of the Disposable Protective Apparel segment for the three months ended September 30, 2024, was approximately 82% for disposable protective garments, 13% for face masks and 5% for face shields.

This sales mix is compared to approximately 91% for disposable protective garments, 7% for face masks and 2% for face shields for the three months ended September 30, 2023.

Sales of disposable protective garments in the third quarter of 2024 were up by 6.9%, primarily due to increased sales to our regional and national distributors.

We expect continued growth for disposable protective garments in the remainder of 2024.

Face mask and face shield sales in the third quarter of 2024, which were up 124.3% and 204.5%, respectively, are showing signs of improvement.

The market continues to be saturated with face mask and face shield products from the post COVID-19 residual excess inventories at the distributor level, but management is cautiously optimistic that sales of these products will continue to show growth in 2024 and beyond.

Consolidated sales for the nine months ended September 30, 2024 decreased to $44,023,000 from $45,967,000 for the nine months ended September 30, 2023, representing a decrease of $1,944,000, or 4.2%.

This decrease consisted of decreased sales in the Building Supply segment of $3,637,000, partially offset by increased sales in the Disposable Protective Apparel segment of $1,693,000.

Building Supply segment sales for the nine months ended September 30, 2024 decreased by $3,637,000, or 11.9%, to $26,979,000, compared to $30,616,000 for the same period of 2023.

Sales of housewrap decreased by 2.6%, sales of synthetic roof underlayment decreased by 13.2% and sales of other woven material decreased by 29.9% compared to the same period of 2023.

The sales mix of the Building Supply segment for the nine months ended September 30, 2024 was 50% for housewrap, 40% for synthetic roof underlayment and 10% for other woven material.

This compared to 46% for housewrap, 42% for synthetic roof underlayment and 12% for other woven material for the nine months ended September 30, 2023.

Management is encouraged by our housewrap sales, especially since the percentage decline of housing starts year to date was higher than the percentage decline of housewrap sales.

The synthetic roof underlayment market has also been affected by the uncertain economic conditions, more offshore competition and a push in the market to reduce product selling prices.

We launched our new line of self-adhered roofing products in late 2023 and have achieved revenue in 2024, and we expect continued revenue growth from this new product line within our current customer base and into new markets.

Self-adhered roof underlayment has proven to be a good addition to our roof category.

Market acceptance has been good as evidenced by our sales outpacing expectations.

We are exploring additional products such as roof deck flashing.

As building codes evolve, we see this as an opportunity to capture additional business, specifically in coastal and high wind markets.

We expect a return to growth in the building supply segment when uncertainty in the housing market abates and flat to positive new home starts statistics become apparent.

Sales of other woven material was down compared to the prior year period primarily due to one of our customers being acquired.

The Company is pursuing new opportunities for other woven materials sales that may improve sales, but management does not expect other woven material sales to be a growth driver in the short term.

Management expects growth in the Building Supply segment in the coming year, as the projected number of housing starts in 2025 is estimated to increase.

However, there continues to be uncertainty in housing starts and the economy in general that could affect this segment.

Disposable Protective Apparel segment sales for the nine months ended September 30, 2024 increased by $1,693,000, or 11.0%, to $17,044,000, compared to $15,351,000 for the same period of 2023.

This segment increase was due to a 5.7% increase in sales of disposable protective garments, a 55.3% increase in sales of face masks, a 63.6% increase in sales of face shields.

The sales mix of the Disposable Protective Apparel segment for the nine months ended September 30, 2024 was 86% for disposable protective garments, 10% for face masks and 4% for face shields.

This sales mix is compared to 90% for disposable protective garments, 7% for face masks and 3% for face shields for the nine months ended September 30, 2023.

The housing market continued to show weakness in the first quarter of 2025, continuing the weak trend of 2024, with single-family housing starts down 5.7% compared to the same quarter in 2024.

During the first quarter of 2025, we outperformed the market as sales of the core building products (housewrap and synthetic roof underlayment) were down 3.6%.

Excluding the decline in housewrap sales to two private-label distributors, which were beyond our control, the first quarter sales performance of our core building products would have increased compared to the prior year quarter.

Sales of synthetic roof underlayment, which were up 21.8% in the first three months of 2025, have been robust due to national programs with builders and contractors as well as category expansion, which includes self-adhered products.

As our relationships strengthen with downstream customers, we have successfully leveraged distribution to stock our full line.

Housewrap sales in the first quarter of 2025 have been challenging due to lower single-family housing starts, a significant decline in sales to two private-label distributors (as mentioned above), economic uncertainty, and a period of colder temperatures and increased snowfall during the first quarter of 2025.

Sales of other woven material increased by $317,000, or 89.3%, for the three months ended March 31, 2025 compared to the same period of 2024, primarily due to increased sales to our major customer.

The Company is pursuing new opportunities for other woven material that could improve sales, and we hired a Director of Product and Business Development during the first quarter of 2025.

Management expects growth in the Building Supply segment in the coming year and is encouraged by business in the pipeline.

However, there continues to be uncertainty in housing starts and volatility and uncertainty in the economy in general could affect this segment.

Disposable Protective Apparel Segment

Sales for the Disposable Protective Apparel segment for the three months ended March 31, 2025, increased by $208,000, or 4.0%, to $5,450,000, compared to $5,242,000 for the three months ended March 31, 2024.

This segment increase was due to a 12.0% increase in sales of disposable protective garments, partially offset by a 6.7% decrease in sales of face shields and a 50.5% decrease in sales of face masks.

The sales mix of the Disposable Protective Apparel segment for the three months ended March 31, 2025, was approximately 90% for disposable protective garments, 6% for face masks and 4% for face shields.

This sales mix is compared to approximately 84% for disposable protective garments, 11% for face masks and 5% for face shields for the three months ended March 31, 2024.

Sales of disposable protective garments in the three months ended March 31, 2025 were up 12.0%, due in part to achieving an elevated status with our largest international channel partners, consummated in late 2024 and launched in early 2025.

We expect this endeavor to result in steady organic growth with end-users in the cleanroom and controlled environment marketplace.

Additionally, during the second half of 2024, we consummated new and evolved distribution agreements with other channel partners that set in motion mutual growth incentives for this year and for years to come.

Also, we are working diligently to discover and work closely with new channel partners.

Sales of face masks in the first quarter of 2025 were negatively affected by excessive purchases primarily by one of our channel partners in the later part of 2024 in preparation for the 2025 flu/COVID season.

Thus, their on-hand inventory in the first quarter of 2025 was higher than historical levels.

We anticipate demand to improve once inventory levels return to more normal levels.

Our partnerships remain strong with a mutual desire to achieve organic growth in 2025.

Lastly, there remains uncertainty and volatility in the economy due to tariffs.

Management believes that the Company is well positioned, as a significant portion of our competition purchases disposable protective garments from China which currently have significantly higher tariff rates than the garments that we have source from India.

This puts us in a favorable cost position in relation to those competitors.

However, new tariffs on India may negatively affect our margins on products we produce there.

Alpha Pro Tech, Ltd.

Sales of disposable protective garments for the nine months ended September 30, 2024 increased by 5.7%, for the reasons discussed above in the three months ended September 30, 2024 section.

Face mask and face shield sales, although up 55.3% and 63.6% compared to 2023, continue to be affected by excess inventories at the distributor level and in the marketplace.

Gross Profit .

Gross profit decreased by $551,000, or 9.1%, to $5,484,000 for the three months ended September 30, 2024, from $6,035,000 for the three months ended September 30, 2023.

The gross profit margin was 38.5% for the three months ended September 30, 2024, compared to 37.6% for the three months ended September 30, 2023.

Gross profit increased by $620,000, or 3.6%, to $17,743,000 for the nine months ended September 30, 2024, from $17,123,000 for the nine months ended September 30, 2023.

The gross profit margin was 40.3% for the nine months ended September 30, 2024, compared to 37.3% for the nine months ended September 30, 2023.

The gross profit margin in 2024 was positively affected by a margin increase in both the Disposable Protective Apparel and Building Supply segments.

However, management expects that the gross profit margin could be negatively affected by recent significant increases in ocean freight rates.

Gross profit decreased by $25,000, or 0.5%, to $5,392,000 for the three months ended March 31, 2025, from $5,417,000 for the three months ended March 31, 2024.

The gross profit margin was 39.0% for the three months ended March 31, 2025, compared to 40.2% for the three months ended March 31, 2024.

The gross profit margin in the three months ended March 31, 2025 was negatively affected by a margin decrease in both the Disposable Protective Apparel and Building Supply segments.

Gross profit margin was negatively affected primarily by the inventory received last year which incurred higher ocean freight rates.

There was significant volatility in ocean freight rates in 2024, due to factors such as geopolitical tensions, labor disputes and market dynamics but we are now experiencing an easing of those freight rates.

Selling, General and Administrative Expenses .

Selling, general and administrative expenses increased by $115,000, or 2.6%, to $4,502,000 for the three months ended September 30, 2024, from $4,387,000 for the three months ended September 30, 2023.

As a percentage of net sales, selling, general and administrative expenses increased to 31.6% for the three months ended September 30, 2024, from 27.3% for 2023.

The change in expenses by segment for the three months ended September 30, 2024, was as follows:

Disposable Protective Apparel expenses were up by $200,000, or 17.9%;

Selling, general and administrative expenses decreased by $153,000, or 3.2%, to $4,694,000 for the three months ended March 31, 2025, from $4,847,000 for the three months ended March 31, 2024.

As a percentage of net sales, selling, general and administrative expenses decreased to 34.0% for the three months ended March 31, 2025, from 36.0% for the same period of 2024.

The change in expenses by segment for the three months ended March 31, 2025, was as follows:

Building Supply expenses were down by $107,000, or 5.4%;

and corporate unallocated expenses were up by $113,000, or 8.5%.

The increase in the Disposable Protective Apparel segment expenses was primarily related to increased employee compensation, rent and marketing expenses.

The decrease in the Building Supply segment expenses was related to decreased employee compensation, commission, travel expenses and insurance.

The increase in corporate unallocated expenses was primarily due to increased employee compensation, stock option and restricted stock expenses and professional fees.

Selling, general and administrative expenses increased by $959,000, or 7.2%, to $14,234,000 for the nine months ended September 30, 2024, from $13,275,000 for the nine months ended September 30, 2023.

As a percentage of net sales, selling, general and administrative expenses increased to 32.3% for the nine months ended September 30, 2024, from 28.9% for 2023.

The change in expenses by segment for the nine months ended September 30, 2024, was as follows:

Disposable Protective Apparel expenses were up by $87,000, or 6.4%;

Building Supply expenses were down by $306,000, or 5.3%;

and corporate unallocated expenses were up by $759,000, or 19.4%.

The increase in the Disposable Protective Apparel segment expenses was primarily related to increased employee compensation, marketing and rent expenses.

The decrease in the Building Supply segment expenses was related to decreased employee compensation, travel and insurance expenses.

The increase in corporate unallocated expenses was primarily due to increased employee compensation, stock option and restricted stock expenses, reorganization costs, professional fees, and general office expenses.

The reorganization costs were incurred in connection with moving our face mask manufacturing facility from Utah to Arizona.

As of the third quarter of 2024, manufacturing for the Disposable Protective Apparel segment, which includes disposable protective garments, face masks and face shields, will all be in Arizona.

This relocation of our face mask manufacturing facility is expected to result in lower expenses on this product line.

and corporate unallocated expenses were down by $133,000, or 8.9%.

The decrease in the Building Supply segment expenses was primarily related to decreased employee compensation.

The increase in the Disposable Protective Apparel segment expenses was primarily related to increased employee compensation, marketing and sales travel expenses.

The decrease in corporate unallocated expenses was primarily due to decreased, professional fees, insurance expenses, general office expenses, and reorganization costs in 2024.

The reorganization costs in 2024 were incurred in connection with moving our face mask manufacturing facility from Utah to Arizona.

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 $58,000 was accrued for the three months ended September 30, 2024, compared to $96,000 for the three months ended September 30, 2023.

A bonus amount of $207,000 was accrued for the nine months ended September 30, 2024, compared to $216,000 for the nine months ended September 30, 2023.

A bonus amount of $41,000 was accrued for the three months ended March 31, 2025, compared to $38,000 for the three months ended March 31, 2024.

Depreciation and Amortization .

Depreciation and amortization expenses increased by $20,000, or 8.9%, to $245,000 for the three months ended September 30, 2024, from $225,000 for the three months ended September 30, 2023.

Alpha Pro Tech, Ltd.

Depreciation and amortization expenses increased by $47,000, or 6.8%, to $734,000 for the nine months ended September 30, 2024, from $687,000 for the nine months ended September 30, 2023.

The increase in depreciation and amortization for the three and nine months ended September 30, 2024 was primarily due to an increase in depreciation on the Building Supply segment.

Depreciation and amortization expense decreased by $1,000, or 0.8%, to $243,000 for the three months ended March 31, 2025, from $244,000 for the three months ended March 31, 2024.

Income from Operations.

Income from operations decreased by $686,000, or 48.2%, to $737,000 for the three months ended September 30, 2024, compared to $1,423,000 for the three months ended September 30, 2023.

The decreased income from operations was primarily due to a decrease in gross profit of $551,000 and an increase in selling, general and administrative expenses of $115,000 and an increase in depreciation and amortization expenses of $20,000.

Income from operations as a percentage of net sales for the three months ended September 30, 2024, was 5.2%, compared to 8.9% for the same period of 2023.

Income from operations decreased by $386,000, or 12.2%, to $2,775,000 for the nine months ended September 30, 2024, compared to $3,161,000 for the nine months ended September 30, 2023.

The decreased income from operations was primarily due to an increase in selling, general and administrative expenses of $959,000 and an increase in depreciation and amortization expenses of $47,000, partially offset by an increase in gross profit of $620,000.

Income from operations as a percentage of net sales for the nine months ended September 30, 2024, was 6.3%, compared to 6.9% for the same period of 2023.

Income from operations increased by $129,000, or 39.6%, to $455,000 for the three months ended March 31, 2025, compared to $326,000 for the three months ended March 31, 2024.

The increased income from operations was primarily due to a decrease in selling, general and administrative expenses of $153,000 and a decrease in depreciation and amortization expenses of $1,000, partially offset by a decrease in gross profit of $25,000.

Income from operations as a percentage of net sales for the three months ended March 31, 2025, was 3.3%, compared to 2.4% for the three months ended March 31, 2024.

Other Income .

Other income decreased by $40,000 to income of $362,000 for the three months ended September 30, 2024, compared to $402,000 for the same period of 2023.

The decrease was primarily due to a decrease in equity in income of unconsolidated affiliate of $83,000, partially offset by an increase in interest income of $13,000 and a gain on sale of assets of $30,000.

Other income increased by $224,000 to income of $1,165,000 for the nine months ended September 30, 2024, compared to $941,000 for the same period of 2023.

The increase was primarily due to an increase in equity in income of unconsolidated affiliate of $43,000, an increase in interest income of $151,000 and a gain on sale of assets of $30,000.

Other income decreased by $79,000 to income of $317,000 for the three months ended March 31, 2025, compared to $396,000 for the same period of 2024.

The decrease was primarily due to a decrease in interest income of $82,000, partially offset by an increase in equity in income of unconsolidated affiliate of $3,000.

Income before Provision for Income Taxes .

Income before provision for income taxes for the three months ended September 30, 2024, was $1,099,000, compared to income before provision for income taxes of $1,825,000 for the same period of 2023, representing a decrease of $726,000, or 39.8%.

This decrease in income before provision for income taxes was due to a decrease in income from operations of $686,000 and a decrease in other income of $40,000.

Income before provision for income taxes for the nine months ended September 30, 2024, was $3,940,000, compared to income before provision for income taxes of $4,102,000 for the same period of 2023, representing a decrease of $162,000, or 3.9%.

This decrease in income before provision for income taxes was due to a decrease in income from operations of $386,000, partially offset by an increase in other income of $224,000.

Income before provision for income taxes for the three months ended March 31, 2025, was $772,000, compared to income before provision for income taxes of $722,000 for the same period of 2024, representing an increase of $50,000, or 6.9%.

This increase in income before provision for income taxes was due to an increase in income from operations of $129,000, partially offset by a decrease in other income of $79,000.

Provision for Income Taxes .

The provision for income taxes for the three months ended September 30, 2024, was $237,000, compared to $395,000 for the same period of 2023.

The estimated effective tax rate was 21.6% for the three months ended September 30, 2024, compared to the same 21.6% for the three months ended September 30, 2023.

The provision for income taxes for the nine months ended September 30, 2024, was $858,000, compared to $974,000 for the same period of 2023.

The estimated effective tax rate was 21.8% for the nine months ended September 30, 2024, compared to 23.7% for the nine months ended September 30, 2023.

The provision for income taxes for the three months ended March 31, 2025, was $159,000, compared to $146,000 for the same period of 2024.

The estimated effective tax rate was 20.6% for the three months ended March 31, 2025, compared to 20.2% for the three months ended March 31, 2024.

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 September 30, 2024, was $862,000 compared to net income of $1,430,000 for the same period of 2023, representing a decrease of $568,000, or 39.7%.

The net income decrease between 2024 and 2023 was due to a decrease in income before provision for income taxes of $726,000, partially offset by a decrease in provision for income taxes of $158,000.

Net income as a percentage of net sales for the three months ended September 30, 2024, was 6.0%, and net income as a percentage of net sales for the same period of 2023 was 8.9%.

Basic and diluted earnings per common share for each of the three months ended September 30, 2024 and 2023, was $0.08 and $0.12, respectively.

Alpha Pro Tech, Ltd.

Net income for the nine months ended September 30, 2024, was $3,082,000 compared to net income of $3,128,000 for the same period of 2023, representing a decrease of $46,000, or 1.5%.

The net income decrease between 2024 and 2023 was due to a decrease in income before provision for income taxes of $162,000, partially offset by a decrease in provision for income taxes of $116,000.

Net income as a percentage of net sales for the nine months ended September 30, 2024, was 7.0%, and net income as a percentage of net sales for the same period of 2023 was 6.8%.

Basic and diluted earnings per common share for each of the nine months ended September 30, 2024 and 2023, was $0.28 and $0.26, respectively

Net income for the three months ended March 31, 2025, was $613,000 compared to net income of $576,000 for the same period of 2024, representing an increase of $37,000, or 6.4%.

The net income increase between the three months ended March 31, 2025 and the same period of 2024 was due to an increase in income before provision for income taxes of $50,000, partially offset by an increase in provision for income taxes of $13,000.

Net income as a percentage of net sales was 4.4% for the three months ended March 31, 2025, compared to 4.3% for the same period of 2024.

Basic and diluted earnings per common share for each of the three months ended March 31, 2025 and 2024, was $0.06 and $0.05, respectively.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2024, the Company had cash and cash equivalents (“cash”) of $18,394,000 and working capital of $48,704,000.

As of September 30, 2024, the Company’s current ratio (current assets/current liabilities) was 19:1, compared to a current ratio of 21:1 as of December 31, 2023.

Cash decreased by 9.7%, or $1,984,000, to $18,394,000 as of September 30, 2024, compared to $20,378,000 as of December 31, 2023, and working capital decreased by $1,794,000, to $48,704,000, from $50,498,000 as of December 31, 2023.

The decrease in cash from December 31, 2023, was due to cash used in investing activities of $2,333,000 and cash used in financing activities of $2,936,000, partially offset by cash provided by operating activities of $3,285,000.

Net cash provided by operating activities of $3,285,000 for the nine months ended September 30, 2024, was due to net income of $3,082,000, as adjusted primarily by the following:

stock-based compensation expense of $327,000, depreciation and amortization expense of $734,000, equity in income of unconsolidated affiliate of $435,000, gain on sales of assets of $30,000, operating lease asset amortization of $674,000, an increase in accounts receivable of $274,000, a decrease in prepaid expenses of $342,000, an increase in inventory of $946,000, a decrease in accounts payable and accrued liabilities of $70,000, and a decrease in lease liabilities of $667,000, all compared to December 31, 2023.

Accounts receivable decreased by $274,000, or 4.2%, to $6,271,000 as of September 30, 2024, from $6,545,000 as of December 31, 2023.

The decrease in accounts receivable was primarily related to lower sales in the third quarter of 2024.

The number of days that sales remained outstanding as of September 30, 2024, calculated by using an average of accounts receivable outstanding and annual revenue, was 41 days, compared to 40 days as of December 31, 2023.

Inventory increased by $946,000, or 4.7%, to $21,077,000 as of September 30, 2024, from $20,131,000 as of December 31, 2023.

As of March 31, 2025, the Company had cash and cash equivalents (“cash”) of $13,352,000 and working capital of $47,035,000.

As of March 31, 2025, the Company’s current ratio (current assets/current liabilities) was 21:1.

Cash decreased by 28.4%, or $5,284,000, to $13,352,000 as of March 31, 2025, compared to $18,636,000 as of December 31, 2024, and working capital decreased by $481,000, to $47,035,000 from $47,516,000 as of December 31, 2024.

The decrease in cash from December 31, 2024, was due to cash used in operating activities of $3,959,000, cash used in investing activities of $135,000, and cash used in financing activities of $1,190,000.

Net cash used in operating activities of $3,959,000 for the three months ended March 31, 2025 was due to net income of $613,000, as adjusted primarily by the following:

stock-based compensation expense of $136,000, depreciation and amortization expense of $243,000, equity in income of unconsolidated affiliate of $141,000, operating lease asset amortization of $229,000, an increase in accounts receivable of $2,778,000, an increase in prepaid expenses of $375,000, an increase in inventory of $832,000, a decrease in accounts payable and accrued liabilities of $841,000, and a decrease in lease liabilities of $213,000, all compared to December 31, 2024.

Accounts receivable increased by $2,778,000, or 56.8%, to $7,672,000 as of March 31, 2025, from $4,894,000 as of December 31, 2024.

The increase in accounts receivable was primarily related to increased sales in the latter part of the first quarter of 2025 compared to the latter part of 2024.

The number of days that sales remained outstanding as of March 31, 2025, calculated by using an average of accounts receivable outstanding and annual revenue, was 41 days, compared to 36 days as of December 31, 2024.

Inventory increased by $832,000, or 3.7%, to $23,565,000 as of March 31, 2025, from $22,733,000 as of December 31, 2024.

The increase was due to an increase in inventory for the Building Supply segment of $904,000, or 8.3%, to $11,835,000, partially offset by a decrease in inventory for the Disposable Protective Apparel segment of $72,000, or 0.6%, to $11,730,000.

Prepaid expenses decreased by $342,000, or 5.7%, to $5,668,000 as of September 30, 2024, from $6,010,000 as of December 31, 2023.

The decrease was primarily due to a decrease in prepaid equipment.

Right-of-use assets as of September 30, 2024, increased by $4,129,000 to $8,939,000 from $4,810,000 as of December 31, 2023, primarily as a result of our new Nogales, Arizona lease, partially offset by amortization of the right of use asset.

Lease liabilities as of September 30, 2024, increased by $4,136,000 to $8,984,000 from $4,848,000 as of December 31, 2023.

The increase in the lease liabilities was primarily the result of our new Nogales, Arizona lease in March 2024 and the assumption we will lease that facility for at least 5 years, partially offset by lease payments made during the period.

Accounts payable and accrued liabilities as of September 30, 2024, decreased by $70,000, or 3.7%, to $1,835,000, from $1,905,000 as of December 31, 2023.

The decrease was primarily due to a decrease in accrued bonuses.

Net cash used in investing activities was $2,333,000 for the nine months ended September 30, 2024, compared to net cash used in investing activities of $487,000 for the same period of 2023.

Investing activities for the nine months ended September 30, 2024 and 2023, consisted of the purchase of property and equipment primarily for our Building Supply segment partially offset by the sale of assets.

Prepaid expenses increased by $375,000, or 8.6%, to $4,751,000 as of March 31, 2025, from $4,376,000 as of December 31, 2024.

The increase was primarily due to prepaid inventory, partially offset by decreased prepaid tax payments.

Right-of-use-assets as of March 31, 2025, decreased by $229,000 to $8,485,000 from $8,714,000 as of December 31, 2024, as a result of amortization of the right-of- use-assets.

Lease liabilities as of March 31, 2025, decreased by $213,000 to $8,562,000 from $8,775,000 as of December 31, 2024.

The decrease in the lease liabilities was the result of lease payments made during the period.

Accounts payable and accrued liabilities as of March 31, 2025, decreased by $841,000, or 37.7%, to $1,389,000, from $2,230,000 as of December 31, 2024.

The decrease was primarily due to decreases in accrued bonuses, accrued taxes and trade payables.

Net cash used in investing activities was $135,000 for the three months ended March 31, 2025, compared to net cash used in investing activities of $83,000 for 2024.

Investing activities for the three months ended March 31, 2025 and 2024 consisted primarily of the purchase of property and equipment.

Net cash used in financing activities was $1,190,000 for the three months ended March 31, 2025, compared to net cash used in financing activities of $616,000 for the same period of 2024.

Net cash used in financing activities for the three months ended March 31, 2025 resulted from the payment of $1,178,000 for the repurchase of common stock and $12,000 for treasury stock excise tax.

Net cash used in financing activities for the three months ended March 31, 2024 resulted from the payment of $1,417,000 for the repurchase of common stock and $14,000 for treasury stock excise tax, partially offset by $815,000 in proceeds from the exercise of stock options.

Alpha Pro Tech, Ltd.

Net cash used in financing activities was $2,936,000 for the nine months ended September 30, 2024, compared to net cash used in financing activities of $2,569,000 for the same period of 2023.

Net cash used in financing activities for the nine months ended September 30, 2024, resulted from the payment of $3,731,000 for the repurchase of common stock and $37,000 for treasury stock excise tax, partially offset by $832,000 in proceeds from the exercise of stock options.

Net cash used in financing activities for the nine months ended September 30, 2023, resulted from the payment of $2,979,000 for the repurchase of common stock and $30,000 for treasury stock excise tax, partially offset by $440,000 in proceeds from the exercise of stock options.

As of September 30, 2024, we had $1,463,000 available for stock purchases under our stock repurchase program.

During the nine months ended September 30, 2024, we repurchased 695,000 shares of common stock at a cost of $3,731,000.

As of September 30, 2024, we had repurchased a total of 21,106,627 shares of common stock at a cost of approximately $54,057,000 through our repurchase program which commenced in 1999.

As of March 31, 2025, we had $1,564,000 available for stock purchases under our stock repurchase program.

During the three months ended March 31, 2025, we repurchased 221,413 shares of common stock at a cost of $1,178,000.

As of March 31, 2025, we had repurchased a total of 21,464,040 shares of common stock at a cost of approximately $55,956,000 through our repurchase program which commenced in 1999.

We retire all stock upon repurchase.

6 unchanged sentences

Specifically, they improve income tax disclosures related to rate reconciliation and income taxes paid.

ASU 2023-09 is effective for fiscal years beginning after December 15, 2024.

The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.

This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses, and is effective for fiscal years beginning after December 31, 2023 and for interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis.

The Company is currently evaluating the impact of this standard on the consolidated financial statements.

ASU 2023-09 becomes effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

In November 2024, the FASB issued ASU 2024-03, Income Statement — Reporting Comprehensive Income — Expense Disaggregation Disclosures (Subtopic 220-40):

Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires disclosure about the types of costs and expenses included in certain expense captions presented on the income statement.

The new disclosure requirements are effective for the Company’s annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted.

The Company is currently in the process of evaluating the impact of this pronouncement on its related disclosures.

Management periodically reviews new accounting standards that are issued.

3 unchanged sentences

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 2. Management’s Discussion and Analysis