What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-08-07 compared with 2026-05-07 · 237 added, 113 removed, 122 unchanged (74% of the section changed)

15 unchanged sentences

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.

Tariff policies, ongoing trade disputes and related litigation, including related to tariff refunds could increase our costs and disrupt our global supply chain, which could negatively impact the results of our operations and cash flows.

Our industry is highly competitive, which may negatively affect our ability to grow our customer base and generate sales.

41 unchanged sentences

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 and actions related to tariff increases and other trade restrictions on imports into the U.S.

Changes in tariffs, quotas, embargoes, or other trade barriers affecting countries from which we 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.

We continue to monitor these evolving tariffs and trade restrictions.

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

trade policy continue to introduce uncertainty regarding the future of global trade relations.

Following the inauguration of the second Trump administration, there have been numerous announcements and actions related to tariff increases and other trade restrictions on imports into the United States.

Changes in tariffs, quotas, embargoes, or other trade barriers affecting countries from which the Company sources products, or affecting its global network of third-party suppliers, could impact the Company's supply chain and cost structure.

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

The Company continues to monitor evolving trade policies and tariff developments.

Future changes in tariffs or other trade restrictions could require the Company to adjust pricing, increase inventory levels, or seek alternative suppliers, any of which could materially affect revenue, gross margins, and results of operations.

On February 20, 2026, the U.S.

Supreme Court ruled in Learning Resources, Inc.

Trump that the President lacks authority under the International Emergency Economic Powers Act (IEEPA) to impose tariffs.

The Company paid tariffs in 2025 under IEEPA and has filed for refunds of these tariffs, but the ultimate receipt and timing of such refunds remain subject to review by U.S.

Customs and Border Protection (CBP).

There is no guarantee the Company will receive a refund.

Trump that the President lacked authority under the International Emergency Economic Powers Act ("IEEPA") to impose certain tariffs.

During the three months ended June 30, 2026, the Company recognized a recovery of approximately $300,000 of previously paid IEEPA tariffs under the gain contingency model.

The related refunds, including applicable statutory interest, were received from U.S.

Customs and Border Protection (the “CBP”) during June 2026.

government has appealed the court's decision, and the litigation remains ongoing.

The Company will continue to monitor developments related to the litigation and U.S.

trade policy.

Subsequent to June 30, 2026, the Company received approximately $3.2 million in refunds from the CBP related to previously paid IEEPA tariffs.

This is in addition to the approximately $300,000 in refunds received (and recorded) during the second quarter of 2026.

Although approximately $3.2 million of refunds were received after quarter-end and prior to the filing of this Form 10-Q, the IEEPA tariff matters related to the $3.2 million remain subject to ongoing litigation, including pending appeals, and the ultimate resolution of these matters has not been finalized.

Given the uncertainty related to the litigation, management concluded that the ultimate collectability of the $3.2 million could not be deemed to be probable as of June 30, 2026.

Accordingly, no additional amounts related to the $3.2 million have been recognized in the accompanying condensed consolidated financial statements as of June 30, 2026.

Management reviews and analyzes several key performance measures which are non-GAAP financial measures when shown excluding the impact of the IEEPA tariff refund, including gross profit;

selling, general and administrative expense;

income from operations;

income before provision for taxes;

provision for taxes;

basic earnings per share;

and diluted earnings per share.

These measures are reviewed and analyzed in order to evaluate our business performance, identify trends affecting our business, allocate capital, and make strategic decisions, including those discussed below.

See “Results of Operations” below for further discussion on these key performance measures, which are indicated by an asterisk (*).

The non-GAAP financial measures should be considered along with the most directly comparable U.S.

GAAP financial measures.

Definitions of these non-GAAP financial measures, a discussion of why we believe they are useful to management and investors as well as certain of their limitations, and reconciliations to their most directly comparable U.S.

GAAP financial measures are provided below under “Non-GAAP Financial Measures.”

RESULTS OF OPERATIONS

1 unchanged sentence

For the Three Months

Ended March 31,

Ended June 30,

For the Six Months

Ended June 30,

Selling, general and administrative expenses

1 unchanged sentence

Income before provision for income taxes

For the three months ended March 31, 2026 compared to the three months ended March 31, 2025

Consolidated sales for the three months ended March 31, 2026, increased to $14,585,000, from $13,822,000 for the three months ended March 31, 2025, representing an increase of $763,000, or 5.5%.

This increase consisted of increased sales in the Disposable Protective Apparel segment of $1,276,000, partially offset by decreased sales in the Building Supply segment of $513,000.

BUILDING SUPPLY SEGMENT

Building Supply segment sales for the three months ended March 31, 2026, decreased by $513,000, or 6.1%, to $7,859,000 compared to $8,372,000 for the three months ended March 31, 2025.

The Building Supply segment sales decrease during the three months ended March 31, 2026, was primarily due to a 27.4% decrease in sales of synthetic roof underlayment, partially offset by a 13.1% increase in sales of housewrap and a 32.0% increase in sales of other woven material as compared to the same period of 2025.

The sales mix of the Building Supply segment for the three months ended March 31, 2026, was approximately 37% for synthetic roof underlayment, 53% for housewrap and 10% for other woven material.

This compared to approximately 48% for synthetic roof underlayment, 45% for housewrap and 7% for other woven material for the three months ended March 31, 2025.

For the Three and Six months ended June 30, 2026 compared to the Three and Six months ended June 30, 2025

Consolidated sales for the three months ended June 30, 2026 , increased to $18,674,000, from $16,672,000 for the three months ended June 30, 2025, representing an increase of $2,002,000, or 12.0%.

This increase consisted of increased sales in the Building Supply segment of $608,000 and increased sales in the Disposable Protective Apparel segment of $1,394,000.

Building Supply segment sales for the three months ended June 30, 2026 , increased by $608,000, or 5.5%, to $11,692,000, compared to $11,084,000 for the three months ended June 30, 2025.

The Building Supply segment sales increase during the three months ended June 30, 2026, was primarily due to a 1.2% increase in sales of housewrap, a 3.4% increase in sales of synthetic roof underlayment, a 6.0% increase in sales of other woven material and a 25.0% decrease in rebates as compared to the same period of 2025.

The sales mix of the Building Supply segment for the three months ended June 30, 2026, was approximately 40% for synthetic roof underlayment, 50% for housewrap and 10% for other woven material, which was the same for the three months ended June 30, 2025.

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.

2 unchanged sentences

Alpha Pro Tech, Ltd.

Challenges in the housing market continued during the first quarter of 2026, as single-family housing starts declined compared to the corresponding period in 2025.

According to the U.S.

Census Bureau, single-family housing starts decreased by 5.5% for the quarter.

Housing starts for January and February 2026 declined by 14.0% compared to the same period in 2025;

however, housing activity increased in March 2026, partially mitigating the overall quarterly decline.

In the first quarter of 2026, our housewrap sales increased by 13.1%, significantly outperforming the broader market and reflecting market share gains.

Management expects continued growth in the housewrap category over the coming year, particularly if broader economic and housing market uncertainty eases.

Our synthetic roof underlayment sales declined in the first quarter of 2026, and the Asphalt Roofing Manufacturers Association (“ARMA”) reported a 9.9% decline in industry shipments compared to the first quarter of 2025 as well.

We are pursuing opportunities to expand our product portfolio within the roofing market by identifying and developing additional complementary product offerings that align with customer needs, enhance our competitive position, and support long-term growth.

Sales of other woven material sales increased by $215,000, or 32.0%, for the three months ended March 31, 2026 compared to the same period of 2025, primarily due to increased sales to our largest customer for this product line.

The Company continues to pursue new opportunities for other woven material.

The housing market continued to show weakness in the second quarter of 2026, as single-family housing starts declined by 4.2% compared to the corresponding period in 2025.

This decline in the second quarter of 2026 represents an improvement from the decline of 6.5% in the first quarter of 2026.

Single-family housing starts in the U.S.

have remained constrained by affordability pressures, macroeconomic uncertainty, and more recently by geopolitical volatility.

Elevated mortgage rates and persistently high home prices relative to income have reduced affordability and softened demand, while tighter lending standards have further limited activity.

Geopolitical tensions have also contributed to input cost volatility and ongoing supply chain disruptions, increasing construction cost pressures.

In combination with elevated land, labor, and material costs, these factors have led builders to moderate new construction activity, resulting in continued softness in single-family housing starts.

The building industry outlook for 2026 remains mixed, with expectations for gradual improvement in the latter part of the year.

remained constrained by mortgage rates, increased land, labor and construction costs, affordability pressures, macroeconomic uncertainty, and geopolitical volatility, which has led builders to moderate new construction activity.

During the second quarter of 2026, we again outperformed the market, as our core building products (housewrap and synthetic roof underlayment) were up by 2.2% compared to the same period of 2025, driven by an increase in both housewrap and synthetic roof underlayment sales.

Our synthetic roof underlayment sales increased by 3.4% in the second quarter of 2026 compared to the second quarter of 2025, even though the Asphalt Roofing Manufacturers Association (“ARMA”) reported a 10.0% decline in industry shipments.

The Company plans to expand our roofing market product offerings in order to enhance our competitive position and support long-term growth.

The building industry outlook for the remainder of 2026 reflects a soft but generally stable market, rather than a meaningful rebound.

A modest increase in single-family housing starts is expected in 2027, assuming economic and financing conditions improve.

Management remains focused on developing and producing industry-leading products and anticipates growth in the Building Supply segment;

however, uncertainty related to the factors described above could adversely impact results.

DISPOSABLE PROTECTIVE APPAREL SEGMENT

Sales for the Disposable Protective Apparel segment for the three months ended March 31, 2026, increased by $1,276,000, or 23.4%, to $6,726,000, compared to $5,450,000 for the same period of 2025.

This segment sales increase was due to a 23.8% increase in sales of disposable protective garments, a 28.8% increase in sales of face masks and an 8.0% increase in sales of face shields.

The sales mix of the Disposable Protective Apparel segment for the three months ended March 31, 2026 was approximately 91% for disposable protective garments, 6% for face masks and 3% for face shields.

This sales mix is compared to approximately 90% for disposable protective garments, 6% for face masks and 4% for face shields for the three months ended March 31, 2025.

Sales of disposable protective garments, which comprised 91% of the segment sales, were up by $1,172,000 or 23.8% in the first quarter of 2026.

The sales increase was primarily due to improved sales to our largest international channel partner.

Disposable Protective Apparel segment sales for the three months ended June 30, 2026 , were $6,982,000, compared to $5,588,000 for the same period in 2025, reflecting an increase of $1,394,000, or 24.9%.

The segment experienced strong underlying sales growth during the quarter.

The sales mix of the Disposable Protective Apparel segment for the three months ended June 30, 2026, was approximately 93% for disposable protective garments, 4% for face masks and 3% for face shields.

This sales mix is compared to approximately 90% for disposable protective garments, 6% for face masks and 4% for face shields for the three months ended June 30, 2025.

Sales of disposable protective garments, which comprised 93% of the segment sales, increased by $1,458,000 or 29.0% in the second quarter of 2026, compared to the same period in 2025.

The sales increase was primarily due to improved sales to our largest international channel partner, as well as national and regional distributors.

A considerable portion of the increase was attributable to higher selling prices, primarily driven by the impact of U.S.

Sales of shoe covers, coveralls, lab coats, frocks, gowns and caps all grew in the first quarter of 2026 compared to the same period of 2025.

Sales of our face mask and face shield products in the first quarter of 2026, which comprise the remaining 9% of the segment sales, were up 28.8% and 8.0%, respectively and for the most part did not benefit from tariff related price increases.

We will continue to pursue initiatives aimed at increasing sales of our face mask and face shield products, including the implementation of targeted promotions and strategic pricing incentives.

Sales of our face mask and face shield products in the second quarter of 2026, which comprise the remaining 7% of the segment sales, were down by $64,000 compared to the same period in 2025.

Consolidated sales for the six months ended June 30, 2026 were $33,259,000, compared with $30,494,000 for the six months ended June 30, 2025, an increase of $2,765,000, or 9.1%.

The increase was attributable to higher sales in both operating segments, consisting of a $95,000 increase in the Building Supply segment and a $2,670,000 increase in the Disposable Protective Apparel segment.

Building Supply segment sales for the six months ended June 30, 2026 increased by $95,000, or 0.5%, to $19,551,000, compared to $19,456,000 for the six months ended June 30, 2025.

The Building Supply segment sales increase during the six months ended June 30, 2026, was primarily due to a 5.9% increase in sales of housewrap and a 15.1% increase in sales of other woven material and a 13.6% decrease in rebates, partially offset by an 11.3% decrease in sales of synthetic roof underlayment, compared to the same period of 2025.

The sales mix of the Building Supply segment for the six months ended June 30, 2026 was 51% for housewrap, 39% for synthetic roof underlayment and 10% for other woven material.

This compared to 48% for housewrap, 43% for synthetic roof underlayment and 9% for other woven material for the six months ended June 30, 2025.

As per the US Census Bureau, single-family housing starts declined by 5.3% year to date compared to the same period in 2025.

The Asphalt Roofing Manufacturers Association (“ARMA”) reported a 10.0% decline in industry shipments compared to the year to date in 2025.

Management is encouraged by a 5.9% increase in sales of housewrap and sales of synthetic roof underlayment as compared to the decline in the ARMA figures.

Alpha Pro Tech, Ltd.

Sales of other woven material were up 15.1% year to date in 2026 compared to the same period in 2025, primarily due to increased sales to our largest customer for this product line.

Management expects growth in the Building Supply segment, however continued uncertainty in housing starts and the economy in general could negatively affect this segment.

Disposable Protective Apparel segment sales for the six months ended June 30, 2026 increased by $2,670,000, or 24.2%, to $13,708,000, compared to $11,038,000 for the six months ended June 30, 2025.

The increase in segment sales was primarily driven by strong demand across the Company's disposable protective product lines.

Compared with the first six months of 2025, sales of disposable protective garments increased by 26.4%, sales of face masks increased by 5.7%, and sales of face shields increased by 0.9%.

These increases contributed to the segment's strong underlying year-over-year growth.

The sales mix of the Disposable Protective Apparel segment for the six months ended June 30, 2026, was 92% for disposable protective garments, 5% for face masks and 3% for face shields.

This sales mix is compared to 90% for disposable protective garments, 6% for face masks and 4% for face shields for the six months ended June 30, 2025.

Gross Profit.

Gross profit increased by $124,000, or 2.3%, to $5,516,000 for the three months ended March 31, 2026, from $5,392,000 for the three months ended March 31, 2025.

The gross profit margin was 37.8% for the three months ended March 31, 2026, compared to 39.0% for the three months ended March 31, 2025.

The decrease in gross profit margin was primarily driven by U.S.

tariffs, implemented under the International Emergency Economic Powers Act (“IEEPA”), in early 2025.

During 2025, the Company experienced three tariff increases on most products as a result of U.S.

trade policy actions and reciprocal tariffs.

We implemented price increases in mid-2025 as well as later in the year to partially offset the impact of these tariff increases;

however higher tariffed inventory on hand continued to negatively impact gross margin in the first quarter of 2026.

We expect gross margin improvement after higher-cost tariffed inventory flows through the system.These IEEPA tariffs were subsequently rescinded on February 24, 2026, following a Supreme Court decision invalidating the use of IEEPA to authorize such tariffs.

Including the impact of the IEEPA tariff refund, gross profit increased by $847,000, or 13.8%, to $6,978,000 for the three months ended June 30, 2026, from $6,131,000 for the three months ended June 30, 2025.

The gross profit margin was 37.4% for the three months ended June 30, 2026, compared to 36.8% for the three months ended June 30, 2025.

The net change in gross profit for the second quarter of 2026 due to the IEEPA tariff refund was $294,000, which comprised of lower cost of goods sold.

Excluding the IEEPA tariff refund, gross profit increased by $553,000, or 9.0%, to $6,684,000 for the three months ended June 30, 2026, from $6,131,000 for the three months ended June 30, 2025.

The gross profit margin was 35.8% for the three months ended June 30, 2026, compared to 36.8% for the three months ended June 30, 2025.

Including the impact of the IEEPA tariff refund, gross profit increased by $971,000, or 8.4%, to $12,494,000 for the six months ended June 30, 2026, from $11,523,000 for the six months ended June 30, 2025.

The gross profit margin was 37.6% for the six months ended June 30, 2026, compared to 37.8% for the six months ended June 30, 2025.

Excluding the IEEPA tariff refund, gross profit increased by $677,000, or 5.9%, to $12,200,000 for the six months ended June 30, 2026, from $11,523,000 for the six months ended June 30, 2025.

The gross profit margin was 36.7% for the six months ended June 30, 2026, compared to 37.8% for the six months ended June 30, 2025.

The decrease in gross profit margin for the three and six months ended June 30, 2026 compared to the same period of 2025 was driven by IEEPA tariffs ranging from 10% to 50%.

IEEPA tariffs were subsequently rescinded on February 24, 2026, following a Supreme Court decision invalidating the use of IEEPA to authorize such tariffs.

On the same date, the U.S.

Government announced plans to implement a new 15% tariff under Section 122 of the Trade Act of 1974.

Although announced at 15%, the tariff is currently at 10%.

We have filed claims with U.S.

Customs and Border Protection (CBP) seeking refunds of all the IEEPA tariffs.

CBP officially launched the refund system on April 20, 2026.

The ultimate receipt and timing of such refunds remain subject to review by CBP and other administrative processes.

Any approved refunds are expected to be received in cash and would favorably impact the statement of income.

Although announced at 15%, the tariff as of June 30, 2026 was at 10%.

In addition, beginning in the latter part of the first quarter of 2026, the Company has experienced increased costs associated with global geopolitical instability, including related to the ongoing U.S.-Iran conflict.

These conditions have contributed to higher energy, transportation and supply chain costs, as well as volatility in raw material costs, particularly petroleum-based inputs.

Many of our products are made from a petroleum-based resin, which has seen significant price increases since the start of the conflict.

Many of our products are made from petroleum-based resin, which has seen significant price increases since the start of the conflict.

In response to these increased costs, we are implementing a price increase in the third quarter of 2026.

Management expects gross profit margin to be positively affected in the coming quarters.

We will continue to monitor developments in U.S.

1 unchanged sentence

Changes in tariffs, energy markets, or international conflicts, including developments related to the U.S.-Iran conflict, may impact our supply chain, cost structure and profitability.

Alpha Pro Tech, Ltd.

Selling, General and Administrative Expenses.

Selling, general and administrative expenses decreased by $8,000, or 0.2%, to $4,686,000 for the three months ended March 31, 2026, from $4,694,000 for the three months ended March 31, 2025.

As a percentage of net sales, selling, general and administrative expenses decreased to 32.1% for the three months ended March 31, 2026, from 34.0% for the same period of 2025.

The change in expenses by segment for the three months ended March 31, 2026, was as follows:

Selling, general and administrative expenses increased by $142,000, or 3.1%, to $4,698,000 for the three months ended June 30, 2026, from $4,556,000 for the three months ended June 30, 2025.

As a percentage of net sales, selling, general and administrative expenses decreased to 25.2% for the three months ended June 30, 2026, from 27.3% for the same period of 2025.

Excluding the IEEPA tariff refund, selling, general and administrative expenses would have been $15,000 lower.

The change in expenses by segment for the three months ended June 30, 2026, was as follows:

Building Supply expenses were down by $10,000, or 0.6%;

1 unchanged sentence

and corporate unallocated expenses were up by $103,000, or 9.4%.

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

The increase in the Disposable Protective Apparel segment expenses was primarily related to increased commission and professional fees, partially offset by lower travel and factory expenses.

The increase in corporate unallocated expenses was primarily due to increased employee compensation and general office expenses.

The decrease in the Building Supply segment expenses was primarily related to decreased employee compensation and marketing expenses, partially offset by increased sales-related travel expenses and general office expenses.

The increase in the Disposable Protective Apparel segment expenses was primarily related to increased insurance expenses.

The increase in corporate unallocated expenses was primarily due to increased employee compensation and general office expenses, partially offset by decreased legal fees.

Selling, general and administrative expenses increased by $134,000, or 1.4%, to $9,384,000 for the six months ended June 30, 2026, from $9,250,000 for the six months ended June 30, 2025.

As a percentage of net sales, selling, general and administrative expenses decreased to 28.2% for the six months ended June 30, 2026, from 30.3% for the same period of 2025.

The change in expenses by segment for the six months ended June 30, 2025, was as follows:

Building Supply expenses were down by $178,000, or 4.9%;

Disposable Protective Apparel expenses were up by $63,000, or 2.3%;

and corporate unallocated expenses were up by $250,000, or 8.7%.

The decrease in the Building Supply segment expenses was primarily related to decreased employee compensation and trade show expenses, partially offset by increased sales-related travel expenses and general office expenses.

The increase in the Disposable Protective Apparel segment expenses was primarily related to increased insurance expenses.

The increase in corporate unallocated expenses was primarily due to increased employee bonuses, general office expenses partially offset by lower legal fees in the six months ended June 30, 2026 compared to the same period of 2025.

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 $47,000 was accrued for the three months ended March 31, 2026, compared to $41,000 for the three months ended March 31, 2025.

A bonus amount of $125,000 was accrued for the three months ended June 30, 2026, compared to $84,000 for the three months ended June 30, 2025.

A bonus amount of $172,000 was accrued for the six months ended June 30, 2026, compared to $125,000 for the same period of 2025.

Depreciation and Amortization .

Depreciation and amortization expense increased by $7,000, or 2.9%, to $250,000 for the three months ended March 31, 2026, from $243,000 for the three months ended March 31, 2025.

Depreciation and amortization expense increased by $28,000, or 11.7%, to $268,000 for the three months ended June 30, 2026, from $240,000 for the three months ended June 30, 2025.

Depreciation and amortization expense increased by $35,000, or 7.2%, to $518,000 for the six months ended June 30, 2026, from $483,000 for the six months ended June 30, 2025.

The increase was primarily due to an increase in depreciation in the Disposable Protective Apparel segment.

Income from Operations.

Income from operations increased by $125,000, or 27.5%, to $580,000 for the three months ended March 31, 2026, compared to $455,000 for the three months ended March 31, 2025.

The increased income from operations was primarily due to an increase in gross profit of $124,000 and a decrease in selling, general and administrative expenses of $8,000, partially offset by an increase in depreciation and amortization expenses of $7,000.

Income from operations as a percentage of net sales for the three months ended March 31, 2026, was 4.0%, compared to 3.3% for the same period of 2025.

Including the impact of the IEEPA tariff refund, income from operations increased by $677,000, or 50.7%, to $2,012,000 for the three months ended June 30, 2026, compared to $1,335,000 for the three months ended June 30, 2025.

The increased income from operations was primarily due to an increase in gross profit of $847,000, partially offset by an increase in selling, general and administrative expenses of $142,000 and an increase in depreciation and amortization expenses of $28,000.

Income from operations as a percentage of net sales for the three months ended June 30, 2026, was 10.8%, compared to 8.0% for the three months ended June 30, 2025.

The net change in income from operations for the second quarter of 2026 due to the IEEPA tariff refund was $279,000.

Excluding the impact of the IEEPA tariff refund, income from operations increased by $398,000, or 29.8%, to $1,733,000* for the three months ended June 30, 2026, compared to $1,335,000 for the three months ended June 30, 2025.

The increased income from operations was primarily due to an increase in gross profit of $553,000, partially offset by an increase in selling, general and administrative expenses of $127,000 and an increase in depreciation and amortization expenses of $28,000.

Income from operations as a percentage of net sales for the three months ended June 30, 2026, was 9.3%, compared to 8.0% for the three months ended June 30, 2025.

Alpha Pro Tech, Ltd.

Including the impact of the IEEPA tariff refund, income from operations increased by $802,000, or 44.8%, to $2,592,000 for the six months ended June 30, 2026, compared to $1,790,000 for the six months ended June 30, 2025.

The increased income from operations was primarily due to an increase in gross profit of $971,000 partially offset by an increase in selling, general and administrative expenses of $134,000 and an increase in depreciation and amortization expenses of $35,000.

Income from operations as a percentage of net sales for the six months ended June 30, 2025, was 7.8%, compared to 5.9% for the six months ended June 30, 2025.

Excluding the impact of the IEEPA tariff refund, income from operations increased by $523,000, or 29.2%, to $2,313,000* for the six months ended June 30, 2026, compared to $1,790,000 for the six months ended June 30, 2025.The increased income from operations was primarily due to an increase in gross profit of $677,000, partially offset by an increase in selling, general and administrative expenses of $119,000 and an increase in depreciation and amortization expenses of $35,000.

Income from operations as a percentage of net sales for the six months ended June 30, 2026, was 7.0%, compared to 5.9% for the six months ended June 30, 2025.

Other Income .

Other income decreased by $12,000 to income of $305,000 for the three months ended March 31, 2026, compared to $317,000 for the same period of 2025.

The decrease was primarily due to a decrease in interest income of $26,000, partially offset by an increase in equity in income of unconsolidated affiliate of $14,000.

Other income increased by $96,000 to income of $372,000 for the three months ended June 30, 2026, compared to $276,000 for the same period of 2025.

The increase was primarily due to an increase in equity in income of unconsolidated affiliate of $72,000 and an increase in interest income of $24,000.

The increase in interest income was primarily due to interest earned in investments and interest paid by the federal government on our IEEPA tariff refund.

Other income increased by $84,000 to income of $677,000 for the six months ended June 30, 2026, compared to $593,000 for the same period of 2025.

The increase was primarily due to an increase in equity in income of unconsolidated affiliate of $86,000 and interest paid by the federal government on our IEEPA tariff refund partially offset by a decrease in interest earned on investments.

Income before Provision for Income Taxes .

Income before provision for income taxes for the three months ended March 31, 2026, was $885,000, compared to income before provision for income taxes of $772,000 for the same period of 2025, representing an increase of $113,000, or 14.6%.

This increase in income before provision for income taxes was due to an increase in income from operations of $125,000, partially offset by a decrease in other income of $12,000.

Including the impact of the IEEPA tariff refund, income before provision for income taxes for the three months ended June 30, 2026, was $2,384,000, compared to income before provision for income taxes of $1,611,000 for the same period of 2025, representing an increase of $773,000, or 48.0%.

This increase in income before provision for income taxes was due to an increase in income from operations of $677,000 and an increase in other income of $96,000.

The net change in income before provision for income taxes for the second quarter of 2026 due to the IEEPA tariff refund was $294,000.

Excluding the impact of the IEEPA tariff refund, income before provision for income taxes for the three months ended June 30, 2026, was $2,090,000*, compared to income before provision for income taxes of $1,611,000 for the same period of 2025, representing an increase of $479,000, or 29.7%.

This increase in income before provision for income taxes would have been due to an increase in income from operations of $398,000 and an increase in other income of $81,000.

Including the impact of the IEEPA tariff refund, income before provision for income taxes for the six months ended June 30, 2026, was $3,269,000, compared to income before provision for income taxes of $2,383,000 for the same period of 2025, representing an increase of $886,000, or 37.2%.

This increase in income before provision for income taxes was due to an increase in income from operations of $802,000 and an increase in other income of $84,000.

Excluding the impact of the IEEPA tariff refund, income before provision for income taxes for the six months ended June 30, 2026, was $2,975,000*, compared to income before provision for income taxes of $2,383,000 for the same period of 2025, representing an increase of $592,000, or 24.8%.

This increase in income before provision for income taxes was due to an increase in income from operations of $523,000 and an increase in other income of $69,000.

Provision for Income Taxes .

The provision for income taxes for the three months ended March 31, 2026, was $183,000, compared to $159,000 for the same period of 2025.

The estimated effective tax rate was 20.7% for the three months ended March 31, 2026, compared to 20.6% for the three months ended March 31, 2025.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted, which includes permanent extensions of most expiring Tax Cuts and Jobs Act provisions and international tax changes.

The Company is still evaluating the potential impacts of the OBBBA;

however, the Company does not anticipate it will have a material impact on the Company’s financial statements.

Net income for the three months ended March 31, 2026, was $702,000 compared to net income of $613,000 for the same period of 2025, representing an increase of $89,000, or 14.5%.

The net income increase was primarily due to an increase in income from operations of $125,000, partially offset by a decrease in other income of $12,000 and an increase in provision for income taxes of $24,000.

Net income as a percentage of net sales was 4.8% for the three months ended March 31, 2026, compared to 4.4% for the same period of 2025.

Basic earnings per common share for the three months ended March 31, 2026 and 2025, were $0.07 and $0.06, respectively.

Diluted earnings per common share for the three months ended March 31, 2026 and 2025, were $0.07 and $0.06, respectively.

Including the impact of the IEEPA tariff refund, the provision for income taxes for the three months ended June 30, 2026, was $558,000, compared to $367,000 for the same period of 2025.

The estimated effective tax rate was 23.4% for the three months ended June 30, 2026, compared to 22.8% for the three months ended June 30, 2025.

Alpha Pro Tech, Ltd.

The net change in provision for income taxes for the second quarter of 2026 due to the IEEPA tariff refund was $75,000.

Excluding the impact of the IEEPA tariff refund, the provision for income taxes for the three months ended June 30, 2026, was $483,000*, compared to $367,000 for the same period of 2025.

The estimated effective tax rate was 23.1% for the three months ended June 30, 2026, compared to 22.8% for the three months ended June 30, 2025.

Including the impact of the IEEPA tariff refund, the provision for income taxes for the six months ended June 30, 2026, was $741,000, compared to $526,000 for the same period of 2025.

The estimated effective tax rate was 22.7% for the six months ended June 30, 2026, compared to 22.1% for the six months ended June 30, 2025.

Excluding the impact of the IEEPA tariff refund, the provision for income taxes for the six months ended June 30, 2026, was $666,000*, compared to $526,000 for the same period of 2025.

The estimated effective tax rate was 22.4% for the six months ended June 30, 2026, compared to 22.1% for the six months ended June 30, 2025.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted, which included permanent extensions of most expiring Tax Cuts and Jobs Act provisions and international tax changes.

The Company recognized the income tax effects of the OBBBA in its third quarter 2025 financial statements.

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

Including the impact of the IEEPA tariff refund net income for the three months ended June 30, 2026, was $1,826,000, compared to net income of $1,244,000 for the same period of 2025, representing an increase of $582,000, or 46.8%.

The net income increase between the three months ended June 30, 2026 and the same period of 2025 was due to an increase in income before provision for income taxes of $773,000, partially offset by an increase in provision for income taxes of $191,000.

Net income as a percentage of net sales was 9.8% for the three months ended June 30, 2026, compared to 7.5% for the same period of 2025.

Basic and diluted earnings per common share for each of the three months ended June 30, 2026 and 2025, were $0.18 and $0.12, respectively.

The net change in net income for the second quarter of 2026 due to the IEEPA tariff refund was $219,000.

Excluding the impact of the IEEPA tariff refund, net income for the three months ended June 30, 2026, was $1,607,000*, compared to net income of $1,244,000 for the same period of 2025, representing an increase of $363,000, or 29.2%.

The net income increase between the three months ended June 30, 2026, and the same period of 2025 was due to an increase in income before provision for income taxes of $479,000, partially offset by a decrease in provision for income taxes of $116,000.

Excluding the tariff refund, net income as a percentage of net sales would have been 8.6% for the three months ended June 30, 2026, compared to 7.5% for the same period of 2025.

Basic and diluted earnings per common share for each of the three months ended June 30, 2026 and 2025, were $0.16 and $0.12, respectively.

The comparison excluding the tariff refund reflects the Company's underlying operating performance without the benefit of the tariff refund.

Including the impact of the IEEPA tariff refund, net income for the six months ended June 30, 2026, was $2,528,000 compared to net income of $1,857,000 for the same period of 2025, representing an increase of $671,000, or 36.1%.

The net income increase between the six months ended June 30, 2026 and the same period of 2025 was due to an increase in income before provision for income taxes of $886,000, partially offset by an increase in provision for income taxes of $215,000.

Net income as a percentage of net sales was 7.6% for the six months ended June 30, 2026, compared to 6.1% for the same period of 2025.

Basic earnings per common share for each of the six months ended June 30, 2026 and 2025, were $0.25 and $0.18, respectively.

Diluted earnings per common share for each of the six months ended June 30, 2026 and 2025, were $0.24 and $0.18, respectively.

Excluding the impact of the IEEPA tariff refund, net income for the six months ended June 30, 2026, was $2,309,000*, compared to net income of $1,857,000 for the same period of 2025, representing an increase of $452,000, or 24.3%.

Excluding the impact of the IEEPA refund, the net income increase between the six months ended June 30, 2026 and the same period of 2025 was due to an increase in income before provision for income taxes of $592,000, partially offset by an increase in provision for income taxes of $140,000.

Net income as a percentage of net sales was 6.9% for the six months ended June 30, 2026, compared to 6.1% for the same period of 2025.

Basic earnings per common share for the six months ended June 30, 2026 and 2025, were $0.23* and $0.18, respectively.

Diluted earnings per common share for the six months ended June 30, 2026 and 2025, were $0.22* and $0.18, respectively.

This comparison reflects the Company’s underlying operating performance before the effect of the IEEPA tariff refund.

Alpha Pro Tech, Ltd.

NON-GAAP FINANCIAL MEASURES

The non-GAAP financial measures presented in this Quarterly Report on Form 10-Q are supplemental measures of our performance that we believe will help investors understand our operating results, and assess our future prospects.

When read in conjunction with our U.S.

GAAP results, these non-GAAP financial measures provide a baseline for analyzing trends in our underlying businesses and can be used by management as one basis for making financial, operational, and planning decisions.

For each financial measure we have excluded the impact of the tariff refunds due to their unusual nature which is not reflective of our ongoing operating results.

Management recognizes that these non-GAAP financial measures have limitations, including that they may be calculated differently by other companies or may be used under different circumstances or for different purposes.

In order to compensate for the discussed limitations, management does not consider these measures in isolation from or as alternatives to the comparable financial measures determined in accordance with U.S.

The detailed reconciliations of each non-GAAP financial measure to the most directly comparable U.S.

GAAP financial measure are provided below, and no single financial measure should be relied on to evaluate our business.

For the Three Months

For the Six Months

Ended June 30,

Less impact of tariff refund

Gross profit excluding tariff refund

Income from operations

Less impact of tariff refund

Income from operations excluding tariff refund

Income before provision for income taxes

Less impact of tariff refund

Income before provision for income taxes exluding tariff refund

Provision for income taxes

Less impact of tariff refund

Provision for income taxes exluding tariff refund

Less impact of tariff refund

Net income excluding tariff refund

Basic earnings per share

Less impact of tariff refund

Basic earns per share excluding tariff refund

Diluted earnings per share

Less impact of tariff refund

Diluted earnings per share excluding tariff refund

Alpha Pro Tech, Ltd.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2026, the Company had cash and cash equivalents (“cash”) of $16,883,000 and working capital of $49,275,000.

As of March 31, 2026, the Company’s current ratio (current assets/current liabilities) was 20:1, compared to a current ratio of 13:1 as of December 31, 2025.

Cash decreased by 0.6%, or $105,000, to $16,883,000 as of March 31, 2026, compared to $16,988,000 as of December 31, 2025, and working capital increased by $813,000, to $49,275,000 from $48,462,000 as of December 31, 2025.

The decrease in cash from December 31, 2025, was due to cash used in investing activities of $117,000, partially offset by cash provided by operating activities of $12,000.

Net cash provided by operating activities of $12,000 for the three months ended March 31, 2026 was due to net income of $702,000, as adjusted primarily by the following:

stock-based compensation expense of $132,000, depreciation and amortization expense of $250,000, equity in income of unconsolidated affiliate of $155,000, operating lease asset amortization of $245,000, an increase in accounts receivable of $1,197,000, a decrease in prepaid expenses of $165,000, a decrease in inventory of $1,553,000, a decrease in accounts payable and accrued liabilities of $1,445,000, and a decrease in lease liabilities of $238,000, all compared to December 31, 2025.

Accounts receivable increased by $1,197,000, or 14.7%, to $9,335,000 as of March 31, 2026, from $8,138,000 as of December 31, 2025.

The increase in accounts receivable was primarily related to increased sales in the first quarter of 2026 compared to the fourth quarter of 2025.

The number of days that sales remained outstanding as of March 31, 2026, calculated by using an average of accounts receivable outstanding and annual revenue, was 55 days, compared to 40 days as of December 31, 2025.

Inventory decreased by $1,553,000, or 6.6%, to $22,045,000 as of March 31, 2026, from $23,598,000 as of December 31, 2025.

As of June 30, 2026, the Company had cash and cash equivalents (“cash”) of $18,901,000 and working capital of $51,014,000.

As of June 30, 2026, the Company’s current ratio (current assets/current liabilities) was 17:1, compared to a current ratio of 13:1 as of December 31, 2025.

Cash increased by 11.3%, or $1,913,000, to $18,901,000 as of June 30, 2026, compared to $16,988,000 as of December 31, 2025, and working capital increased by $2,552,000, to $51,014,000 from $48,462,000 as of December 31, 2025.

The increase in cash from December 31, 2025, was due to cash provided by operating activities of $2,225,000 partially offset by cash used in investing activities of $259,000 and used in financing activities of $53,000.

Net cash provided by operating activities of $2,225,000 for the six months ended June 30, 2026 was due to net income of $2,528,000, as adjusted primarily by the following:

stock-based compensation expense of $259,000, depreciation and amortization expense of $518,000, equity in income of unconsolidated affiliate of $364,000, operating lease asset amortization of $494,000, an increase in accounts receivable of $2,997,000, an increase in prepaid expenses of $1,712,000, a decrease in inventory of $4,948,000, a decrease in accounts payable and accrued liabilities of $965,000, and a decrease in lease liabilities of $484,000, all compared to December 31, 2025.

Accounts receivable increased by $2,997,000, or 36.8%, to $11,135,000 as of June 30, 2026, from $8,138,000 as of December 31, 2025.

The increase in accounts receivable was primarily related to increased sales in the second quarter of 2026 compared to the fourth quarter of 2025.

The number of days that sales remained outstanding as of June 30, 2026, calculated by using an average of accounts receivable outstanding and annual revenue, was 47 days, compared to 40 days as of December 31, 2025.

The increase in days outstanding was primarily due to increased sales.

Inventory decreased by $4,948,000, or 21.0%, to $18,650,000 as of June 30, 2026, from $23,598,000 as of December 31, 2025.

The decrease was due to a decrease in inventory for the Building Supply segment of $3,953,000, or 30.8%, to $8,876,000 and a decrease in inventory for the Disposable Protective Apparel segment of $995,000, or 9.2%, to $9,774,000.

We purchased less inventory due to the high tariff rate.

Alpha Pro Tech, Ltd.

Prepaid expenses decreased by $165,000, or 4.3%, to $3,631,000 as of March 31, 2026, from $3,796,000 as of December 31, 2025.

The decrease was primarily due to decreased prepayments for inventory and prepaid tax payments.

Right-of-use assets as of March 31, 2026, decreased by $245,000 to $7,530,000 from $7,775,000 as of December 31, 2025, as a result of amortization of the right-of-use assets.

Lease liabilities as of March 31, 2026, decreased by $238,000 to $7,644,000 from $7,882,000 as of December 31, 2025.

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, 2026 decreased by $1,445,000, or 46.7%, to $1,648,000, from $3,093,000 as of December 31, 2025.

Prepaid expenses increased by $1,712,000, or 45.1%, to $5,508,000 as of June 30, 2026, from $3,796,000 as of December 31, 2025.

The increase was primarily due to increased prepayments for inventory.

Right-of-use assets as of June 30, 2026, decreased by $271,000 to $7,504,000 from $7,775,000 as of December 31, 2025, as a result of amortization of the right-of-use assets partially offset by new Aurora Canada lease.

Lease liabilities as of June 30, 2026, decreased by $261,000 to $7,621,000 from $7,882,000 as of December 31, 2025.

The decrease in the lease liabilities was the result of lease payments made during the period partially offset by lease for our Aurora location extended for three years.

Accounts payable and accrued liabilities as of June 30, 2026 decreased by $965,000, or 31.2%, to $2,128,000, from $3,093,000 as of December 31, 2025.

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

Net cash used in investing activities was $117,000 for the three months ended March 31, 2026, compared to net cash used in investing activities of $135,000 for the three months ended March 31, 2025.

Investing activities for the three months ended March 31, 2026 and 2025 consisted of the purchase of property and equipment.

Net cash used in financing activities was $0 for the three months ended March 31, 2026, compared to net cash used in financing activities of $1,190,000 for the same period of 2025.

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.

As of March 31, 2026, we had $1,397,000 available for stock purchases under our stock repurchase program.

During the three months ended March 31, 2026, we did not repurchase any shares of common stock.

As of March 31, 2026, we had repurchased a total of 21,927,940 shares of common stock at a cost of approximately $58,123,000 through our repurchase program which commenced in 1999.

Net cash used in investing activities was $259,000 for the six months ended June 30, 2026, compared to net cash used in investing activities of $273,000 for the six months ended June 30, 2025.

Investing activities for the six months ended June 30, 2026 and 2025 consisted of the purchase of property and equipment.

Net cash used in financing activities was $53,000 for the six months ended June 30, 2026, compared to net cash used in financing activities of $2,028,000 for the same period of 2025.

Net cash used in financing activities for the six months ended June 30, 2026, resulted from the payment of $99,000 for the repurchase of common stock, partially offset by $46,000 from proceeds from stock options exercised.

The decrease in net cash used in financing activities for the six months ended June 30, 2026 was due to a decrease in the repurchases of common stock from $2,008,000 for the six months ended June 30, 2025 to $99,000 for the six months ended June 30, 2026.

As of June 30, 2026, we had $1,298,000 available for stock purchases under our stock repurchase program.

During the six months ended June 30, 2026, we repurchased 21,800 shares of common stock.

As of June 30, 2026, we had repurchased a total of 21,949,740 shares of common stock at a cost of approximately $58,222,000 through our repurchase program which commenced in 1999.

We retire all stock upon repurchase.

1 unchanged sentence

We believe that our current cash balance and expected cash flow from operations will be sufficient to satisfy our projected working capital and planned capital expenditures for the foreseeable future.

Alpha Pro Tech, Ltd.

Recent Accounting Pronouncements

1 unchanged sentence

Codification Amendments in Response to the SEC ’ s Disclosure Update and Simplification Initiative .

The amendments are expected to impact various disclosure areas, including the statement of cash flows, accounting changes and error corrections, earnings per share, debt, derivatives, and transfer of financial assets.

The amendments will become effective on the date the related disclosures are removed from Regulation S-X or Regulation S-K by the SEC and will no longer be effective if the SEC has not removed the applicable disclosure requirement by June 30, 2027.

9 unchanged sentences

The amendment in this update should be applied on a prospective basis.

The Company adopted this ASU effective January 1, 2025.

The adoption of this pronouncement did not have a significant impact on the Company's consolidated financial statements and related disclosures.

In December 2025, the FASB issued ASU 2025-11, “Interim Reporting (Topic 270):

Narrow Scope Improvements,” which provides additional guidance on what disclosures should be provided in interim reporting periods including disclosure of events since the end of the last annual reporting period that have a material impact on the entity.

The amendments in this ASU will be effective for interim reporting periods within annual reporting periods beginning after December 15, 2027.

Early adoption is permitted.

The amendments in this ASU can be applied either prospectively or retrospectively to any or all prior periods presented in the financial statements.

The Company is in the process of evaluating the impact of the new guidance and determining the transition method and the timing of adoption.

Management periodically reviews new accounting standards that are issued.

2 unchanged sentences

As a smaller reporting company, we are not required to provide the information otherwise required by this Item.

Alpha Pro Tech, Ltd.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis