apt20240630_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File No.001-15725

Alpha Pro Tech, Ltd.

(Exact Name of Registrant as Specified in Its Charter)

Delaware, U.S.A.	63-1009183
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

53 Wellington Street East

Aurora, Ontario, Canada

L4G 1H6

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code: (905) 479-0654

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock,

$0.01 par value

APT

NYSE American

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐	Non-accelerated filer ☒	Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class		Outstanding August 2, 2024
Common Stock, $0.01 par value		11,173,700 shares

Alpha Pro Tech, Ltd.

Index

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements	page

Condensed Consolidated Balance Sheets (Unaudited)	1

Condensed Consolidated Statements of Income (Unaudited)	2

Condensed Consolidated Statements of Comprehensive Income (Unaudited)	3

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)	4

Condensed Consolidated Statements of Cash Flows (Unaudited)	5

Notes to Condensed Consolidated Financial Statements (Unaudited)	6

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk	22

ITEM 4. Controls and Procedures	22

PART II. OTHER INFORMATION

ITEM I. Legal Proceedings	23

ITEM IA. Risk Factors	23

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds	23

ITEM 5. Other Information	24

ITEM 6. Exhibits	25

SIGNATURES	26

EXHIBITS

Alpha Pro Tech, Ltd.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets (Unaudited)

	June 30,			December 31,
	2024			2023 (1)
Assets
Current assets:
Cash and cash equivalents	$	16,207,000		$	20,378,000
Accounts receivable, net		8,263,000			5,503,000
Accounts receivable, related party		584,000			1,042,000
Inventories, net		20,785,000			20,131,000
Prepaid expenses		6,752,000			6,010,000
Total current assets		52,591,000			53,064,000

Property and equipment, net		5,314,000			5,587,000
Goodwill		55,000			55,000
Right-of-use assets		9,179,000			4,810,000
Equity investment in unconsolidated affiliate		5,533,000			5,247,000
Total assets	$	72,672,000		$	68,763,000

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	343,000		$	802,000
Accrued liabilities		639,000			1,103,000
Lease liabilities		868,000			661,000
Total current liabilities		1,850,000			2,566,000

Lease liabilities, net of current portion		8,339,000			4,187,000
Deferred income tax liabilities, net		442,000			442,000
Total liabilities		10,631,000			7,195,000
Commitments and contingencies
Shareholders' equity:
Common stock, $.01 par value: 50,000,000 shares authorized; 11,127,878 and 11,416,212 shares outstanding as of June 30, 2024 and December 31, 2023, respectively		111,000			114,000
Additional paid-in capital		16,594,000			16,339,000
Retained earnings		46,825,000			46,552,000
Accumulated other comprehensive loss		(1,489,000	)		(1,437,000	)
Total shareholders' equity		62,041,000			61,568,000
Total liabilities and shareholders' equity	$	72,672,000		$	68,763,000

(1) The condensed consolidated balance sheet as of December 31, 2023, has been prepared using information from the audited consolidated balance sheet as of that date.

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

Alpha Pro Tech, Ltd.

Condensed Consolidated Statements of Income (Unaudited)

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023

Net sales	$	16,289,000	$	16,115,000	$	29,772,000	$	29,914,000

Cost of goods sold, excluding depreciation and amortization		9,448,000		10,009,000		17,513,000		18,826,000
Gross profit		6,841,000		6,106,000		12,259,000		11,088,000

Operating expenses:
Selling, general and administrative		4,884,000		4,575,000		9,732,000		8,888,000
Depreciation and amortization		245,000		219,000		489,000		462,000
Total operating expenses		5,129,000		4,794,000		10,221,000		9,350,000

Income from operations		1,712,000		1,312,000		2,038,000		1,738,000

Other income:
Equity in income of unconsolidated affiliate		200,000		103,000		338,000		212,000
Interest income, net		207,000		169,000		465,000		327,000
Total other income		407,000		272,000		803,000		539,000

Income before provision for income taxes		2,119,000		1,584,000		2,841,000		2,277,000

Provision for income taxes		475,000		438,000		621,000		579,000

Net income	$	1,644,000	$	1,146,000	$	2,220,000	$	1,698,000


Basic earnings per common share	$	0.15	$	0.10	$	0.20	$	0.14

Diluted earnings per common share	$	0.15	$	0.10	$	0.20	$	0.14

Basic weighted average common shares outstanding		11,137,066		11,997,443		11,281,739		12,072,571

Diluted weighted average common shares outstanding		11,226,341		12,013,845		11,375,701		12,103,419

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

Alpha Pro Tech, Ltd.

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

	For the Three Months Ended					For the Six Months Ended
	June 30,					June 30,
	2024			2023		2024			2023

Net income	$	1,644,000		$	1,146,000	$	2,220,000		$	1,698,000
Other comprehensive income - foreign currency translation gain (loss)		(58,000	)		21,000		(52,000	)		158,000
Comprehensive income	$	1,586,000		$	1,167,000	$	2,168,000		$	1,856,000

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

Alpha Pro Tech, Ltd.

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

For the Six Months Ended June 30, 2024
													Accumulated
							Additional						Other
	Common Stock						Paid-in			Retained			Comprehensive
	Shares			Amount			Capital			Earnings			Income (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
Net income		-			-			-			576,000			-			576,000
Common stock repurchased and retired		(270,000	)		(2,000	)		(386,000	)		(1,029,000	)		-			(1,417,000	)
Treasury stock excise tax		-			-			(14,000	)		-			-			(14,000	)
Stock-based compensation expense		-			-			109,000			-			-			109,000
Options exercised		226,666			2,000			813,000			-			-			815,000
Total comprehensive income		-			-			-			-			6,000			6,000
Balance as of March 31, 2024		11,372,878			114,000			16,861,000			46,099,000			(1,431,000	)		61,643,000
Net income		-			-			-			1,644,000			-			1,644,000
Common stock repurchased and retired		(245,000	)		(3,000	)		(363,000	)		(918,000	)		-			(1,284,000	)
Treasury stock excise tax		-			-			(13,000	)		-			-			(13,000	)
Stock-based compensation expense		-			-			109,000			-			-			109,000
Total comprehensive loss		-			-			-			-			(58,000	)		(58,000	)
Balance as of June 30, 2024		11,127,878		$	111,000		$	16,594,000		$	46,825,000		$	(1,489,000	)	$	62,041,000

For the Six Months Ended June 30, 2023

													Accumulated
							Additional						Other
	Common Stock						Paid-in			Retained			Comprehensive
	Shares			Amount			Capital			Earnings			Income (Loss)			Total
Balance as of December 31, 2022		12,226,306		$	123,000		$	17,099,000		$	45,025,000		$	(1,489,000	)	$	60,758,000
Net income		-			-			-			552,000			-			552,000
Common stock repurchased and retired		(200,000	)		(2,000	)		(280,000	)		(551,000	)		-			(833,000	)
Stock-based compensation expense		-			-			22,000			-			-			22,000
Options exercised		109,250			1,000			349,000			-			-			350,000
Total comprehensive income		-			-			-			-			137,000			137,000
Balance as of March 31, 2023		12,135,556			122,000			17,190,000			62,216,000			(1,352,000	)		60,986,000
Net income		-			-			-			1,146,000			-			1,146,000
Common stock repurchased and retired		(275,000	)		(3,000	)		(65,000	)		(1,029,000	)		-			(1,097,000	)
Treasury stock excise tax		-			-			(11,000	)		-			-			(11,000	)
Stock-based compensation expense		-			-			22,000			-			-			22,000
Options exercised		15,000			-			54,000			-			-			54,000
Total comprehensive income		-			-			-			-			21,000			21,000
Balance as of June 30, 2023		11,875,556		$	119,000		$	17,190,000		$	62,333,000		$	(1,331,000	)	$	61,121,000

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

Alpha Pro Tech, Ltd.

Condensed Consolidated Statements of Cash Flows (Unaudited)

	For the Six Months Ended June 30,
	2024			2023
Cash Flows From Operating Activities:
Net income	$	2,220,000		$	1,698,000
Adjustments to reconcile net income to net cash and cash equivalents provided by (used in) operating activities:
Stock-based compensation		218,000			44,000
Depreciation and amortization		489,000			462,000
Equity in income of unconsolidated affiliate		(338,000	)		(212,000	)
Non-cash lease expense		434,000			461,000
Changes in operating assets and liabilities:
Accounts receivable, net		(2,760,000	)		(3,213,000	)
Accounts receivable, related party		458,000			665,000
Inventories, net		(654,000	)		2,426,000
Prepaid expenses		(742,000	)		(519,000	)
Accounts payable and accrued liabilities		(923,000	)		(360,000	)
Lease liabilities		(444,000	)		(465,000	)

Net cash and cash equivalents provided by (used in) operating activities		(2,042,000	)		987,000

Cash Flows From Investing Activities:
Purchases of property and equipment		(216,000	)		(390,000	)

Cash Flows From Financing Activities:
Proceeds from exercise of stock options		815,000			403,000
Repurchase of common stock		(2,701,000	)		(1,930,000	)
Treasury stock excise tax		(27,000	)		(11,000	)

Net cash and cash equivalents used in financing activities		(1,913,000	)		(1,538,000	)

Decrease in cash and cash equivalents		(4,171,000	)		(941,000	)

Cash and cash equivalents, beginning of the period		20,378,000			16,290,000

Cash and cash equivalents, end of the period	$	16,207,000		$	15,349,000

Supplemental disclosure of non-cash transactions:
Net non-cash changes to operating leases	$	4,803,000		$	-

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

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1.	The Company

Alpha Pro Tech, Ltd. (“Alpha Pro Tech,” the “Company,” “we”, “us” or “our”) is in the business of protecting people, products and environments. The Company accomplishes this by developing, manufacturing and marketing a line of building supply products for the new home and re-roofing markets and a line of disposable protective apparel for the cleanroom, industrial, pharmaceutical, medical and dental markets.

The Building Supply segment consists of construction weatherization products, such as housewrap, housewrap accessories including window and door flashing, and seam tape, synthetic roof underlayment and synthetic roof underlayment accessories, as well as other woven materials.

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 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.	Basis of Presentation and Revenue Recognition Policy

The interim financial information included in this report is unaudited; however, the information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for the fair presentation of the consolidated financial position, results of operations and cash flows for the interim periods reflected herein. These interim condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, omit certain information and note disclosures that would be necessary to present the statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The interim condensed consolidated financial statements should be read in conjunction with the Company’s current year SEC filings, as well as the Company’s consolidated financial statements for the year ended December 31, 2023, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”), filed with the SEC on March 13, 2024. The results of operations for the three and six months ended June 30, 2024, in this Quarterly Report on Form 10-Q are not necessarily indicative of the results to be expected for the full year. The condensed consolidated balance sheet as of December 31, 2023 was prepared using information from the audited consolidated balance sheet contained in the 2023 Form 10-K; however, it does not include all disclosures required by U.S. GAAP for annual consolidated financial statements.

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 labeling. The Company has determined as of June 30, 2024, that it had no material contract assets, and concluded that its contract liabilities (primarily rebates) had the right of offset against customer receivables. See Note 10 and Note 11 of these Notes to Condensed Consolidated Financial Statements (Unaudited) for information on revenue disaggregated by type and by geographic region.

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

3.	Shareholder’s Equity

Repurchase Program

During the three months ended June 30, 2024, the Company repurchased and retired 245,000 shares of its common stock for $1,284,000. During the three months ended June 30, 2023, the Company repurchased and retired 275,000 shares of its common stock for $1,097,000. During the six months ended June 30, 2024, the Company repurchased and retired 515,000 shares of its common stock for $2,701,000. During the six months ended June 30, 2023, the Company repurchased and retired 475,000 shares of its common stock for $1,930,000. As of June 30, 2024, the Company had $1,493,000 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 Company previously granted stock options to employees and non-employee directors under the 2004 Stock Option Plan (the “2004 Plan”). Options vest and expire according to terms established at the grant date. 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 (taking into account cancelled, forfeited and expired options that were added back to the plan reserve) had been granted as of December 31, 2020.

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 are reserved for issuance under the 2020 Incentive Plan, plus the number of shares underlying any award granted under the 2004 Option Plan that expires or is cancelled or forfeited under the terms of the 2004 Option Plan. As a result of the approval of the 2020 Incentive Plan, no future equity awards will be made pursuant to the 2004 Option Plan. Although no new awards may be granted under the 2004 Option Plan, all previously granted awards under the 2004 Option Plan will continue to be governed by the terms of the 2004 Option Plan.

The Company records compensation expense for the fair value of stock-based awards determined as of the grant date, including employee stock options and restricted stock awards, over the determined requisite service period, which is generally ratably over the vesting term.

The following table summarizes restricted stock awards activity for the six months ended June 30, 2024:

				Weighted Average
				Grant Date Price
	Shares			Restricted stock awards

Outstanding, December 31, 2023		235,172		$	4.21
Granted to employees and non-employee directors		10,715			5.32
Vested		(8,172	)		4.02
Outstanding, June 30, 2024		237,715			4.12

During the six months ended June 30, 2024 and 2023, 10,715 and 0 restricted stock awards were granted under the 2020 Incentive Plan, respectively. The Company recognized $189,000 and $37,000 in compensation expense associated with outstanding restricted stock awards for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024, $746,000 of total unrecognized compensation cost related to the restricted stock grants was expected to be recognized over a weighted average remainder period of 2.18 years.

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

For the six months ended June 30, 2024 and 2023, no stock options were granted under the 2020 Incentive Plan. The Company recognized $29,000 and $7,000 in stock-based compensation expense for the six months ended June 30, 2024 and 2023, respectively, related to outstanding options previously granted under the 2004 Option Plan.

The Company uses the Black-Scholes option-pricing model to value the options. The Company uses historical data to estimate the expected life of the options. The risk-free interest rate for periods within the contractual life of an award is based on the US Treasury yield curve in effect at the time of grant. The estimated volatility is based on historical volatility and management’s expectations of future volatility. The Company uses an estimated dividend payout of zero, as the Company has not paid dividends in the past and, at this time, does not expect to do so in the future. The Company accounts for option forfeitures as they occur.

The following table summarizes option activity for the six months ended June 30, 2024:

				Weighted Average
				Exercise Price
	Options			Per Option

Options outstanding, December 31, 2023		292,766		$	3.71
Exercised		(226,666	)		3.59
Options outstanding, June 30, 2024		66,100			4.12
Options exercisable, June 30, 2024		9,899			3.70

As of June 30, 2024, $117,000 of total unrecognized compensation cost related to the stock option grants was expected to be recognized over a weighted average remainder period of 2.06 years.

4.	Recent Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. These amendments address investor requests for enhanced transparency regarding income tax information. Specifically, they improve income tax disclosures related to rate reconciliation and income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 31, 2024. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses, and is effective for fiscal years beginning after December 31, 2023 and for interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

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.

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

5.	Inventories

As of June 30, 2024 and December 31, 2023, inventories net of reserves consisted of the following:

	June 30,		December 31,
	2024		2023

Raw materials	$	10,462,000	$	10,470,000
Work in process		2,430,000		2,236,000
Finished goods		7,893,000		7,425,000
	$	20,785,000	$	20,131,000

6.	Equity Investment in Unconsolidated Affiliate

In 2005, Alpha ProTech Engineered Products, Inc. (a subsidiary of Alpha Pro Tech, Ltd.) entered into a joint venture with a manufacturer in India, Maple Industries and associates, for the production of building products. Under the terms of the joint venture agreement, a private company, Harmony Plastics Private Limited (“Harmony”), was created with ownership interests of 41.7% owned by Alpha ProTech Engineered Products, Inc. and 58.3% 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 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.

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 June 30, 2024, or December 31, 2023. Under the equity method, since the Company’s reporting currency is different from 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 Accumulated other comprehensive loss (“AOCL”).

For the three months ended June 30, 2024 and 2023, the Company purchased $5,849,000 and $4,834,000 of inventories, respectively, from Harmony. For the six months ended June 30, 2024 and 2023, the Company purchased $11,179,000 and $9,870,000 of inventories, respectively, from Harmony. For the three months ended June 30, 2024 and 2023, the Company sold $240,000 and $200,000 of inventories, respectively, to Harmony. For the six months ended June 30, 2024 and 2023, the Company sold $240,000 and $200,000 of inventories, respectively, to Harmony. For the three months ended June 30, 2024 and 2023, the Company recorded equity in income of unconsolidated affiliate of $200,000 and $103,000, respectively, related to Harmony. For the six months ended June 30, 2024 and 2023, the Company recorded equity in income of unconsolidated affiliate of $338,000 and $212,000, respectively, related to Harmony.

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

As of June 30, 2024, the Company’s investment in Harmony was $5,533,000, which consisted of its original $1,450,000 investment and cumulative equity in income of unconsolidated affiliate of $6,591,000, less $942,000 in repayments of an advance, $77,000 in payments of dividends, and $1,489,000 in AOCL on foreign currency translations.

7.	Accrued Liabilities

As of June 30, 2024 and December 31, 2023, accrued liabilities consisted of the following:

	June 30,		December 31,
	2024		2023

Payroll expenses and taxes payable	$	161,000	$	157,000
Commissions and bonuses payable and general accrued liabilities		478,000		946,000
Total accrued liabilities	$	639,000	$	1,103,000

8.	Basic and Diluted Earnings Per Common Share

The following table provides a reconciliation of both net income and the number of shares used in the computation of “basic” earnings per common share (“EPS”), which utilizes the weighted average number of common shares outstanding without regard to dilutive shares, and “diluted” EPS, which includes all such dilutive shares, for the three and six months ended June 30, 2024 and 2023:

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Net income (numerator)	$	1,644,000	$	1,146,000	$	2,220,000	$	1,698,000

Shares (denominator):
Basic weighted average common shares outstanding		11,137,066		11,997,443		11,281,739		12,072,571
Add: dilutive effect of common stock options		85,090		16,402		93,962		30,848

Diluted weighted average common shares outstanding		11,226,341		12,013,845		11,375,701		12,103,419

Earnings per common share:
Basic	$	0.15	$	0.10	$	0.20	$	0.14
Diluted	$	0.15	$	0.10	$	0.20	$	0.14

9.	Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss (“AOCL”), 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 AOCL on equity in unconsolidated affiliate was $1,489,000 and $1,437,000 as of June 30, 2024 and December 31, 2023, respectively.

10.

Activity of Business Segments

The Company operates through two business segments:

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

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

(2) Disposable Protective Apparel: consisting of a complete line of disposable protective garments, including shoecovers (including the Aqua Trak® and spunbond shoecovers), bouffant caps, coveralls, frocks, lab coats, gowns and hoods, as well as face masks and face shields for the pharmaceutical, cleanroom, industrial, medical and dental markets. A portion of the Company’s equity in income of unconsolidated affiliate (Harmony) is included in the total segment income for the Disposable Protective Apparel segment.

Segment data excludes charges allocated to the principal executive office and other unallocated corporate overhead expenses and income tax. The Company evaluates the performance of its segments and allocates resources to them based primarily on net sales.

The accounting policies of the segments are the same as those described previously under Summary of Significant Accounting Policies (see Note 3 in the notes to our consolidated financial statements in Item 8 of the 2023 Form 10-K).

The following table presents consolidated net sales for each segment for the three and six months ended June 30, 2024 and 2023:

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Building Supply	$	9,941,000	$	10,537,000	$	18,181,000	$	19,167,000
Disposable Protective Apparel		6,348,000		5,578,000		11,591,000		10,747,000
Consolidated net sales	$	16,289,000	$	16,115,000	$	29,772,000	$	29,914,000

The following table presents the reconciliation of consolidated segment income to consolidated net income for the three and six months ended June 30, 2024 and 2023:

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2024		2023		2024		2023
Building Supply	$	1,828,000	$	1,527,000	$	2,792,000	$	2,483,000
Disposable Protective Apparel		1,841,000		1,324,000		2,872,000		2,108,000
Total segment income		3,669,000		2,851,000		5,664,000		4,591,000

Unallocated corporate overhead expenses		1,550,000		1,267,000		2,823,000		2,314,000
Provision for income taxes

SEC Form 10-Q filed by Alpha Pro Tech Ltd.