ALPHA PRO TECH LTD 10-K

Item 8. Financial Statements and Supplementary Data. Page Management’s Annual Report on Internal Control over Financial Reporting 23 Report of Independent Registered Public Accounting Firm (PCAOB ID 270) 24 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2025 and 2024 25 Consolidated Statements of Income for the Years Ended December 31, 2025 and 2024 26 Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2025 and 2024 27 Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2025 and 2024 28 Consolidated Statements of Cash Flows for the Years Ended December 31, 2025 and 2024 29 Notes to Consolidated Financial Statements 30 All schedules are omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. 22 Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, our principal executive and principal financial officers, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles and includes those policies and procedures that: • pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of management and directors; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Under the supervision and with the participation of our management, including our principal executive and principal financial officers, we assessed, as of December 31, 2025, the effectiveness of our internal control over financial reporting. This assessment was based on criteria established in accordance with the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on this assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2025. 23 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Alpha Pro Tech, Ltd. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Alpha Pro Tech, Ltd. and subsidiaries (collectively, the Company) as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2025, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2025 and 2024, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Equity Investment in Unconsolidated Affiliate As more fully described in Notes 2 and 6 to the consolidated financial statements, the Company holds a noncontrolling equity investment in a foreign entity which produces and sales certain products to the Company. As a global organization with an international affiliate, the Company needs to properly value its noncontrolling equity basis investment. Auditing the Company’s noncontrolling equity investment in a foreign entity was complex and required significant auditor judgement due to the complexities inherent with a foreign domiciled investment with related party transactions, foreign currency translation adjustments, and the potential of impairment. Our testing of the Company’s noncontrolling equity investment in a foreign entity included, among other procedures, testing data for the foreign entity, evaluating and testing the significant assumptions and operating data used to eliminate intercompany transactions, and evaluating management’s method for accounting for the foreign currency transactions. We also visited the factories in India to test the existence of the factories, equipment, and inventory, and to observe operations of the affiliated entity. /s/ Tanner LLP Lehi, Utah March 11, 2026 We have served as the Company’s auditors since 2011. (PCAOB ID 270 ) 24 Alpha Pro Tech, Ltd. Consolidated Balance Sheets December 31, December 31, 2025 2024 Assets Current assets: Cash and cash equivalents $ 16,988,000 $ 18,636,000 Accounts receivable, net 6,936,000 3,692,000 Accounts receivable, related party 1,202,000 1,202,000 Inventories, net 23,598,000 22,733,000 Prepaid expenses 3,796,000 4,376,000 Total current assets 52,520,000 50,639,000 Property and equipment, net 8,234,000 8,520,000 Goodwill 55,000 55,000 Right-of-use assets 7,775,000 8,714,000 Equity investment in unconsolidated affiliate 5,548,000 5,814,000 Total assets $ 74,132,000 $ 73,742,000 Liabilities and Shareholders' Equity Current liabilities: Accounts payable $ 2,005,000 $ 1,283,000 Accrued liabilities 1,088,000 947,000 Lease liabilities 965,000 893,000 Total current liabilities 4,058,000 3,123,000 Lease liabilities, net of current portion 6,917,000 7,882,000 Deferred income tax liabilities, net 679,000 503,000 Total liabilities 11,654,000 11,508,000 Commitments and contingencies Shareholders' equity: Common stock, $ .01 par value: 50,000,000 shares authorized; 10,131,565 and 10,816,878 shares outstanding as of December 31, 2025 and December 31, 2024, respectively 101,000 108,000 Additional paid-in capital 15,828,000 16,368,000 Retained earnings 48,496,000 47,257,000 Accumulated other comprehensive loss ( 1,947,000 ) ( 1,499,000 ) Total shareholders' equity 62,478,000 62,234,000 Total liabilities and shareholders' equity $ 74,132,000 $ 73,742,000 The accompanying notes are an integral part of these consolidated financial statements. 25 Alpha Pro Tech, Ltd. Consolidated Statements of Income Years Ended December 31, 2025 2024 Net sales $ 59,142,000 $ 57,840,000 Cost of goods sold, excluding depreciation and amortization 36,605,000 34,907,000 Gross profit 22,537,000 22,933,000 Operating expenses: Selling, general and administrative 17,773,000 18,611,000 Depreciation and amortization 925,000 873,000 Total operating expenses 18,698,000 19,484,000 Income from operations 3,839,000 3,449,000 Other income: Equity in income of unconsolidated affiliate 182,000 629,000 Gain on sale of property and equipment - 30,000 Interest income, net 648,000 912,000 Total other income, net 830,000 1,571,000 Income before provision for income taxes 4,669,000 5,020,000 Provision for income taxes 1,138,000 1,091,000 Net income $ 3,531,000 $ 3,929,000 Basic earnings per common share $ 0.34 $ 0.35 Diluted earnings per common share $ 0.33 $ 0.35 Basic weighted average common shares outstanding 10,444,663 11,137,873 Diluted weighted average common shares outstanding 10,550,439 11,235,046 The accompanying notes are an integral part of these consolidated financial statements. 26 Alpha Pro Tech, Ltd. Consolidated Statements of Comprehensive Income Years Ended December 31, 2025 2024 Net income $ 3,531,000 $ 3,929,000 Other comprehensive loss - foreign currency translation loss ( 448,000 ) ( 62,000 ) Comprehensive income $ 3,083,000 $ 3,867,000 The accompanying notes are an integral part of these consolidated financial statements. 27 Alpha Pro Tech, Ltd. Consolidated Statements of Shareholders’ Equity Accumulated Additional Other Common Stock Paid-in Retained Comprehensive Shares Amount Capital Earnings Loss Total Balance as of December 31, 2023 11,416,212 $ 114,000 $ 16,339,000 $ 46,552,000 $ ( 1,437,000 ) $ 61,568,000 Common stock repurchased and retired ( 831,000 ) ( 8,000 ) ( 1,220,000 ) ( 3,224,000 ) - ( 4,452,000 ) Treasury stock excise tax - - ( 44,000 ) - - ( 44,000 ) Options exercised 231,666 2,000 830,000 - - 832,000 Stock-based compensation expense - - 463,000 - - 463,000 Total comprehensive income (loss) - - - 3,929,000 ( 62,000 ) 3,867,000 Balance as of December 31, 2024 10,816,878 108,000 16,368,000 47,257,000 ( 1,499,000 ) 62,234,000 Common stock repurchased and retired ( 685,313 ) ( 7,000 ) ( 1,046,000 ) ( 2,292,000 ) - ( 3,345,000 ) Treasury stock excise tax - - ( 34,000 ) - - ( 34,000 ) Stock-based compensation expense - - 540,000 - - 540,000 Total comprehensive income (loss) - - - 3,531,000 ( 448,000 ) 3,083,000 Balance as of December 31, 2025 10,131,565 $ 101,000 $ 15,828,000 $ 48,496,000 $ ( 1,947,000 ) $ 62,478,000 The accompanying notes are an integral part of these consolidated financial statements. 28 Alpha Pro Tech, Ltd. Consolidated Statements of Cash Flows Years Ended December 31, 2025 2024 Cash Flows From Operating Activities: Net income $ 3,531,000 $ 3,929,000 Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities: Share-based compensation 540,000 463,000 Depreciation and amortization 925,000 873,000 Equity in income of unconsolidated affiliate ( 182,000 ) ( 629,000 ) Gain on sale of property and equipment - ( 30,000 ) Non-cash lease expense 939,000 899,000 Deferred income taxes 176,000 61,000 Changes in operating assets and liabilities: Accounts receivable, net ( 3,244,000 ) 1,811,000 Accounts receivable, related party - ( 160,000 ) Inventories, net ( 865,000 ) ( 2,602,000 ) Prepaid expenses 580,000 1,634,000 Accounts payable and accrued liabilities 863,000 325,000 Lease liabilities ( 893,000 ) ( 876,000 ) Net cash provided by operating activities 2,370,000 5,698,000 Cash Flows From Investing Activities: Purchases of property and equipment ( 639,000 ) ( 3,806,000 ) Proceeds from sale of property and equipment - 30,000 Net cash used in investing activities ( 639,000 ) ( 3,776,000 ) Cash Flows From Financing Activities: Proceeds from exercise of stock options - 832,000 Repurchase of common stock ( 3,345,000 ) ( 4,452,000 ) Treasury stock excise tax ( 34,000 ) ( 44,000 ) Net cash used in financing activities ( 3,379,000 ) ( 3,664,000 ) Decrease in cash and cash equivalents ( 1,648,000 ) ( 1,742,000 ) Cash and cash equivalents, beginning of the year 18,636,000 20,378,000 Cash and cash equivalents, end of the year $ 16,988,000 $ 18,636,000 Supplemental disclosure of cash flow information: Cash paid for income taxes $ 890,000 $ 1,435,000 Supplemental disclosure of non-cash transactions: Net non-cash changes to operating leases $ - $ 4,803,000 The accompanying notes are an integral part of these consolidated financial statements. 29 Alpha Pro Tech, Ltd. Notes to Consolidated Financial Statements 1. The Company Alpha Pro Tech, Ltd. (“Alpha Pro Tech,” the “Company,” “we”, “us” or “our”) is in the business of protecting people, products and environments. The Company accomplishes this by developing, manufacturing and marketing a line of building supply products for the new home and re-roofing markets and a line of disposable protective apparel for the cleanroom, industrial, pharmaceutical, medical and dental markets. The Building Supply segment consists of construction weatherization products, such as housewrap, housewrap accessories, namely tape and flashing, synthetic roof underlayment and synthetic roof underlayment accessories, namely self-adhered underlayment, as well as other woven material. The Disposable Protective Apparel segment consists of a complete line of disposable protective garments (shoecovers, bouffant caps, coveralls, gowns, frocks and lab coats), face masks and face shields. All of our disposable protective apparel products, including face masks and face shields, are sold through similar distribution channels, are single-use and disposable, have the purpose of protecting people, products and environments, and have to be produced in Food and Drug Administration (“FDA”) approved facilities, regardless of the market served. The Company’s products are sold under the “Alpha Pro Tech” brand name as well as under private label and are predominantly sold in the United States of America (“U.S.”). 2. Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiaries, Alpha Pro Tech, Inc. and Alpha ProTech Engineered Products, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation. Events that occurred after December 31, 2025, through the date on which these financial statements were filed with the Securities and Exchange Commission (“SEC”) were considered in the preparation of these financial statements. Use of Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from these estimates. Periods Presented All amounts have been rounded to the nearest thousand with the exception of the per share data. The Company qualified as a smaller reporting company at the measurement date for determining such qualification during 2025. According to the disclosure requirements for smaller reporting companies, the Company has included balance sheets as of the end of the two most recent years and statements of income, comprehensive income, shareholders’ equity and cash flows for each of the two most recent years. Cash and Cash Equivalents The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company’s cash and cash equivalents primarily consists of cash in banks and money market accounts. Investments Investments are classified as available-for-sale in accordance with U.S. GAAP. The Company does not have any investments in securities that are classified as held-to-maturity or trading. Available-for-sale investments are carried at their fair values using quoted prices in active markets for identical securities, with realized and unrealized gains and losses reported in net income. The cost of securities sold is based on the specific identification method. Investments that the Company intends to hold for more than one year are classified as long-term investments in the accompanying consolidated balance sheets. 30 Alpha Pro Tech, Ltd. Notes to Consolidated Financial Statements Accounts Receivable Accounts receivable are recorded at the invoice amount and do not bear interest. The allowance for credit losses on accounts receivable is the Company’s best estimate of the amount of expected credit losses in the Company’s existing accounts receivable; however, changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the future. The Company pools accounts receivable based on risk characteristics, which include type of customer and age of open receivable balance. The allowance for each credit loss pool is estimated based on historical write-off experience and known conditions, adjusted for management’s reasonable and supportable expectations of future conditions. Account balances are charged against the allowance when management determines that the probability for collection of an account balance is remote. As of December 31, 2025 and 2024, the Company had accounts receivable totaling $ 8,138,000 and $ 4,894,000 , respectively. As of December 31, 2025 and 2024, the Company had recorded an allowance for credit losses on accounts receivable of $ 46,000 and $ 35,000 respectively. Inventories Inventories include freight-in, materials, labor and overhead costs and are stated at the lower of cost or net realizable value. Allowances are recorded for slow-moving, obsolete or unusable inventories. The Company assesses inventories for estimated obsolescence or unmarketable products and writes down the difference between the cost of the inventories and the estimated net realizable values based upon assumptions about future sales and supplies on-hand. As of December 31, 2025 and 2024, the Company had recorded an allowance for excess and obsolete inventories of $ 384,000 and $ 416,000 , respectively. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization. Costs to develop internal use software are charged to expense as incurred until the preliminary project stage has been completed and application development begins. The Company discontinues capitalization upon entering the post-implementation stage and expenses ongoing maintenance and support costs. Property and equipment are depreciated or amortized using the straight-line method over the shorter of the respective useful lives of the assets or the related lease terms as follows: Buildings (in years) 25 Machinery and equipment (in years) 5 - 15 Office furniture and equipment (in years) 2 - 7 Leasehold improvements (in years) 4 - 5 Software (in years) 5 Expenditures for renewals and betterments are capitalized, whereas costs of maintenance and repairs are charged to operations in the period incurred. Goodwill and Intangible Assets The Company accounts for goodwill and definite-lived intangible assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 350, Intangibles – Goodwill and Other. Goodwill is not amortized, but rather is tested annually for impairment. Intangible assets with finite lives are amortized over their useful lives (see Note 5). The Company’s patents and trademarks are recorded at cost and are amortized using the straight-line method over their estimated useful lives of 5 - 17 years. Fair Value of Financial Instruments The estimated fair values of financial instruments are determined based on relevant market information and cannot be determined with precision. The Company’s financial instruments consist primarily of cash and cash equivalents. Impairment of Long-Lived Assets The Company reviews long-lived assets for impairment whenever events or changes in its business circumstances indicate that the carrying amounts of the assets may not be fully recoverable. If it is determined that the undiscounted future net cash flows are not sufficient to recover the carrying values of the assets, an impairment loss is recognized for the excess of the carrying values over the fair values of the assets. The Company believes that the future undiscounted net cash flows to be received from its long-lived assets exceed the assets’ carrying values and, accordingly, the Company has not recognized any impairment losses for the years ended December 31, 2025 and 2024. 31 Alpha Pro Tech, Ltd. Notes to Consolidated Financial Statements Revenue Recognition Net sales includes revenue from products and shipping and handling charges, net of estimates for product returns and any related sales incentives. Our customer contracts have a single performance obligation: transfer control of products to customers. Revenue is measured as the amount of consideration that we expect to receive in exchange for transferring control of products. All revenue is recognized when we satisfy our performance obligations under the applicable contract. We recognize revenue in connection with transferring control of the promised products to the customer, with revenue being recognized at the point in time when the customer obtains control of the products, which is generally when title passes to the customer upon delivery to a third party carrier for FOB shipping point arrangements and to the customer for FOB destination arrangements, at which time a receivable is created for the invoice sent to the customer. Shipping and handling activities are performed prior to the customer obtaining control of the goods, and are accounted for as fulfillment activities and are not a promised good or service. Shipping and handling charges billed to customers are included in revenue. Shipping and handling costs, associated with the distribution of the Company’s product to the customers, are recorded in cost of goods sold and are recognized when control of the product is transferred to the customer, which is generally when title passes to the customer upon delivery to a third-party carrier for FOB shipping point arrangements and to the customer for FOB destination arrangements. We estimate product returns based on historical return rates and estimate rebates based on contractual agreements. Using probability assessments, we estimate sales incentives expected to be paid over the term of the contract. Sales taxes and value added taxes in foreign and domestic jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and, therefore, are excluded from net sales. The Company manufactures certain private label goods for customers and has determined that control does not pass to the customer at the time of manufacture, based upon the nature of the private labelling. The Company has determined as of December 31, 2025, 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 14 for information on revenue disaggregated by type and by geographic region. Shipping and Handling Costs The costs of shipping products to distributors are recorded in cost of goods sold. Stock-Based Compensation The Company maintains the 2020 Incentive Plan under which the Company may grant incentive stock options, non-qualified stock options, restricted stock, restricted stock units and other equity-based compensation to employees and non-employee directors. Stock options have been granted with exercise prices at or above the fair market value of the underlying shares of common stock on the date of grant. Options vest and expire according to terms established at the grant date. Restricted stock and restricted stock units have been granted, and the fair market value of these awards equals the closing stock price on the date of grant. The Company accounts for share-based awards in accordance with ASC 718, Stock Compensation. ASC 718 requires companies to record compensation expense for the value of all outstanding and unvested share-based awards, including employee stock options. For the years ended December 31, 2025 and 2024, there were no stock options granted under the Company’s stock option plan. The Company recognized $ 55,000 and $ 59,000 in stock-based compensation expense for the years ended December 31, 2025 and 2024, respectively, related to outstanding options. For the years ended December 31, 2025 and 2024, 32,330 and 29,675 restricted stock equity awards, respectively, were granted under the 2020 Incentive Plan and the compensation expense associated with these awards was $ 485,000 and $ 404,000 in 2025 and 2024, respectively. Income Taxes The Company accounts for income taxes using the asset and liability method. A valuation allowance is recorded to reduce the carrying amounts of deferred income tax assets unless it is more likely than not that such assets will be realized. The Company’s policy is to record any interest and penalties assessed by the Internal Revenue Service as a component of the provision for income taxes. The Company provides allowances for uncertain income tax positions when it is more likely than not that the position will not be sustained upon examination by the tax authority. Alpha Pro Tech, Ltd. and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions. 32 Alpha Pro Tech, Ltd. Notes to Consolidated Financial Statements Earnings Per Common Share The following table provides a reconciliation of both net income and the number of shares used in the computation of “basic” earnings per common share (“EPS”), which utilizes the weighted average number of common shares outstanding without regard to potential common shares, and “diluted” EPS, which includes all potential common shares which are dilutive for the years ended December 31, 2025 and 2024. Years Ended December 31, 2025 2024 Net income (numerator) $ 3,531,000 $ 3,929,000 Shares (denominator): Basic weighted average common shares outstanding 10,444,663 11,137,873 Add: Dilutive effect of common stock options 105,776 97,173 Diluted weighted average common shares outstanding 10,550,439 11,235,046 Earnings per common share: Basic $ 0.34 $ 0.35 Diluted $ 0.33 $ 0.35 Translation of Foreign Currencies Transactions in foreign currencies are translated into U.S. dollars at the exchange rate prevailing at the transaction date. Monetary assets and liabilities in foreign currencies at each period end are translated at the exchange rate in effect at that date. Transaction gains or losses on foreign currencies are reflected in selling, general and administrative expenses and were not material for the years ended December 31, 2025 and 2024. The Company does not have a material foreign currency exposure in regards to purchase agreements with companies in Asia and Mexico as the agreements are in U.S. dollars. In addition, all sales transactions are in U.S. dollars. The Company has a foreign currency exposure with respect to its Canadian branch office. The foreign currency exposure is not material due to the fact that the Company does not manufacture products in Canada. The exposure primarily relates to payroll expenses in the Company’s administrative branch office in Canada. The Company also has potentially material foreign currency exposure in regards to its equity in its unconsolidated affiliate in India. The Company’s unconsolidated affiliate operations are in India; therefore, U.S. GAAP requires the Company to adjust the value of its investment for changes in foreign currency exchange rates. The Company determines the functional currency of its joint venture based upon the primary currency used to generate and expend cash, which is the currency of the country in which the joint venture is located. For joint ventures with functional currencies other than the U.S. dollar, the investment in that joint venture is translated into U.S. dollars using period-end exchange rates. The resulting foreign currency translation losses are deferred as accumulated other comprehensive loss (“AOCL”) and reclassified to earnings only upon sale or liquidation of that business. The foreign currency translations reduced the balance of equity in unconsolidated affiliated by $ 1,947,000 and $ 1,499,000 as of December 31, 2025 and 2024, respectively, and the loss was recorded in AOCL. Research and Development Costs Research and development costs are expensed as incurred and are included in selling, general and administrative expenses. Such costs were not material for the years ended December 31, 2025 and 2024. Advertising Costs The Company expenses advertising and promotional costs as incurred. These costs are included in selling, general and administrative expenses and were $ 48,000 and $ 65,000 for the years ended December 31, 2025 and 2024, respectively. 33 Alpha Pro Tech, Ltd. Notes to Consolidated Financial Statements Loss Contingencies The outcomes of legal proceedings and claims brought against the Company are subject to uncertainty. An estimated loss from a loss contingency such as a legal proceeding or claim is accrued if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued, we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss. Fair Value Measurements ASC 820, Fair Value Measurements and Disclosures, establishes a framework for measuring fair value in accordance with U.S. GAAP, clarifies the definition of fair value within that framework and expands disclosures about the use of fair value measurements. On a quarterly basis, the Company measures at fair value certain financial assets using a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions. The fair value hierarchy prioritizes the inputs into three broad levels. This hierarchy requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. There were no fair values of the Company’s financial assets as of December 31, 2025 and 2024. New Accounting Standards In December 2023, the FASB issued ASU 2023-09, Income Taxes (“Topic 740”): Improvements to Income Tax Disclosures to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 was effective for annual periods beginning after December 15, 2024. The Company adopted this pronouncement and the related disclosure for the year ended December 31, 2025, and revised its income tax disclosures in Note 14 – “Income Taxes” on a retrospective basis. 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 evaluating the impact of this pronouncement on its related disclosures. In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (“Topic 326”): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient to assume that conditions as of the balance sheet date remain unchanged over the life of the asset when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. The amendment is effective for fiscal years beginning after December 15, 2025. Early adoption is permitted. The amendments in this update should be applied on a prospective basis. The Company is evaluating the impact of this pronouncement on the Company’s consolidated financial statements and related disclosures. 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. 3. Inventories Inventories consisted of the following: December 31, 2025 2024 Raw materials $ 9,454,000 $ 10,948,000 Work in process 4,468,000 2,934,000 Finished goods 9,676,000 8,851,000 Total inventory $ 23,598,000 $ 22,733,000 34 Alpha Pro Tech, Ltd. Notes to Consolidated Financial Statements 4. Property and Equipment Property and equipment consisted of the following: December 31, 2025 2024 Buildings $ 493,000 $ 493,000 Machinery and equipment 16,796,000 16,732,000 Office furniture and equipment 3,192,000 2,927,000 Leasehold improvements 827,000 690,000 21,308,000 20,842,000 Less accumulated depreciation and amortization ( 13,074,000 ) ( 12,322,000 ) Total net property and equipment $ 8,234,000 $ 8,520,000 Depreciation and amortization expense for property and equipment were $ 925,000 and $ 873,000 for the years ended December 31, 2025 and 2024, respectively. 5. Goodwill Management evaluates goodwill for impairment on an annual basis (in the fourth quarter), and no impairment charge was identified for the years presented. 6. Equity Investments in Unconsolidated Affiliate In 2005, Alpha ProTech Engineered Products, Inc. (a subsidiary of Alpha Pro Tech, Ltd.) entered into a joint venture with a manufacturer in India, Maple Industries and associates, for the production of building products. Under the terms of the joint venture agreement, a private company, Harmony Plastics Private Limited (“Harmony”), was created with ownership interests of 41.66 % owned by Alpha ProTech Engineered Products, Inc. and 58.34 % owned by Maple Industries and associates. This joint venture positions Alpha ProTech Engineered Products, Inc. to respond to current and expected increased product demand for housewrap and synthetic roof underlayment and provides future capacity for sales of specialty roofing component products and custom products for industrial applications requiring high quality extrusion coated fabrics. In addition, the joint venture now supplies products for the Company’s Disposable Protective Apparel segment. The capital from the initial funding and a bank loan, which loan is guaranteed exclusively by the individual shareholders of Maple Industries and associates and collateralized by the assets of Harmony, were utilized to purchase the original manufacturing facility in India. Harmony currently has four facilities in India ( three owned and one rented), consisting of: (1) a 139,000 square foot building for manufacturing building products; (2) a 121,000 square foot building for manufacturing coated material and sewing proprietary disposable protective apparel; (3) a 23,000 square foot facility for sewing proprietary disposable protective apparel; and (4) a 159,000 square foot facility (rented) for manufacturing Building Supply segment products. All additions have been financed by Harmony with no guarantees from the Company. In accordance with ASC 810, Consolidation, the Company assesses whether or not related entities are variable interest entities (“VIEs”). For those related entities that qualify as VIEs, ASC 810 requires the Company to determine whether the Company is the primary beneficiary of the VIE, and, if so, to consolidate the VIE. The Company has determined that Harmony is not a VIE and is, therefore, considered to be an unconsolidated affiliate. 35 Alpha Pro Tech, Ltd. Notes to Consolidated Financial Statements The Company records its investment in Harmony as “equity investment in unconsolidated affiliate” in the accompanying consolidated balance sheets. The Company records its equity interest in Harmony’s results of operations as “equity in income of unconsolidated affiliate” in the accompanying consolidated statements of income. The Company periodically reviews its investment in Harmony for impairment. Management has determined that no impairment was required as of December 31, 2025, or December 31, 2024. Under the equity method, since the Company’s reporting currency is different from that of Harmony’s reporting currency, the Company is required to translate our proportionate share of equity for effects of translations in foreign currency and adjust the investment accordingly, and accrue the adjustment as a component of AOCL. For the years ended December 31, 2025 and 2024, the Company purchased $ 19,397,000 and $ 22,080,000 of inventories, respectively, from Harmony. For the years ended December 31, 2025 and 2024, the Company recorded equity in income of unconsolidated affiliate of $ 182,000 and $ 629,000 , respectively. For the years ended December 31, 2025 and 2024, the Company sold $ 628,000 and $ 839,000 of inventories, respectively, to Harmony. As of December 31, 2025, the Company’s investment in Harmony was $ 5,548,000 , which consisted of its original $ 1,450,000 investment and cumulative equity in income of unconsolidated affiliate of $ 7,064,000 , less $ 942,000 in repayments of an advance, payments of $ 77,000 in dividends and AOCL on foreign currency translations of $ 1,947,000 . 7. Accrued Liabilities Accrued liabilities consisted of the following: December 31, 2025 2024 Payroll expenses and tax payable $ 269,000 $ 221,000 Commission and bonuses payable and general accrued liabilities 819,000 726,000 Total accrued liabilities $ 1,088,000 $ 947,000 Contract liabilities were $ 3,952,000 and $ 3,224,000 as of December 31, 2025 and 2024, respectively, which are netted against the related accounts receivable due to the legal right of offset. 8. Shareholders’ Equity Repurchase Program During the year ended December 31, 2025, the Company repurchased and retired 685,313 shares of its common stock for $ 3,345,000 . During the year ended December 31, 2024, the Company repurchased and retired 831,000 shares of its common stock for $ 4,452,000 . As of December 31, 2025, the Company had $ 1,397,000 available to repurchase common shares under the repurchase program. The excess of repurchase price over par value is allocated between additional paid-in capital and retained earnings. Option Activity The 2004 Stock Option Plan (the “2004 Plan”) was an equity compensation plan that provided for grants of stock options to eligible individuals. The 2004 Plan was intended to recognize the contributions made to the Company by key employees of the Company, provide key employees with additional incentive to devote themselves to the future success of the Company and improve the ability of the Company to attract, retain and motivate individuals. The 2004 Plan also was intended as an incentive to certain members of the Board of Directors of the Company to continue to serve on the Board of Directors and to devote themselves to the future success of the Company. The 2004 Plan provided for a total of 5,000,000 common shares eligible for issuance. Under the 2004 Plan, approximately 5,009,750 options had been granted as of December 31, 2020. Under the 2004 Plan, option grants have a three-year vesting period and, since 2005, expire no later than the fifth anniversary from the date of grant. The exercise price of the options was determined based on the fair market value of the stock on the date of grant. 36 Alpha Pro Tech, Ltd. Notes to Consolidated Financial Statements At the Company’s 2020 Annual Meeting of Shareholders held on June 9, 2020, the Company’s shareholders approved the Alpha Pro Tech, Ltd. 2020 Omnibus Incentive Plan (the “2020 Incentive Plan”). The 2020 Incentive Plan provides for the grant of incentive and nonqualified stock options, stock appreciation rights, awards of restricted stock and restricted stock units, performance share awards, cash awards and other equity-based awards to employees (including officers), consultants and non-employee directors of the Company and its affiliates. A total of 1,800,000 shares of the Company’s common stock were reserved for issuance under the 2020 Incentive Plan, plus the number of shares underlying any award granted under the 2004 Option Plan that expires, terminates or is cancelled or forfeited under the terms of the 2004 Option Plan. As a result of the approval of the 2020 Incentive Plan, no future equity awards will be made pursuant to the 2004 Option Plan. Although no new awards may be granted under the 2004 Option Plan, all previously granted awards under the 2004 Option Plan will continue to be governed by the terms of the 2004 Option Plan. The following table summarizes restricted stock awards activity for the years ended December 31, 2025 and 2024: Weighted-Average Grant Date Price Shares Restricted stock awards Outstanding, December 31, 2023 235,172 $ 4.21 Granted to employees and directors 29,675 5.56 Vested ( 8,172 ) 4.02 Outstanding, December 31, 2024 256,675 4.38 Granted to employees and directors 32,330 5.11 Vested ( 29,675 ) 5.56 Outstanding December 31, 2025 259,330 4.34 During the years ended December 31, 2025 and 2024, 32,330 and 29,675 restricted stock awards were granted under the 2020 Incentive Plan, respectively. The Company recognized $ 485,000 and $ 404,000 in compensation expense associated with outstanding restricted stock awards for the years ended December 31, 2025 and 2024, respectively. As of December 31, 2025, $ 318,000 of total unrecognized compensation cost related to the restricted stock grants was expected to be recognized over a weighted-average remainder period of 0.74 years. The following table summarizes option activity for the years ended December 31, 2025 and 2024: Weighted Average Exercise Price Shares Per Option Options outstanding, December 31, 2023 292,766 $ 3.71 Exercised ( 231,666 ) 3.59 Options outstanding, December 31, 2024 61,100 4.17 Options outstanding, December 31, 2025 61,100 4.17 Options exercisable, December 31, 2025 45,632 4.15 Stock options to purchase 61,100 shares of common stock were outstanding as of both December 31, 2025 and 2024. All of the stock options were included in the computation of the weighted-average number of dilutive common shares outstanding for both the years ended December 31, 2025 and 2024. The Company used the Black-Scholes option-pricing model to value the options. The Company uses historical data to estimate the expected term of the options. The risk-free interest rate for periods consistent with the expected term of the award is based on the U.S. Treasury rates in effect at the time of grant. The expected volatility is based on historical volatility. The Company uses an estimated dividend payout ratio of zero , as the Company has not paid dividends in the past and, at this time, does not expect to do so in the foreseeable future. The Company accounts for option forfeitures as they occur. 37 Alpha Pro Tech, Ltd. Notes to Consolidated Financial Statements The following table summarizes information about stock options as of December 31, 2025: Options Outstanding Options Exercisable Range of Exercise Prices Options Weighted Average Exercise Price Weighted Average Remaining Contract Life (in years) Aggregate Intrinsic Value Options Weighted Average Exercise Price Weighted Average Remaining Contract Life (in years) Aggregate Intrinsic Value $ 3.99 - $ 4.23 61,100 $ 4.17 2.5 $ 16,000 45,632 $ 4.15 2.42 $ 13,000 The intrinsic value is the amount by which the market value of the underlying common stock exceeds the exercise price of the respective stock options. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2025 and 2024, was $ 0 and $ 497,000 , respectively. As of December 31, 2025, $ 33,000 of total unrecognized compensation cost related to stock options was expected to be recognized over a weighted-average remaining period of 0.74 years. Dividends The holders of the Company’s common stock are entitled to receive such dividends as may be declared by the Board of Directors of the Company from time to time to the extent that funds are legally available for payment thereof. The Company has never declared or paid any dividends on any of its outstanding shares of common stock. The Board of Directors’ current policy is not to pay dividends but rather to use available funds to repurchase common shares in accordance with the Company’s repurchase program and to fund the continued development and growth of the Company. Consequently, the Company currently has no plans to pay cash dividends in the foreseeable future. 9. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss, a component of shareholders’ equity, consists of foreign currency translation adjustments related to foreign currency gains or losses on our unconsolidated affiliate as its functional currency is other than the U.S. dollar. The resulting foreign currency translation gains or losses are deferred as AOCL and reclassified to earnings only upon sale or liquidation of that business. The accumulated other comprehensive loss on equity in unconsolidated affiliate was $ 1,947,000 and $ 1,499,000 as of December 31, 2025 and 2024, respectively. 10. Income Taxes President Trump signed into laws the One Big Beautiful Bill Act “OBBBA” on July 4, 2025. This bill included various tax provisions, many of which are applicable for most, if not all, of the 2025 tax year. Most impactful for the Company are changes related to section 174 for R&D expenditures and section 168 for bonus depreciation. The OBBBA enacted new Section 174A, which permanently allows taxpayers to fully expense domestic research or experimental expenditures paid or incurred in taxable years beginning after December 31, 2024. Foreign R&D expenditures must still be capitalized and amortized over 15 years. Additionally, the new rules provide options to account for any remaining unamortized domestic R&D expenditures paid or incurred in the taxable years beginning after December 31, 2021 and before January 1, 2025. Taxpayers may continue to amortize such unamortized amounts over the remaining five-year period; alternatively, they may elect to deduct any remaining unamortized domestic expenditures either entirely in the first tax year beginning after December 31, 2024, or ratably over two taxable years. The Company is electing to deduct these remaining unamortized costs entirely in 2025. The OBBBA also permanently restored 100% bonus depreciation under Section 168(k) for qualified property acquired and placed in service after January 19, 2025. This reverses the phasedown schedule enacted under the Tax Cuts and Jobs Act (“TCJA”), which would have reduced bonus depreciation to 40% for property placed into service in 2025 and eliminated it entirely by 2027. The Company is claiming 40% bonus on any 2025 assets placed in service before January 19 and 100% bonus on all remaining assets placed in service through the remainder of the year. The provision (benefit) for income taxes consisted of the following: For the Years Ended December 31, 2025 2024 Current Federal $ 633,000 $ 748,000 State 232,000 175,000 Foreign 97,000 107,000 Deferred Federal 127,000 40,000 State 49,000 21,000 Provision for income taxes $ 1,138,000 $ 1,091,000 38 Alpha Pro Tech, Ltd. Notes to Consolidated Financial Statements Deferred income tax assets (liabilities) consisted of the following: December 31, 2025 2024 Temporary differences: Property and equipment $ ( 1,361,000 ) $ ( 1,234,000 ) Intangible assets 24,000 158,000 Inventory reserve 81,000 87,000 Accrued expenses and inventory 475,000 392,000 Right of use of asset ( 1,633,000 ) ( 1,872,000 ) Foreign exchange 25,000 29,000 Lease liability 1,655,000 1,885,000 AMT/foreign tax credits 233,000 188,000 State income taxes ( 178,000 ) ( 136,000 ) Net deferred income tax liabilities $ ( 679,000 ) $ ( 503,000 ) The provision for income taxes differs from the amount that would be obtained by applying the U.S. statutory rate to income before income taxes as a result of the following: For the Years Ended December 31, 2025 2024 Income taxes based on U.S. statutory rate of 21% $ 980,000 21.0 % $ 1,054,000 21.0 % Non-deductible meals & entertainment 10,000 0.2 9,000 0.2 FDII deduction ( 4,000 ) - 0.1 ( 5,000 ) - 0.1 Foreign taxes ( 80,000 ) - 1.7 ( 136,000 ) - 2.7 State taxes 250,000 5.4 200,000 4.0 Stock compensation 2,000 0.0 ( 33,000 ) - 0.7 Other ( 20,000 ) - 0.4 2,000 0.0 Provision for income taxes $ 1,138,000 24.4 % $ 1,091,000 21.7 % Cash paid for taxes: For the Years Ended December 31, 2025 2024 Federal $ 494,000 $ 1,119,000 State 257,000 190,000 Foreign 139,000 126,000 Total taxes paid, net of refunds $ 890,000 $ 1,435,000 Foreign taxes paid were all paid Canada. In 2025, taxes paid to Illinois was $ 79,000 , which exceeded 5% of total income taxes paid. 11. Leases Operating Lease Commitments: The Company leases its facilities under non-cancelable operating leases expiring on various dates through December 31, 2034. The Company has operating leases for the Company’s corporate office and manufacturing facilities, which expire at various dates through 2034. The Company’s primary operating lease commitments as of December 31, 2025, related to the Company’s manufacturing facilities in Valdosta, Georgia and Nogales, Arizona, as well as the Company’s corporate headquarters in Aurora, Ontario, Canada. As of December 31, 2025, the Company had operating lease right-of-use assets of $ 7,775,000 and operating lease liabilities of $ 7,882,000 . As of December 31, 2025, the Company did not have any finance leases recorded on the consolidated balance sheet. Operating lease expenses were approximately $ 1,507,000 and $ 1,650,000 for the years ended December 31, 2025 and 2024, respectively. 39 Alpha Pro Tech, Ltd. Notes to Consolidated Financial Statements The aggregate future minimum lease payments and reconciliation to lease liabilities as of December 31, 2025, were as follows: December 31, 2026 $ 1,473,000 2027 1,459,000 2028 1,489,000 2029 1,520,000 2030 644,000 Thereafter 4,212,000 Total future minimum lease payments 10,797,000 Less imputed interest ( 2,915,000 ) Total lease liabilities $ 7,882,000 As of December 31, 2025, the weighted average remaining lease term of the Company’s operating leases was 9.42 years. During the year ended December 31, 2025, the weighted average discount rate with respect to these leases was 7.00 %. 12. Legal Proceedings The Company is subject to various pending and threatened litigation actions in the ordinary course of business. Although it is not possible to determine with certainty at this point in time what liability, if any, the Company will have as a result of such litigation, based on consultation with legal counsel, management does not anticipate that the ultimate liability, if any, resulting from such litigation will have a material effect on the Company’s financial condition and results of operations. 13. Employee Benefit Plans The Company has certain benefit plans. Under the plans, employees may contribute up to 12 % of their gross earnings subject to certain limitations. The Company contributes an additional 0.5 % of gross earnings for those employees contributing 1% of their gross earnings and contributes 1 % of gross earnings for those employees contributing between 2% and 12% of their gross earnings. The total amounts contributed to the plans by the Company was $ 46,000 for both years ended December 31, 2025 and 2024. The Company does not have any other significant pension, profit sharing or similar plans established for its employees. Pursuant to his employment agreement with the Company, Lloyd Hoffman, our President and Chief Executive Officer, is contractually entitled to receive from the Company at the conclusion of each fiscal year a cash bonus in an amount equal to 5 % pre-tax profits of the Company, excluding bonus expense, as presented in the Company’s audited consolidated statements of income for such fiscal year, subject to a maximum payment of $ 1,000,000 . The Company accrued $ 246,000 for the year ended December 31, 2025, compared to $ 264,000 for 2024, in connection with the bonus. 14. Activity of Business Segments The Company operates through two business segments: (1) Building Supply : consisting of a line of construction supply weatherization products. The construction supply weatherization products consist of housewrap and synthetic roof underlayment and synthetic roof underlayment accessories, as well as other woven material. The majority of the Company’s equity in income of unconsolidated affiliate (Harmony) is included in the total segment income for the Building Supply segment. (2) Disposable Protective Apparel : consisting of a complete line of disposable protective garments, including shoecovers (including the Aqua Trak® and spunbond shoecovers), bouffant caps, coveralls, frocks, lab coats, gowns and hoods, as well as face masks and face shields for the pharmaceutical, cleanroom, industrial, medical and dental markets. A portion of the Company’s equity in income of unconsolidated affiliate (Harmony) is included in the total segment income for the Disposable Protective Apparel segment. 40 Alpha Pro Tech, Ltd. Notes to Consolidated Financial Statements The accounting policies of the segments are the same as those described previously under Summary of Significant Accounting Policies (see Note 2). Segment data excludes charges allocated to the principal executive office and other corporate unallocated expenses and income taxes. The chief operating decision maker (“CODM”) of the Company is the Company’s chief executive officer. The CODM assesses performance and decides how to allocate resources, including (1) employees, and (2) financial or capital resources, based on net sales. The following table provides segment information as described below: Years Ended December 31, Years Ended December 31, 2025 2024 2025 2024 Building Supply Disposable Protective Apparel Segment sales $ 36,031,000 $ 35,965,000 $ 23,111,000 $ 21,875,000 Less: Cost of goods sold 23,179,000 22,902,000 13,426,000 12,005,000 Selling, general and administrative 6,830,000 7,191,000 5,422,000 5,375,000 Depreciation and amortization 711,000 661,000 112,000 108,000 Other income ( 155,000 ) ( 535,000 ) ( 27,000 ) ( 94,000 ) Segment net income $ 5,466,000 $ 5,746,000 $ 4,178,000 $ 4,481,000 The following table presents net sales for each segment: Years Ended December 31, 2025 2024 Building Supply $ 36,031,000 $ 35,965,000 Disposable Protective Apparel 23,111,000 21,875,000 Consolidated net sales $ 59,142,000 $ 57,840,000 The following table presents the reconciliation of total segment income to total consolidated net income: Years Ended December 31, 2025 2024 Building Supply $ 5,466,000 $ 5,746,000 Disposable Protective Apparel 4,178,000 4,481,000 Total segment income 9,644,000 10,227,000 Unallocated corporate overhead expenses 4,975,000 5,207,000 Provision for income taxes 1,138,000 1,091,000 Consolidated net income $ 3,531,000 $ 3,929,000 41 Alpha Pro Tech, Ltd. Notes to Consolidated Financial Statements The following table presents net sales and long-lived assets, net of accumulated depreciation and amortization, information by geographic area: Years Ended December 31, 2025 2024 Net sales by geographic region United States $ 58,527,000 $ 57,211,000 International 615,000 629,000 Consolidated net sales $ 59,142,000 $ 57,840,000 As of December 31, 2025 2024 Long-lived assets, net by geographic region United States $ 6,953,000 $ 7,325,000 International 1,281,000 1,195,000 Consolidated total long-lived assets, net $ 8,234,000 $ 8,520,000 Net sales by geographic region are based on the countries in which our customers are located. For the year ended December 31, 2025, the Company did not generate sales from any single country, except the United States, that were significant to the Company’s consolidated net sales. The following table presents the consolidated net property, equipment, goodwill and intangible assets by segment: As of December 31, 2025 2024 Building Supply $ 5,617,000 $ 6,069,000 Disposable Protective Apparel 1,451,000 1,424,000 Total segment assets 7,068,000 7,493,000 Unallocated corporate assets 1,221,000 1,082,000 Total consolidated assets $ 8,289,000 $ 8,575,000 15. Concentration of Risk The Company maintains its cash and cash equivalents in various bank accounts, the balances of which at times may exceed federally insured limits. The Company has not experienced any losses related to these accounts, and management does not believe that the Company is exposed to significant credit risk. Management believes that adequate provision has been made for risk of loss on all credit transactions. The Company buys a significant amount of its disposable protective apparel products from a limited number of contract manufacturers located in Asia and, to a much lesser extent, a contract manufacturer in Mexico. Management believes that other suppliers could provide similar products at comparable terms. A change in suppliers, however, could cause a delay in shipment and a possible loss of sales, which would affect operating results adversely. 42 Alpha Pro Tech, Ltd. Notes to Consolidated Financial Statements The Building Supply segment buys semi-finished housewrap and synthetic roof underlayment from its joint venture, Harmony, located in India. Although there are a limited number of manufacturers of the particular product, management believes that other suppliers could provide similar products at comparable terms. A change in suppliers, however, could cause a delay in shipment and a possible loss of sales, which would affect operating results adversely. The Company provides products to customers located primarily in the United States. Customers accounting for 10 % or more of accounts receivable as of December 31, 2025 and 2024, and 10 % or more of net sales for the years ended December 31, 2025 and 2024, were as follows: December 31, 2025 2024 Accounts Receivable: Customer A 53 % 36 % Customer B * 14 % Net sales: Customer A 24 % 20 % Customer B 15 % 15 % Customer C 11 % 13 % * Customer’s balance was below the 10% threshold for accounts receivable and/or net sales as of and for the year ended December 31, 2025. 16. Employment Agreements The Company has entered into an employment agreement with its current President and Chief Executive Officer, which has a term of approximately five years, and which renews in accordance with its terms. The agreement provides that, if the officer’s employment is terminated without cause, as defined in the agreements, the officer is entitled to receive certain severance payments. If termination occurs due to retirement, the officer will enter into a four-year consulting arrangement with the Company at a specified percentage of the officer’s then current salary. Upon death or disability, the Company will also make certain payments to the officer or the officer’s estate or beneficiary, as applicable. 17. Related Party Transactions During 2025, the Company’s only material related party transactions were the Company’s transactions with its non-consolidated affiliate, Harmony (see Note 6.) 18. Subsequent Events The Company has reviewed and evaluated whether any additional material subsequent events have occurred from December 31, 2025 through the filing date of the Company’s Annual Report on Form 10-K. All appropriate subsequent event disclosures have been made in the consolidated financial statements. 43 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.