UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
For the quarterly period ended
OR
For the transition period from to
Commission File No.
(Exact Name of Registrant as Specified in Its Charter)
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(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
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$0.01 par value |
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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.
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).
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 ☐
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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
| Class | Outstanding May 2, 2024 | ||
| Common Stock, $0.01 par value |
Alpha Pro Tech, Ltd.
Index
| page | ||
| PART I. | FINANCIAL INFORMATION | |
| ITEM 1. | Financial Statements | |
| 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 | 21 |
| ITEM 4. | Controls and Procedures | 21 |
| PART II. | OTHER INFORMATION | |
| ITEM I. | Legal Proceedings | 22 |
| ITEM IA. | Risk Factors | 22 |
| ITEM 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 22 |
| ITEM 5. | Other Information | 23 |
| ITEM 6. | Exhibits | 24 |
| SIGNATURES | 25 | |
| EXHIBITS | ||
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets (Unaudited)
| March 31, |
December 31, |
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2024 |
2023 (1) |
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Assets |
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Current assets: |
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Cash and cash equivalents |
$ | $ | ||||||
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Accounts receivable, net |
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Accounts receivable, related party |
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Inventories, net |
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Prepaid expenses |
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Total current assets |
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Property and equipment, net |
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Goodwill |
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Right-of-use assets |
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Equity investment in unconsolidated affiliate |
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Total assets |
$ | $ | ||||||
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Liabilities and Shareholders' Equity |
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Current liabilities: |
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Accounts payable |
$ | $ | ||||||
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Accrued liabilities |
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Lease liabilities |
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Total current liabilities |
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Lease liabilities, net of current portion |
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Deferred income tax liabilities, net |
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Total liabilities |
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| Commitments and contingencies |
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Shareholders' equity: |
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Common stock, $ par value: |
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Additional paid-in capital |
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Retained earnings |
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Accumulated other comprehensive loss |
( |
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Total shareholders' equity |
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Total liabilities and shareholders' equity |
$ | $ | ||||||
(1)
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
Condensed Consolidated Statements of Income (Unaudited)
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For the Three Months Ended |
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March 31, |
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2024 |
2023 |
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Net sales |
$ | $ | ||||||
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Cost of goods sold, excluding depreciation and amortization |
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Gross profit |
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Operating expenses: |
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Selling, general and administrative |
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Depreciation and amortization |
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Total operating expenses |
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Income from operations |
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| Other income: | ||||||||
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Equity in income of unconsolidated affiliate |
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Interest income, net |
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Total other income |
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Income before provision for income taxes |
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Provision for income taxes |
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Net income |
$ | $ | ||||||
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Basic earnings per common share |
$ | $ | ||||||
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Diluted earnings per common share |
$ | $ | ||||||
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Basic weighted average common shares outstanding |
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Diluted weighted average common shares outstanding |
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See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
Condensed Consolidated Statements of Comprehensive Income (Unaudited)
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For the Three Months Ended |
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March 31, |
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2024 |
2023 |
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Net income |
$ | $ | ||||||
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Other comprehensive income - foreign currency translation gain |
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Comprehensive income |
$ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
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For the Three Months Ended March 31, 2024 |
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Accumulated |
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Additional |
Other |
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Common Stock |
Paid-in |
Retained |
Comprehensive |
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Shares |
Amount |
Capital |
Earnings |
Income (Loss) |
Total |
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Balance as of December 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
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Net income |
- | - | - | ||||||||||||||||||||||
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Common stock repurchased and retired |
( |
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Treasury stock excise tax |
- | - | ( |
) | - | - | ( |
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Stock-based compensation expense |
- | - | |||||||||||||||||||||||
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Options exercised |
2,000 | - | |||||||||||||||||||||||
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Total comprehensive income |
- | ||||||||||||||||||||||||
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Balance as of March 31, 2024 |
$ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
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For the Three Months Ended March 31, 2023 |
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Accumulated |
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Additional |
Other |
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Common Stock |
Paid-in |
Retained |
Comprehensive |
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Shares |
Amount |
Capital |
Earnings |
Income (Loss) |
Total |
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Balance as of December 31, 2022 |
$ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
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Net income |
- | - | - | ||||||||||||||||||||||
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Common stock repurchased and retired |
( |
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Stock-based compensation expense |
- | - | - | ||||||||||||||||||||||
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Options exercised |
1,000 | - | |||||||||||||||||||||||
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Total comprehensive loss |
- | ||||||||||||||||||||||||
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Balance as of March 31, 2023 |
$ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
Condensed Consolidated Statements of Cash Flows (Unaudited)
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For the Three Months Ended March 31, |
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2024 |
2023 |
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Cash Flows From Operating Activities: |
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Net income |
$ | $ | ||||||
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Adjustments to reconcile net income to net cash and cash equivalents used in operating activities: |
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Stock-based compensation |
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Depreciation and amortization |
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Equity in income of unconsolidated affiliate |
( |
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Non-cash lease expense |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
( |
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Accounts receivable, related party |
( |
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Inventories, net |
( |
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Prepaid expenses |
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Accounts payable and accrued liabilities |
( |
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Lease liabilities |
( |
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Net cash and cash equivalents used in operating activities |
( |
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Cash Flows From Investing Activities: |
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Purchases of property and equipment |
( |
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Cash Flows From Financing Activities: |
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Proceeds from exercise of stock options |
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Repurchase of common stock |
( |
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Treasury stock excise tax |
( |
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Net cash and cash equivalents used in financing activities |
( |
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Decrease in cash and cash equivalents |
( |
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Cash and cash equivalents, beginning of the year |
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Cash and cash equivalents, end of the year |
$ | $ | ||||||
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Supplemental disclosure of non-cash transactions: |
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Net non-cash changes to operating leases |
$ | $ | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).
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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.”).
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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 months ended March 31, 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 March 31, 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.
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3. |
Shareholder’s Equity |
Repurchase Program
During the three months ended March 31, 2024, the Company repurchased and retired
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
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
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 three months ended March 31, 2024:
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Weighted Average |
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Grant Date Price |
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Shares |
Restricted stock awards |
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Outstanding, December 31, 2023 |
$ | |||||||
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Granted to employees and non-employee directors |
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Vested |
( |
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Outstanding, March 31, 2024 |
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During the three months ended March 31, 2024, and 2023,
For the three months ended March 31, 2024 and 2023, stock options were granted under the 2004 Option Plan or the 2020 Incentive Plan. The Company recognized $
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 , 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 three months ended March 31, 2024:
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Weighted Average |
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Exercise Price |
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Options |
Per Option |
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Options outstanding, December 31, 2023 |
$ | |||||||
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Exercised |
( |
) | ||||||
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Options outstanding, March 31, 2024 |
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Options exercisable, March 31, 2024 |
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As of March 31, 2024, $
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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.
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5. |
Inventories |
As of March 31, 2024 and December 31, 2023, inventories net of reserves consisted of the following:
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March 31, |
December 31, |
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2024 |
2023 |
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Raw materials |
$ | $ | ||||||
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Work in process |
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Finished goods |
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| $ | $ | |||||||
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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
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 facilities in India ( owned and rented), consisting of: (1) a
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 impairment was required as of March 31, 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 March 31, 2024 and 2023, the Company purchased $
As of March 31, 2024, the Company’s investment in Harmony was $
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7. |
Accrued Liabilities |
As of March 31, 2024 and December 31, 2023, accrued liabilities consisted of the following:
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March 31, |
December 31, |
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2024 |
2023 |
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Payroll expenses and taxes payable |
$ | $ | ||||||
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Commissions and bonuses payable and general accrued liabilities |
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Total accrued liabilities |
$ | $ | ||||||
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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 months ended March 31, 2024 and 2023:
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For the Three Months Ended |
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| March 31, | ||||||||
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2024 |
2023 |
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Net income (numerator) |
$ | $ | ||||||
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Shares (denominator): |
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Basic weighted average common shares outstanding |
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Add: dilutive effect of common stock options |
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Diluted weighted average common shares outstanding |
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Earnings per common share: |
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Basic |
$ | $ | ||||||
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Diluted |
$ | $ | ||||||
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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 $
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10. |
Activity of Business Segments |
The Company operates through 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.
(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 months ended March 31, 2024 and 2023:
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For the Three Months Ended |
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March 31, |
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2024 |
2023 |
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Building Supply |
$ | $ | ||||||
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Disposable Protective Apparel |
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Consolidated net sales |
$ | $ | ||||||
The following table presents the reconciliation of consolidated segment income to consolidated net income for the three months ended March 31, 2024 and 2023:
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For the Three Months Ended |
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| March 31, | ||||||||
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2024 |
2023 |
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Building Supply |
$ | $ | ||||||
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Disposable Protective Apparel |
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Total segment income |
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Unallocated corporate overhead expenses |
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Provision for income taxes |
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Consolidated net income |
$ | $ | ||||||
The following table presents the consolidated net property and equipment, goodwill and definite-lived intangible assets (“consolidated assets”) by segment as of March 31, 2024 and December 31, 2023:
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March 31, |
December 31, |
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2024 |
2023 |
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Building Supply |
$ | $ | ||||||
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Disposable Protective Apparel |
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Total segment assets |
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Unallocated corporate assets |
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Total consolidated assets |
$ | $ | ||||||
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11. |
Financial Information about Geographic Areas |
The following table summarizes the Company’s net sales by geographic region for the three months ended March 31, 2024 and 2023:
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For the Three Months Ended |
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March 31, |
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2024 |
2023 |
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Net sales by geographic region |
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United States |
$ | $ | ||||||
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International |
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Consolidated net sales |
$ | $ | ||||||
Net sales by geographic region are based on the countries in which our customers are located. For the three months ended March 31, 2024 and 2023, the Company did not generate sales from any single country, other than the United States, that were significant to the Company’s consolidated net sales.
The following table summarizes the locations of the Company’s long-lived assets by geographic region as of March 31, 2024 and December 31, 2023:
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March 31, |
December 31, |
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2024 |
2023 |
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Long-lived assets by geographic region |
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United States |
$ | $ | ||||||
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International |
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Consolidated total long-lived assets |
$ | $ | ||||||
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12. |
Related Party Transactions |
As of March 31, 2024, the Company had no related party transactions, other than the Company’s transactions with its unconsolidated affiliate, Harmony. See Note 6 of these Notes to Condensed Consolidated Financial Statements (Unaudited).
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13. |
Leases |
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 March 31, 2024, related to the Company’s manufacturing facilities in Valdosta, Georgia, Nogales, Arizona and Salt Lake City, Utah, as well as the Company’s corporate headquarters in Aurora, Ontario, Canada.
As of March 31, 2024, the Company had operating lease right-of-use assets of $
The aggregate future minimum lease payments and reconciliation to lease liabilities as of March 31, 2024 were as follows:
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March 31, |
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2024 |
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Remaining nine months of 2024 |
$ | |||
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2025 |
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2026 |
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2027 |
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2028 |
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2029 |
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Thereafter |
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Total future minimum lease payments |
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Less imputed interest |
( |
) | ||
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Total lease liabilities |
$ | |||
As of March 31, 2024, the weighted average remaining lease term of the Company’s operating leases was
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14. |
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.
An employer generally does not claim a corporate income tax deduction (which would be in an amount equal to the amount of income recognized by the employee) upon the exercise of its employee's incentive stock options (“ISOs”) unless the employee does not meet the holding period requirements and sells early, making a disqualifying disposition, or if the options otherwise do not qualify as ISOs under applicable tax laws. With non-qualified stock options (“NQSOs”), on the other hand, the employer is typically eligible to claim a deduction upon its employee's exercise of the NQSOs.
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15. |
Contingencies |
On June 7, 2022, the Company filed a lawsuit (the “Lawsuit”) in Utah naming as defendants the vendors from which the Company ordered equipment for its facility in Utah (collectively the “Defendants”). The Lawsuit relates to certain equipment ordered from Defendants and paid for by the Company, which Defendants never delivered. In the Lawsuit the Company is seeking the following relief: compensatory damages in the amount $
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.
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16. |
Subsequent Events |
The Company has reviewed and evaluated whether subsequent events have occurred from the condensed consolidated balance sheet date of March 31, 2024 through the filing date of this Quarterly Report on Form 10-Q that would require accounting or disclosure and has concluded that there are no such subsequent events.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and the notes to our unaudited condensed consolidated financial statements, which appear elsewhere in this report, as well as our Annual Report on Form 10-K for year ended December 31, 2023, filed with the Securities and Exchange Commission (the “SEC”) on March 13, 2024 (the “2023 Form 10-K”).
Special Note Regarding Forward-Looking Statements
Certain information set forth in this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of federal securities laws. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions, including, without limitation, our expected orders, production levels and sales in 2024 and 2025, and other information that is not historical information. When used in this report, the words “estimates,” “expects,” “anticipates,” “forecasts,” “plans,” “intends,” “believes” and variations of such words or similar expressions are intended to identify forward-looking statements. We may make additional forward-looking statements from time to time. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise. All forward-looking statements, whether written or oral and whether made by us or on our behalf, are expressly qualified by this special note.
The following are some of the risks that could affect our financial performance or that could cause actual results to differ materially from those expressed or implied in our forward-looking statements:
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We are exposed to foreign currency exchange risks related to our unconsolidated affiliate operations in India |
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We are subject to risks associated with our joint venture. |
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The loss of any large customer or a reduction in orders from any large customer could reduce our net sales and harm our operating results. |
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We rely on suppliers and contractors, and our business could be seriously harmed if these suppliers and contractors are not able to meet our requirements. |
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Risks associated with international manufacturing could have a significant effect on our business. |
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Our success depends in part on protection of our intellectual property, and our failure to protect our intellectual property could adversely affect our competitive advantage, our brand recognition and our business. |
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Our industry is highly competitive, which may negatively affect our ability to grow our customer base and generate sales. |
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The Company’s results are affected by competitive conditions and customer preferences. |
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The Company’s growth objectives are largely dependent on the timing and market acceptance of our new product offerings, including our ability to continually renew our pipeline of new products and to bring those products to market. |
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Global economic conditions could adversely affect the Company’s business and financial results. |
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We are subject to risks related to climate change and natural disasters or other events beyond our control. |
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Security breaches and other disruptions to the Company’s information technology infrastructure could interfere with the Company’s operations, compromise information belonging to the Company and our customers and suppliers and expose the Company to liability, which could adversely impact the Company’s business and reputation. |
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The Company’s future results may be affected by various legal and regulatory proceedings and legal compliance risks. |
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Our common stock price is volatile, which could result in substantial losses for individual shareholders. |
The foregoing list of risks is not exclusive. For a more detailed discussion of the risk factors associated with our business, see the risks described in Part I, Item IA, “Risk Factors,” in the 2023 Form 10-K. These and many other factors could affect the Company’s future operating results and financial condition and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by the Company or on its behalf.
Special Note Regarding Smaller Reporting Company Status
We are filing this report as a “smaller reporting company” (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended). As a result of being a smaller reporting company, we are allowed and have elected to omit certain information from this Management’s Discussion and Analysis of Financial Condition and Results of Operations; however, we have provided all information for the periods presented that we believe to be appropriate.
Where to find more information about us. We make available, free of charge, on our website (http://www.alphaprotech.com) our most recent Annual Report on Form 10-K, any Current Reports on Form 8-K furnished or filed since our most recent Annual Report on Form 10-K, and any amendments to such reports, as soon as reasonably practicable following the electronic filing of such reports with the SEC. In addition, in accordance with SEC rules, we provide paper copies of our filings free of charge upon request.
Critical Accounting Policies and Estimates
The preparation of our financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of net sales and expenses during the periods reported. We base estimates on past experience and on various other assumptions that are believed to be reasonable under the circumstances. The application of these accounting policies on a consistent basis enables us to provide timely and reliable financial information. Our significant accounting policies and estimates are more fully described in Note 3 – “Summary of Significant Accounting Policies” in the notes to our consolidated financial statements in Item 8 of the 2023 Form 10-K. Since December 31, 2023, there have been no material changes to our critical accounting policies and estimates as described in the 2023 Form 10-K.
OVERVIEW
Alpha Pro Tech is in the business of protecting people, products and environments. We accomplish this by developing, manufacturing and marketing a line of high-value, disposable protective apparel and infection control products for the cleanroom, industrial, pharmaceutical, medical and dental markets through our wholly-owned subsidiary, Alpha Pro Tech, Inc. We also manufacture a line of building supply construction weatherization products through our wholly-owned subsidiary, Alpha ProTech Engineered Products, Inc. Our products are sold under the Alpha Pro Tech brand name, as well as under private label.
Our products are grouped into two business segments: (1) the Building Supply segment, consisting of construction weatherization products, such as housewrap, housewrap accessories including window and door flashing, and seam tape, synthetic roof underlayment and synthetic roof underlayment accessories, as well as other woven materials; and (2) the Disposable Protective Apparel segment, consisting of disposable protective garments (including shoecovers, bouffant caps, coveralls, gowns, frocks and lab coats), face masks and face shields. All financial information presented in this report reflects the current segmentation.
Our target markets include pharmaceutical manufacturing, bio-pharmaceutical manufacturing and medical device manufacturing, lab animal research, high technology electronics manufacturing (which includes the semi-conductor market), medical and dental distributors, and construction, building supply and roofing distributors.
Our products are used primarily in cleanrooms, industrial safety manufacturing environments, health care facilities, such as hospitals, laboratories and dental offices, and building and re-roofing sites. Our products are distributed principally in the United States through a network consisting of purchasing groups, national distributors, local distributors, independent sales representatives and our own sales and marketing force.
RESULTS OF OPERATIONS
The following table sets forth certain operational data as a percentage of net sales for the periods indicated:
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For the Three Months Ended March 31, |
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2024 |
2023 |
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Net sales |
100.0 | % | 100.0 | % | ||||
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Gross profit |
40.2 | % | 36.1 | % | ||||
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Selling, general and administrative expenses |
36.0 | % | 31.3 | % | ||||
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Income from operations |
2.4 | % | 3.1 | % | ||||
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Income before provision for income taxes |
5.4 | % | 5.0 | % | ||||
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Net income |
4.3 | % | 4.0 | % | ||||
Three months ended March 31, 2024 compared to three months ended March 31, 2023
Sales. Consolidated sales for the three months ended March 31, 2024, decreased to $13,482,000, from $13,800,000 for the three months ended March 31, 2023, representing a decrease of $318,000, or 2.3%. This decrease consisted of decreased sales in the Building Supply segment of $391,000, partially offset by increased sales in the Disposable Protective Apparel segment of $73,000.
Building Supply Segment
Building Supply segment sales for the three months ended March 31, 2024, decreased by $391,000, or 4.5%, to $8,240,000 compared to $8,631,000 for the three months ended March 31, 2023. The Building Supply segment decrease during the three months ended March 31, 2024, was primarily due to a 5.4% decrease in sales of synthetic roof underlayment and a 71.4% decrease in sales of other woven material, partially offset by a 24.3% increase in sales of housewrap compared to the same period of 2023. Our core Building Supply products, which includes sales of housewrap, and synthetic roof underlayment was up 7.6% in the first quarter of 2024 as compared to the same period of 2023.
The sales mix of the Building Supply segment for the three months ended March 31, 2024, was approximately 40% for synthetic roof underlayment, 56% for housewrap and 4% for other woven material. This compared to approximately 41% for synthetic roof underlayment, 45% for housewrap and 14% for other woven material for the three months ended March 31, 2023. Our synthetic roof underlayment product line primarily includes REX SynFelt®, REX TECHNOply® TECHNO SB and our housewrap product line primarily consists of REX Wrap®, REX Wrap Plus® and REX™ Wrap Fortis. Housewrap accessories consist of REXTREME Window and Door Flashing and REX™ Premium Seam Tape and our synthetic roof underlayment accessories consist of our new self- adhered TECHNOplus and REX Ultra HT.
The Building Supply segment continues to show strength, as it achieved 7.6% growth in sales of its core building products in the first quarter of 2024 from the prior year. This was accomplished even though there continues to be economic uncertainty in the housing market due to inflation, high interest rates and historical volatility during election years. Our housewrap and accessories sales continue to significantly outperform the market, with 24.3% growth in the first quarter compared to the prior year. Sales of our entry-level housewrap products (REX Wrap® and REX Wrap Plus®), were up by 22.0% over the prior year. We continue to make inroads into the multi-family and commercial construction section, with our premium housewrap line (REX™ Wrap Fortis), which was up 13.7% in the first quarter of 2024. We also experienced a 53.3% increase in sales of housewrap accessories in the first quarter compared to the prior year. Management expects that we will continue to see positive trends relative to the industry for both our entry level and premium housewrap and housewrap accessories product lines.
The synthetic roof underlayment market has also been affected by the uncertain economic conditions, more offshore competition and a push in the market to reduce product selling prices. Despite these pressures, our synthetic roof underlayment sales performed reasonably well, despite being down 5.4% in the first quarter of 2024 compared to the same period of 2023. We launched our new line of self-adhered roofing products in late 2023 and have already achieved revenue in the first quarter of 2024, and we expect continued revenue growth from this new product line within our current customer base and into new markets and business segments. Self-adhered roof underlayment has proven to be a good addition to our roof category. Market acceptance has been good as evidenced by our sales outpacing expectations. As we progress through the year, we expect these products will lead to additional conversions of our full line of mechanically fastened products. We are currently exploring additional products such as roof deck flashing. As building codes evolve, we see this as an opportunity to capture additional business, specifically in coastal and high wind markets.
Other woven material sales decreased by 71.4% in the first quarter of 2024 compared to the same period of 2023, due to one of our customers being acquired and deciding to go in a different direction. In addition, other woven material sales were affected by decreased sales to our major customer, which we believe is an order timing issue. The Company is pursuing new opportunities for other woven material sales that may improve sales, but management does not expect other woven material sales to be a growth driver in 2024.
Alpha Pro Tech’s investment in people and products are significantly contributing to our success. While attending the International Roofing Expo in February 2024, we announced our “Don’t Stop at the Dripedge” campaign. We are promoting the concept that roofing contractors can apply knowledge and techniques used to waterproof the top of the house and employ them to weatherize the walls. This effort could allow multi-faceted contractors to insulate themselves from any potential downturn in the new construction market by bringing higher value to their builders. If business remains robust, these forward-thinking contractors will reap the benefits of the additional business. We are working closely with our business partners to ensure they have the appropriate products, tools and training to support their efforts.
Management expects growth in the building supply segment in the coming year, especially in housewrap sales. While housing starts are weak nationally, we have continued to expand our market share. We also hope to build on our success within the multi-family and commercial segment and the single-family segment. However, there continues to be uncertainty in housing starts and the economy in general that could affect this segment.
Disposable Protective Apparel Segment
Sales for the Disposable Protective Apparel segment for the three months ended March 31, 2024, increased by $73,000, or 1.4%, to $5,242,000, compared to $5,169,000 for the same period of 2023. This segment increase was due to a 0.5% increase in sales of disposable protective garments, a 6.3% increase in sales of face masks and a 7.6% increase in sales of face shields.
The sales mix of the Disposable Protective Apparel segment for the three months ended March 31, 2024, was approximately 84% for disposable protective garments, 11% for face masks and 5% for face shields. This sales mix is compared to approximately 85% for disposable protective garments, 11% for face masks and 4% for face shields for the three months ended March 31, 2023.
Sales of disposable protective garments in the first quarter in 2024 were up by 0.5% because of increased sales to regional and national distributors, partially offset by decreased sales to our major international supply chain partner. However, this partner’s sales to its end users in the first quarter of 2024, calculated using our cost to them, were up approximately 24% compared to our sales to that partner, demonstrating demand for our products. Orders from this major international supply chain partner have been much stronger than normal recently, which we expect will result in higher sales in the coming quarter to this supply chain partner, compared to the current quarter. We expect continued growth for disposable protective garments in 2024.
Face mask and face shield sales are still suffering from the post COVID-19 residual excess inventories at the distributor level, but sales in the fourth quarter of 2023 and first quarter of 2024 showed improvement and approximately doubled as compared to the prior two quarters. The market continues to be saturated with products but we are cautiously optimistic that face mask and face shield sales will show growth in the coming year.
Gross Profit. Gross profit increased by $435,000, or 8.7%, to $5,417,000 for the three months ended March 31, 2024, from $4,982,000 for the three months ended March 31, 2023. The gross profit margin was 40.2% for the three months ended March 31, 2024, compared to 36.1% for the three months ended March 31, 2023.
The gross profit margin in 2024 was positively affected by a margin increase on both the Disposable Protective Apparel and Building Supply segments. Management expects the gross profit margin could be negatively affected by the ongoing wars in Ukraine and the middle east, which have resulted in increased freight rates.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $534,000, or 12.4%, to $4,847,000 for the three months ended March 31, 2024, from $4,313,000 for the three months ended March 31, 2023. As a percentage of net sales, selling, general and administrative expenses increased to 36.0% for the three months ended March 31, 2024, from 31.3% for 2023.
The change in expenses by segment for the three months ended March 31, 2024, was as follows: Disposable Protective Apparel was up by $108,000, or 8.6%; Building Supply was up by $100,000, or 5.3%; and corporate unallocated expenses were up by $326,000, or 27.8%. The increase in the Disposable Protective Apparel segment expenses was primarily related to increased employee compensation, tradeshow expenses, rent expenses, partially offset by decreased travel expenses and insurance expenses. The increase in the Building Supply segment expenses was related to increased employee compensation, sales commission and general factory expenses, partially offset by a decrease in travel expenses. The increase in corporate unallocated expenses was primarily due to increased employee compensation, stock option and restricted stock expenses, professional fees, insurance expenses and general office expenses.
In accordance with the terms of his employment agreement, the Company’s current President and Chief Executive Officer is entitled to an annual bonus equal to 5% of the pre-tax profits of the Company, excluding bonus expense, up to a maximum of $1.0 million. A bonus amount of $38,000 was accrued for the three months ended March 31, 2024, compared to $37,000 for the three months ended March 31, 2023.
Depreciation and Amortization. Depreciation and amortization expense increased by $1,000, or 0.4%, to $244,000 for the three months ended March 31, 2024, from $243,000 for the three months ended March 31, 2023.
Income from Operations. Income from operations decreased by $100,000, or 23.5%, to $326,000 for the three months ended March 31, 2024, compared to $426,000 for the three months ended March 31, 2023. The decreased income from operations was primarily due to an increase in selling, general and administrative expenses of $534,000 and an increase in depreciation and amortization expenses of $1,000 partially offset by an increase in gross profit of $435,000. Income from operations as a percentage of net sales for the three months ended March 31, 2024, was 2.4%, compared to 3.1% for 2023.
Other Income. Other income increased by $129,000 to income of $396,000 for the three months ended March 31, 2024, compared to $267,000 for the same period of 2023. The increase was primarily due to an increase in equity in income of unconsolidated affiliate of $29,000 and an increase in interest income of $100,000.
Income before Provision for Income Taxes. Income before provision for income taxes for the three months ended March 31, 2024, was $722,000, compared to income before provision for income taxes of $693,000 for the same period of 2023, representing an increase of $29,000, or 4.2%. This increase in income before provision for income taxes was due to an increase in other income of $129,000 partially offset by a decrease in income from operations of $100,000.
Provision for Income Taxes. The provision for income taxes for the three months ended March 31, 2024, was $146,000, compared to $141,000 for the same period of 2023. The estimated effective tax rate was 20.2% for the three months ended March 31, 2024, compared to 20.3% for the three months ended March 31, 2023. The Company does not record a tax provision on equity in income of unconsolidated affiliate, which reduces the effective tax rate.
Net Income. Net income for the three months ended March 31, 2024, was $576,000 compared to net income of $552,000 for the same period of 2023, representing an increase of $24,000, or 4.3%. The net income increase between 2024 and 2023 was due to an increase in income before provision for income taxes of $29,000 offset by an increase in provision for income taxes of $5,000. Net income as a percentage of net sales for the three months ended March 31, 2024, was 4.3%, and net income as a percentage of net sales for the same period of 2023 was 4.0%. Basic and diluted earnings per common share for each of the three months ended March 31, 2024 and 2023, were $0.05.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2024, the Company had cash and cash equivalents (“cash”) of $18,510,000 and working capital of $50,324,000. As of March 31, 2024, the Company’s current ratio (current assets/current liabilities) was 25:1, compared to a current ratio of 21:1 as of December 31, 2023. Cash decreased by 9.2%, or $1,868,000, to $18,510,000 as of March 31, 2024, compared to $20,378,000 as of December 31, 2023, and working capital decreased by $174,000 from $50,498,000 as of December 31, 2023. The decrease in cash from December 31, 2023, was due to cash used in operating activities of $1,169,000, cash used in investing activities of $83,000 and cash used in financing activities of $616,000.
Net cash provided used in operating activities of $1,169,000 for the three months ended March 31, 2024, was due to net income of $576,000, as adjusted primarily by the following: stock-based compensation expense of $109,000, depreciation and amortization expense of $244,000, equity in income of unconsolidated affiliate of $138,000, operating lease asset amortization of $162,000, an increase in accounts receivable of $938,000, a decrease in prepaid expenses of $383,000, an increase in inventory of $638,000, a decrease in accounts payable and accrued liabilities of $743,000, and an decrease in lease liabilities of $186,000, all compared to December 31, 2023.
Accounts receivable increased by $938,000, or 14.3%, to $7,483,000 as of March 31, 2024, from $6,545,000 as of December 31, 2023. The increase in accounts receivable was primarily related to decreased accrued rebates. The number of days that sales remained outstanding as of March 31, 2024, calculated by using an average of accounts receivable outstanding and annual revenue, was 47 days, compared to 40 days as of December 31, 2023. The increase in days was due to higher sales in the last month of the first quarter of 2024 compared to the last month of 2023.
Inventory increased by $638,000, or 3.2%, to $20,769,000 as of March 31, 2024, from $20,131,000 as of December 31, 2023. The increase was due to an increase in inventory for the Building Supply segment of $1,436,000, or 20.6%, to $8,406,000, partially offset by a decrease in inventory for the Disposable Protective Apparel segment of $798,000, or 6.1%, to $12,363,000,
Prepaid expenses decreased by $383,000, or 6.4%, to $5,627,000 as of March 31, 2024, from $6,010,000 as of December 31, 2023. The decrease was primarily due to decreased prepaid inventory and prepaid tax.
Right-of-use assets as of March 31, 2024, increased by $4,641,000 to $9,451,000 from $4,810,000 as of December 31, 2023, primarily as a result of our new Nogales, Arizona lease offset by amortization of the right of use asset.
Lease liabilities as of March 31, 2024, increased by $4,617,000 to $9,465,000 from $4,848,000 as of December 31, 2023. The increase in the lease liabilities was primarily the result of our new Nogales, Arizona lease in March 2024 and the assumption we will lease that facility for at least 5 years, partially offset by lease payments made during the year.
Accounts payable and accrued liabilities as of March 31, 2024, decreased by $743,000, or 39.0%, to $1,162,000, from $1,905,000 as of December 31, 2023. The decrease was primarily due to a decrease in accrued bonuses.
Net cash used in investing activities was $83,000 for the three months ended March 31, 2024, compared to net cash used in investing activities of $289,000 for the same period of 2023. Investing activities for the three months ended March 31, 2024 and 2023, consisted of the purchase of property and equipment.
Net cash used in financing activities was $616,000 for the three months ended March 31, 2024, compared to net cash used in financing activities of $483,000 for the same period of 2023. Net cash used in financing activities for the three months ended March 31, 2024, resulted from the payment of $1,417,000 for the repurchase of common stock and $14,000 for treasury stock excise tax, partially offset by $815,000 in proceeds from the exercise of stock options. Net cash used in financing activities for the three months ended March 31, 2023, resulted from the payment of $833,000 for the repurchase of common stock, partially offset by $350,000 in proceeds from the exercise of stock options.
As of March 31, 2024, we had $777,000 available for stock purchases under our stock repurchase program. During the three months ended March 31, 2024, we repurchased 270,000 shares of common stock at a cost of $1,417,000. As of March 31, 2024, we had repurchased a total of 20,681,627 shares of common stock at a cost of approximately $51,743,000 through our repurchase program which commenced in 1999. We retire all stock upon repurchase. Future repurchases are expected to be funded from cash on hand and cash flows from operating activities.
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.
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 15, 2024. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements.
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses, and is effective for fiscal years beginning after December 31, 2023 and for interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. The Company is currently evaluating the impact of this standard on the consolidated financial statements.
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information otherwise required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures.
Under the supervision and with the participation of our management, including our President and Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of March 31, 2024, pursuant to the evaluation of these controls and procedures required by Rule 13a-15 of the Exchange Act. Disclosure controls and procedures are the controls and other procedures that we have designed to ensure that we record, process, summarize and report in a timely manner the information that we must disclose in reports that we file with or submit to the SEC under the Exchange Act, and such controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.
In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and that we are required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Based on the evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by this report.
Changes in Internal Control Over Financial Reporting
During the quarter to which this report relates, there was no change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On June 7, 2022, the Company filed a lawsuit (the “Lawsuit”) in Utah naming as defendants the vendors from which the Company ordered equipment for its facility in Utah (collectively the “Defendants”). The Lawsuit relates to certain equipment ordered from Defendants and paid for by the Company, which Defendants never delivered. In the Lawsuit the Company is seeking the following relief: compensatory damages in the amount $490,000, representing the money the Company paid for the machines it never received, lost profits in the form of mask sales it could have made if Defendants had delivered the machines on the promised date, and other monetary and equitable relief. In 2022, the Company wrote off the $490,000 balance of the deposit paid for the equipment, pending any recovery in the Lawsuit. As of the date hereof, no counterclaims have been asserted against the Company. The Company believes there would not be any meritorious claims against the Company in the Lawsuit. The final outcome of the Lawsuit, including the potential amount of any recovery for the Company’s claims, is uncertain. Any potential recovery represents a gain contingency in accordance with ASC 450, Contingencies, that has not been recorded as the matter was not resolved as of March 31, 2024. Any recovery will be recorded when received.
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.
ITEM 1A. RISK FACTORS
A list of factors that could materially affect our business, financial condition or operating results is described in Part I, Item 1A, “Risk Factors” in the 2023 Form 10-K. There have been no material changes to our risk factors from those disclosed in Part I, Item 1A, “Risk Factors” in the 2023 Form 10-K.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES
The following table sets forth purchases made by or on behalf of the Company or any “affiliated purchaser,” as defined in Rule 10b-18(a)(3) of the Exchange Act:
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Issuer Purchases of Equity Securities |
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Period |
Total Number of Shares Purchased (1) |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Program (1) |
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January 1 - 31, 2024 |
166,000 | $ | 5.15 | 166,000 | ||||||||
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February 1 - 29, 2024 |
72,700 | 5.07 | 72,700 | |||||||||
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March 1 - 31, 2024 |
31,300 | 5.84 | 31,300 | |||||||||
| 270,000 | $ | 5.21 | 270,000 | |||||||||
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(1) |
On November 27, 2023, the Company announced that the Board of Directors had authorized a $2,000,000 expansion of the Company’s existing share repurchase program. All the shares included in this table were purchased pursuant to this program. Since the inception of the share repurchase program in 1999, the Company has authorized the repurchase of $52,402,000 of common stock, of which $777,000 was available for repurchase as of March 31, 2024. The stock repurchase plan expires on December 15, 2024. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
We did not sell any unregistered equity securities during the periods covered by this Quarterly Report on Form 10-Q.
ITEM 5. OTHER INFORMATION
(a) On February 26, 2024, the Company’s subsidiary, Alpha Pro Tech, Inc., entered into the Commercial Lease and Deposit Receipt effective as of March 1, 2024, with Nogales Property Management (the “Nogales Lease”). Pursuant to the Nogales Lease, the Company leases the Disposable Protective Apparel segment’s manufacturing, warehousing and shipping facility in Nogales, Arizona, with 137,500 square feet. The Nogales Lease is for a term of five years with initial monthly lease payments of $75,968, which increase by 3% per year after the first lease year. The Nogales Lease provides the Company with an option to renew for an additional year, upon at least 60 days’ prior notice by the Company, at a monthly rate to be negotiated at the time of renewal.
On December 5, 2023, the Company’s subsidiary, Alpha ProTech Engineered Products, Inc., entered into the Lease Agreement effective as of January 1, 2024, with Edward Jennings, LLC (the “Valdosta Lease”). Pursuant to the Valdosta Lease, the Company leases the Building Supply segment’s manufacturing facility is located in Valdosta, Georgia, with 165,400 square feet. The Valdosta Lease is for a term of ten years with initial monthly lease payments of $39,000, which are adjusted each year after the fifth lease year by any increase or decrease in the Consumer Price Index published by the Bureau of labor Statistics. The Valdosta Lease provides the Company with an option to extend the lease for an additional term of 60 months, upon at least 180 days’ prior notice by the Company.
(b) None.
(c) During the period covered by this report, of the Company’s directors or executive officers adopted or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement (each as defined in Item 408 of Regulation S-K under the Securities Exchange Act of 1934, as amended).
ITEM 6. EXHIBITS
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3.1.1(P) |
Certificate of Incorporation of Alpha Pro Tech, Ltd., incorporated by reference to Exhibit 3(f) to Form 10-K for the year ended December 31, 1994, filed on March 31, 1995 (File No. 000-19893). |
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3.1.2(P) |
Certificate of Amendment of Certificate of Incorporation of Alpha Pro Tech, Ltd., incorporated by reference to Exhibit 3(j) to Form 10-K for the year ended December 31, 1994, filed on March 31, 1995 (File No. 000-19893). |
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3.1.3(P) |
Certificate of Ownership and Merger (BFD Industries, Inc. into Alpha Pro Tech, Ltd.), incorporated by reference to Exhibit 3(l) to Form 10-K for the year ended December 31, 1994, filed on March 31, 1995 (File No. 000-19893). |
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3.2 |
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| 10.1 | Lease Agreement, effective as of January 1, 2024, by and between Alpha ProTech Engineered Products, Inc. and Edward Jennings, LLC. |
| 10.2 | Commercial Lease and Deposit Receipt, effective as of March 1, 2024, by and between the Alpha Pro Tech, Inc., and Nogales Property Management. |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101 |
Interactive Data Files for Alpha Pro Tech, Ltd’s Form 10-Q for the period ended March 31, 2024, formatted in Inline XBRL. |
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104 |
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| (P) Indicates a paper filing with the SEC. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ALPHA PRO TECH, LTD. | |||||
| DATE: | May 9, 2024 | BY: | /s/Lloyd Hoffman | ||
| Lloyd Hoffman | |||||
| President and Chief Executive Officer | |||||
| DATE: | May 9, 2024 | BY: | /s/Colleen McDonald | ||
| Colleen McDonald | |||||
| Chief Financial Officer | |||||