Significant Accounting Policies (Policies)

12 Months Ended

Dec. 31, 2018

Consolidation, Policy [Policy Text Block]

Principles of

onsolidation

The consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiaries, Alpha Pro Tech, Inc. and Alpha ProTech Engineered Products, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.

Events that occurred after

December 31, 2018

through the date on which these financial statements were filed with the Securities and Exchange Commission (“SEC”) were considered in the preparation of these financial statements.

Use of Estimates, Policy [Policy Text Block]

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from these estimates.

Basis of Accounting, Policy [Policy Text Block]

Periods

resented

All amounts have been rounded to the nearest thousand with the exception of the share data. The Company qualified as a smaller reporting company at the measurement date for determining such qualification during

2018.

According to the disclosure requirements for smaller reporting companies, the Company has included balance sheets as of the end of the

two

most recent years and statements of income, comprehensive income, shareholders’ equity and cash flows for each of the

two

most recent years.

Marketable Securities, Policy [Policy Text Block]

Investments

The Company periodically invests a portion of its cash in excess of short-term operating needs in marketable equity securities. These investments are classified as available-for-sale in accordance with U.S. GAAP. The Company does

not

have any investments in securities that are classified as held-to-maturity or trading. Available-for-sale investments are carried at their fair values using quoted prices in active markets for identical securities, with realized and unrealized gains and losses reported in net income. Prior to

January 1, 2018,

unrealized gains and losses net of tax, were reported as a component of accumulated other comprehensive income (loss), and declines in value deemed to be other-than-temporary on available-for-sale investments, were recognized in net income. The cost of securities sold is based on the specific identification method. Investments that the Company intends to hold for more than

one

year are classified as long-term investments in the accompanying balance sheets.

Receivables, Policy [Policy Text Block]

Accounts Receivable

Accounts receivable are recorded at the invoice amount and do

not

bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable; however, changes in circumstances relating to accounts receivable

may

result in a requirement for additional allowances in the future. The Company determines the allowance based upon historical write-off experience and known conditions about its customers’ current ability to pay. Account balances are charged against the allowance when management determines that the probability for collection is remote.

Inventory, Policy [Policy Text Block]

Inventories

Inventories include freight-in, materials, labor and overhead costs and are stated at the lower of cost or net realizable value. Allowances are recorded for slow-moving, obsolete or unusable inventories. The Company assesses inventories for estimated obsolescence or unmarketable products and writes down the difference between the cost of the inventories and the estimated net realizable values based upon assumptions about future sales and supplies on-hand.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and

quipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Costs to develop internal use software are charged to expense as incurred until the preliminary project stage has been completed and application development begins. The Company discontinues capitalization upon entering the post-implementation stage and expenses ongoing maintenance and support costs. Property and equipment are depreciated or amortized using the straight-line method over the shorter of the respective useful lives of the assets or the related lease terms as follows:

Buildings (in years)		25
Machinery and equipment (in years)	5	-	15
Office furniture and equipment (in years)	2	-	7
Leasehold improvements (in years)	4	-	5
Software (in years)		5

Expenditures for renewals and betterments are capitalized, whereas costs of maintenance and repairs are charged to operations in the period incurred.

Goodwill and Intangible Assets, Goodwill, Policy [Policy Text Block]

Goodwill and Intangible

ssets

The Company accounts for goodwill and definite-lived intangible assets in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)

350,

Intangibles – Goodwill and Other

. Goodwill is

not

amortized, but rather is tested annually for impairment. Intangible assets with finite lives are amortized over their useful lives (see Note

). The Company’s patents and trademarks are recorded at cost and are amortized using the straight-line method over their estimated useful lives of

years.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

The estimated fair values of financial instruments are determined based on relevant market information and cannot be determined with precision. The Company’s financial instruments consist primarily of cash and marketable securities.

The Company’s marketable securities are classified as available-for-sale and are carried at fair market value based on quoted market prices.

Impairment or Disposal of Long-Lived Assets, Policy [Policy Text Block]

Impairment of

ong-

ived

ssets

The Company reviews long-lived assets for impairment whenever events or changes in its business circumstances indicate that the carrying amounts of the assets

may

not

be fully recoverable. If it is determined that the undiscounted future net cash flows are

not

sufficient to recover the carrying values of the assets, an impairment loss is recognized for the excess of the carrying values over the fair values of the assets. The Company believes that the future undiscounted net cash flows to be received from its long-lived assets exceed the assets’ carrying values and, accordingly, the Company has

not

recognized any impairment losses for the years ended

December 31, 2018

and

2017.

Revenue Recognition, Policy [Policy Text Block]

Revenue

ecognition

As of

January 1, 2018

the Company adopted the new accounting standard, ASU

2014

09.

This standard was retrospectively adopted for the

2017

year, and there was

cumulative effect upon adoption. Net sales include products and shipping and handling charges, net of estimates for product returns and any related sales incentives. Revenue is measured as the amount of consideration that we expect to receive in exchange for transferring products. All revenue is recognized when we satisfy our performance obligations under the contract. We recognize revenue by transferring the promised products to the customer, with revenue being recognized at the point in time when the customer obtains control of the products, at which time a receivable is created for the invoice sent to the customer. We recognize revenue for shipping and handling charges at the time the products are delivered to or picked up by the customer. We estimate product returns based on historical return rates and rebates based upon contractual agreements. Using probability assessments, we estimate sales incentives expected to be paid over the term of the contract. Our contracts have a single performance obligation. Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. The Company manufactures certain private label goods for customers and has determined that control does

not

pass to the customer at the time of manufacture, based upon the nature of the private labelling. The Company had

material contract assets, and the Company concluded that its contract liabilities (mostly rebates) had the right of offset against customer receivables.

Revenue from Contract with Customer, Shipping and Handling, Policy [Policy Text Block]

Shipping and Handling Costs

The costs of shipping products to distributors are recorded in cost of goods sold.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock

Based Compensation

The Company maintains a stock option plan under which the Company

may

grant incentive stock options and non-qualified stock options to employees and non-employee directors. Stock options have been granted with exercise prices at or above the fair market value of the underlying shares of common stock on the date of grant. Options vest and expire according to terms established at the grant date.

The Company accounts for share-based awards in accordance with ASC

718,

Stock Compensation

. ASC

718

requires companies to record compensation expense for the value of all outstanding and unvested share-based awards, including employee stock options.

For the years ended

December 31, 2018

and

2017,

there were

349,750

and

85,000

stock options granted, respectively, under the Company’s option plan. The Company recognized

$432,000

and

$296,000

in share-based compensation expense for the years ended

December 31, 2018

and

2017,

respectively, related to outstanding options.

Income Tax, Policy [Policy Text Block]

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.

The Tax Cuts and Jobs Act (the “Tax Act”) was enacted in

December 2017.

The Tax Act significantly changed U.S. tax law by, among other things, lowering U.S. corporate income tax rates, implementing a territorial tax system and imposing a

one

-time transition tax on deemed repatriated earnings of foreign subsidiaries. The Tax Act reduced the U.S. corporate income tax rate from

35%

21%,

effective

January 1, 2018.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse. As a result of the reduction in the U.S. corporate income tax rate from

35%

21%

under the Tax Act, we revalued our ending net deferred tax assets at

December 31, 2017 (

Earnings

Per

Common

The following table provides a reconciliation of both net income and the number of shares used in the computation of “basic” earnings per common share (“EPS”), which utilizes the weighted average number of common shares outstanding without regard to potential common shares, and “diluted” EPS, which includes all potential common shares which are dilutive for the years ended

December 31, 2018

and

2017.

	Years Ended December 31,
	2018		2017

Net income (numerator)	$	3,625,000	$	2,633,000

Shares (denominator):
Basic weighted average common shares outstanding		13,909,688		14,825,600
Add: Dilutive effect of common stock options		53,131		167,409

Diluted weighted average common shares outstanding		13,962,819		14,993,009

Earnings per common share:
Basic	$	0.26	$	0.18
Diluted	$	0.26	$	0.18

Foreign Currency Transactions and Translations Policy [Policy Text Block]

Translation of

oreign

urrencies

Transactions in foreign currencies are translated into U.S. dollars at the exchange rate prevailing at the transaction date. Monetary assets and liabilities in foreign currencies at each period end are translated at the exchange rate in effect at that date. Transaction gains or losses on foreign currencies are reflected in selling, general and administrative expenses and were

not

material for the years ended

December 31, 2018

and

2017.

The Company does

not

have a material foreign currency exposure due to the fact that all purchase agreements with companies in Asia and Mexico are in U.S. dollars. In addition, all sales transactions are in U.S. dollars. The Company’s only foreign currency exposure is with its Canadian branch office. The foreign currency exposure is

not

material due to the fact that the Company does

not

manufacture in Canada. The exposure primarily relates to payroll expenses in the Company’s administrative branch office in Canada.

Research and Development Expense, Policy [Policy Text Block]

Research and Development

Costs

Research and development costs are expensed as incurred and are included in selling, general and administrative expenses. Such costs were

not

material for the years ended

December 31, 2018

and

2017.

Advertising Costs, Policy [Policy Text Block]

Advertising Costs

The Company expenses advertising costs as incurred. These costs are included in selling, general and administrative expenses and were

$32,000

and

$46,000

for the years ended

December 31, 2018

and

2017,

respectively.

Commitments and Contingencies, Policy [Policy Text Block]

Loss Contingencies

The outcomes of legal proceedings and claims brought against the Company are subject to uncertainty. An estimated loss from a loss contingency such as a legal proceeding or claim is accrued if it is probable that an asset has been impaired or a liability has been incurred and the amount of the loss can be reasonably estimated. In determining whether a loss should be accrued, we evaluate, among other factors, the degree of probability of an unfavorable outcome and the ability to make a reasonable estimate of the amount of loss.

Fair Value Measurement, Policy [Policy Text Block]

Fair

alue

Measurements

ASC

820,

Fair Value Measurements and Disclosures

, establishes a framework for measuring fair value in accordance with U.S. GAAP, clarifies the definition of fair value within that framework and expands disclosures about the use of fair value measurements. On a quarterly basis, the Company measures at fair value certain financial assets using a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions. The following fair value hierarchy prioritizes the inputs into

three

broad levels.

This hierarchy requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when determining fair value. The fair values of the Company’s financial assets as of

December

31,

2018

and

2017

were determined using the following levels of inputs:

• Level

1—Quoted

prices for identical instruments in active markets;

• Level

2—Quoted

prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are

not

active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

• Level

3—Valuations

derived from valuation techniques in which

one

or more significant inputs or significant value drivers are unobservable.

	Fair Value Measurements as of December 31,
	Total		Level 1		Level 2		Level 3
Assets:
Marketable securities 2018	$	258,000	$	258,000	$	-	$	-
Marketable securities 2017		343,000		343,000		-		-

The fair values for the marketable securities, classified as Level

were obtained from quoted market prices.

New Accounting Pronouncements, Policy [Policy Text Block]

New Accounting Standards

Effective

January 1, 2018,

we adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”)

2014

09,

Revenue from Contracts with Customers (Topic

606

), and ASU

2015

14,

Revenue from Contracts with Customers (Topic

606

): Deferral of Effective Date, which deferred the effective date of ASU

2014

one

year. ASU

2014

supersedes the revenue recognition requirements in ASC

605,

Revenue Recognition, and is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. It also requires additional disclosure about the nature, amount, timing and uncertainty of revenue, cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. The adoption of ASU

2014

09,

using the modified retrospective approach, had

significant impact on our results of operations, cash flows or financial position. Revenue continues to be recognized at a point in time for our product sales when products are delivered to or picked up by the customer, and revenue for shipping and handling charges continues to be recognized when products are delivered to or picked up by the customer. We continue to reduce revenue for estimates of sales incentives based on probability estimates and for product returns based on historical return rates.

January 2016,

the FASB issued ASU

2016

01,

Financial Instruments - Overall (Subtopic

825

): Recognition and Measurement of Financial Assets and Financial Liabilities, which provides guidance for the recognition, measurement, presentation and disclosure of financial instruments. The new guidance revises the accounting requirements related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The guidance also changes certain disclosure requirements associated with the fair value of financial instruments. These changes will require an entity to measure, at fair value, investments in equity securities and other ownership interests in an entity and recognize the changes in fair value within net income. The guidance is effective for fiscal years and interim periods within those years beginning after

December 15, 2017.

As a result of adopting this guidance effective

January 1, 2018,

the Company recorded a cumulative-effect adjustment to reclassify the

$458,000

accumulated other comprehensive loss balance to retained earnings, which balance was the result of unrealized losses on marketable securities. Effective

January 1, 2018,

unrealized gains and losses on marketable securities are recorded in the consolidated statement of income.

February 2016,

the FASB issued ASU

2016

02,

Leases, which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The update is effective for annual reporting periods beginning after

December 15, 2018,

including interim periods within those reporting periods, with early adoption permitted. The original guidance required application on a modified retrospective basis with the earliest period presented. In

August 2018,

the FASB issued ASU

2018

11,

Targeted Improvements to ASC

842,

which includes an option to

not

restate comparative periods in transition and elect to use the effective date of ASC

842,

Leases, as the date of initial application of transition. Based on the effective date, this guidance will apply and we will adopt this ASU beginning on

January 1, 2019

and plan to elect the transition option provided under ASU

2018

11.

We expect this standard will have a material effect on our consolidated balance sheets with the recognition of new right of use assets and lease liabilities for all operating leases, as these leases typically have a non-cancelable lease term of greater than

one

year. Upon adoption, we estimate that both assets and liabilities on our consolidated balance sheets will increase by approximately

$4,179,000

Changes in our lease population or changes in incremental borrowing rates

may

alter this estimate. We will expand our consolidated financial statement disclosures upon adoption of this standard.

March 2016,

the FASB issued ASU

2016

09,

Compensation - Stock Compensation (Topic

718

): Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The provisions of this guidance were effective for annual reporting periods beginning after

December 15, 2016

and interim periods within those annual periods, with early adoption permitted. The Company adopted this guidance during the quarter ended

March 31, 2017,

and the Company recorded a

one

-time

$866,000

cumulative-effect adjustment to reduce additional paid-in capital and increase retained earnings for excess tax benefits from stock option exercises that had previously been recorded to additional paid-in capital. The adoption of this guidance also increased the number of dilutive shares because excess tax benefits are

longer included in the assumed proceeds when calculating the number of dilutive shares. In addition, the effective tax rate will be reduced in future periods when there are excess tax benefits from stock options exercised.

June 2016,

the FASB issued ASU

2016

Financial Instruments - Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments. ASU

2016

requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. ASU

2016

is effective for public entities for the annual periods, including interim periods within those annual periods, beginning after

December 15, 2019.

This guidance is applicable to the Company’s fiscal year beginning

January 1, 2020.

Management is currently evaluating the requirements of this guidance and has

not

yet determined the impact on the adoption of the Company’s financial position or results from operations.

June 2018,

the FASB issued ASU

No.

2018

07,

Compensation - Stock Compensation (Topic

718

), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with accounting for employee share-based compensation. ASU

2018

is effective for annual periods beginning after

December 15, 2018

and interim periods within those annual periods, with early adoptions permitted but

earlier than an entity’s adoption date of ASC Topic

606.

The new guidance is required to be applied retrospectively with the cumulative effect recognized at the date of initial application. We will adopt the provisions of this ASU in the

first

quarter of

2019.

Adoption of the new standard is

not

expected to have a material impact on our 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.