Note 7 - Equity Investments in Unconsolidated Affiliate

12 Months Ended

Dec. 31, 2016

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

7. Equity Investments in Unconsolidated Affiliate

In

2005,

Alpha ProTech Engineered Products, Inc. (a subsidiary of Alpha Pro Tech, Ltd.) entered into a joint venture with a manufacturer in India for the production of building products. Under the terms of the joint venture agreement, a private company, Harmony Plastics Private Limited (“Harmony”), was created with ownership interests of

41.66%

by Alpha ProTech Engineered Products, Inc. and

58.34%

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. The joint venture also supplies products for the Disposable Protective Apparel segment.

The capital from the initial funding and a bank loan, which loan is guaranteed exclusively by the individual shareholders of Maple Industries and Associates and collateralized by the assets of Harmony, were utilized to purchase the original manufacturing facility in India. Harmony currently has

four

facilities in India

(three

owned and

one

rented), consisting of:

(1)

a

102,000

square foot building for manufacturing building products;

(2)

a

71,500

square foot building for manufacturing coated material and sewing proprietary disposable protective apparel;

(3)

a

16,000

square foot facility for sewing proprietary disposable protective apparel;

(4)

a

93,000

square foot rental for manufacturing of building 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 or not 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 investments in unconsolidated affiliate” in the accompanying balance sheets. The Company records its equity interest in Harmony’s results of operations as “equity in income of unconsolidated affiliate” in the accompanying statements of income. The Company reviews annually its investment in Harmony for impairment. Management has determined that

no

impairment existed as of

December

31,

2016

and

2015.

For the years ended

December

31,

2016

and

2015,

the Company purchased

$12,761,000

and

$14,272,000

of inventories, respectively, from Harmony. For the years ended

December

31,

2016

and

2015,

the Company recorded equity in income of unconsolidated affiliate of

$498,000

and

$32,000,

respectively.

As of

December

31,

2016,

the Company’s investment in Harmony was

$3,538,000,

which consisted of its original

$1,450,000

investment and cumulative equity in income of unconsolidated affiliate of

$3,107,000,

less

$942,000

in repayments of an advance and payments of

$77,000

in dividends.