10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2019

OR

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

For the transition period from      to      .

 Commission File No. 01-15725

Alpha Pro Tech, Ltd.

(Exact Name of Registrant as Specified in Its Charter)

Delaware, U.S.A.	63-1009183
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
60 Centurian Drive, Suite 112 Markham, Ontario, Canada	L3R 9R2
(Address of Principal Executive Offices)	(Zip Code)

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value	APT	NYSE American

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

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

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

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

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

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

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

Class	Outstanding November 1, 2019
Common Stock, $0.01 par value	13,021,171 shares

Alpha Pro Tech, Ltd.

Index

PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements	page
	Condensed Consolidated Balance Sheets (Unaudited)	1
	Condensed Consolidated Statements of Income (Unaudited)	2
	Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows (Unaudited)	4
	Notes to Condensed Consolidated Financial Statements (Unaudited)	5
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	22
ITEM 4.	Controls and Procedures	22
PART II. OTHER INFORMATION
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
ITEM 6.	Exhibits	24
SIGNATURES		25
EXHIBITS

Alpha Pro Tech, Ltd.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets (Unaudited)

	September 30,		December 31,
	2019		2018 (1)
Assets
Current assets:
Cash	$	5,106,000	$	7,007,000
Investments		348,000		258,000
Accounts receivable, net of allowance for doubtful accounts of $58,000 and $64,000 as of September 30, 2019 and December 31, 2018		5,414,000		4,935,000
Accounts receivable, related party		755,000		383,000
Inventories		11,255,000		9,878,000
Right-of-use assets		682,000		-
Prepaid expenses		3,144,000		3,999,000
Total current assets		26,704,000		26,460,000
Property and equipment, net		4,002,000		3,244,000
Goodwill		55,000		55,000
Definite-lived intangible assets, net		13,000		16,000
Right-of-use assets, net of current portion		2,239,000		-
Equity investment in unconsolidated affiliate		4,851,000		4,480,000
Total assets	$	37,864,000	$	34,255,000
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	674,000	$	578,000
Accrued liabilities		844,000		1,342,000
Lease liabilities		670,000		-
Total current liabilities		2,188,000		1,920,000
Lease liabilities, net of current portion		2,292,000		-
Deferred income tax liabilities, net		141,000		141,000
Total liabilities		4,621,000		2,061,000
Commitments
Shareholders' equity:
Common stock, $.01 par value: 50,000,000 shares authorized; 13,004,507 and 13,502,684 shares outstanding as of September 30, 2019 and December 31, 2018, respectively		130,000		135,000
Additional paid-in capital		1,058,000		2,669,000
Retained earnings		32,055,000		29,390,000
Total shareholders' equity		33,243,000		32,194,000
Total liabilities and shareholders' equity	$	37,864,000	$	34,255,000

(1) The condensed consolidated balance sheet as of December 31, 2018 has been prepared using information from the audited consolidated balance sheet as of that date.

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

1

Alpha Pro Tech, Ltd.

Condensed Consolidated Statements of Income (Unaudited)

	For the Three Months Ended					For the Nine Months Ended
	September 30,					September 30,
	2019			2018		2019		2018
Net sales	$	12,027,000		$	12,104,000	$	35,745,000	$	35,655,000
Cost of goods sold, excluding depreciation and amortization		7,807,000			7,519,000		22,616,000		21,896,000
Gross profit		4,220,000			4,585,000		13,129,000		13,759,000
Operating expenses:
Selling, general and administrative		3,172,000			2,676,000		10,108,000		10,024,000
Depreciation and amortization		142,000			140,000		410,000		430,000
Total operating expenses		3,314,000			2,816,000		10,518,000		10,454,000
Income from operations		906,000			1,769,000		2,611,000		3,305,000
Other income:
Equity in income of unconsolidated affiliate		10,000			103,000		371,000		393,000
Gain (loss) on marketable securities		(387,000	)		25,000		223,000		(40,000	)
Interest income, net		18,000			1,000		52,000		2,000
Total other income (loss)		(359,000	)		129,000		646,000		355,000
Income before provision for income taxes		547,000			1,898,000		3,257,000		3,660,000
Provision for income taxes		110,000			359,000		592,000		653,000
Net income	$	437,000		$	1,539,000	$	2,665,000	$	3,007,000
Basic earnings per common share	$	0.03		$	0.11	$	0.20	$	0.21
Diluted earnings per common share	$	0.03		$	0.11	$	0.20	$	0.21
Basic weighted average common shares outstanding		13,056,173			13,795,007		13,209,598		14,031,518
Diluted weighted average common shares outstanding		13,075,692			13,853,619		13,238,026		14,076,033

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

2

Alpha Pro Tech, Ltd.

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

For the Nine Months Ended September 30, 2019

							Additional
	Common Stock						Paid-in			Retained
	Shares			Amount			Capital			Earnings		Total
Balance as of December 31, 2018		13,502,684		$	135,000		$	2,669,000		$	29,390,000	$	32,194,000
Net income		-			-			-			1,218,000		1,218,000
Common stock repurchased and retired		(255,000	)		(2,000	)		(1,006,000	)		-		(1,008,000	)
Stock-based compensation expense		-			-			122,000			-		122,000
Options exercised		33,334			-			60,000			-		60,000
Balance as of March 31, 2019		13,281,018		$	133,000		$	1,845,000		$	30,608,000	$	32,586,000
Net income		-			-			-			1,010,000		1,010,000
Common stock repurchased and retired		(172,000	)		(2,000	)		(626,000	)		-		(628,000	)
Stock-based compensation expense		-			-			138,000			-		138,000
Options exercised		-			-			-			-		-
Balance as of June 30, 2019		13,109,018		$	131,000		$	1,357,000		$	31,618,000	$	33,106,000
Net income		-			-			-			437,000		437,000
Common stock repurchased and retired		(121,010	)		(1,000	)		(427,000	)		-		(428,000	)
Stock-based compensation expense		-			-			93,000			-		93,000
Options exercised		16,499			-			35,000			-		35,000
Balance as of September 30, 2019		13,004,507			130,000			1,058,000			32,055,000		33,243,000

For the Nine Months Ended September 30, 2018

										Accumulated
							Additional			Other
	Common Stock						Paid-in			Comprehensive			Retained
	Shares			Amount			Capital			Loss			Earnings			Total
Balance as of December 31, 2017		14,290,749		$	143,000		$	5,415,000		$	(458,000	)	$	26,223,000		$	31,323,000
Net income											-			508,000			508,000
Cumulative-effect adjustment of change in accounting for unrealized loss on marketable securities		-			-			-			458,000			(458,000	)		-
Common stock repurchased and retired		(153,000	)		(1,000	)		(575,000	)		-			-			(576,000	)
Stock-based compensation expense					-			78,000			-			-			78,000
Options exercised		50,000			-			77,000			-			-			77,000
Balance as of March 31, 2018		14,187,749		$	142,000		$	4,995,000		$	-		$	26,273,000		$	31,410,000
Net income		-			-			-			-			959,000			959,000
Common stock repurchased and retired		(300,000	)		(4,000	)		(1,037,000	)		-			-			(1,041,000	)
Stock-based compensation expense		-			-			118,000			-			-			118,000
Options exercised		21,667			1,000			42,000			-			-			43,000
Balance as of June 30, 2018		13,909,416		$	139,000		$	4,118,000		$	-		$	27,232,000		$	31,489,000
Net income		-			-			-			-			1,540,000			1,540,000
Common stock repurchased and retired		(340,000	)		(3,000	)		(1,208,000	)		-			-			(1,211,000	)
Stock-based compensation expense		-			-			116,000			-			-			116,000
Options exercised		60,167			-			104,000			-			-			104,000
Balance as of September 30, 2018		13,629,583		$	136,000		$	3,130,000		$	-		$	28,772,000		$	32,038,000

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

3

Alpha Pro Tech, Ltd.

Condensed Consolidated Statements of Cash Flows (Unaudited)

	For the Nine Months Ended September 30,
	2019			2018
Cash Flows From Operating Activities:
Net income	$	2,665,000		$	3,007,000
Adjustments to reconcile net income to net cash used in operating activities:
Stock-based compensation		353,000			312,000
Depreciation and amortization		410,000			430,000
Gain (loss) on marketable securities		(223,000	)		40,000
Equity in income of unconsolidated affiliate		(371,000	)		(393,000	)
Operating lease expense, net of accretion		532,000			-
Changes in assets and liabilities:
Accounts receivable, net		(479,000	)		(1,166,000	)
Accounts receivable, related party		(372,000	)		(134,000	)
Inventories		(1,377,000	)		897,000
Prepaid expenses		855,000			(834,000	)
Accounts payable and accrued liabilities		(402,000	)		(1,086,000	)
Lease liabilities		(492,000	)		-
Net cash provided by operating activities		1,099,000			1,073,000
Cash Flows From Investing Activities:
Purchase of property and equipment		(1,164,000	)		(424,000	)
Proceeds from sales of marketable securities		133,000			15,000
Net cash used in investing activities		(1,031,000	)		(409,000	)
Cash Flows From Financing Activities:
Proceeds from exercise of stock options		95,000			224,000
Repurchase of common stock		(2,064,000	)		(2,828,000	)
Net cash used in financing activities		(1,969,000	)		(2,604,000	)
Decrease in cash		(1,901,000	)		(1,940,000	)
Cash, beginning of the period		7,007,000			8,763,000
Cash, end of the period	$	5,106,000		$	6,823,000

Supplemental disclosure of non-cash financing activities:

Upon adoption of ASC 842, Leases, on January 1, 2019, the Company recorded $3,455,000 of right-of-use assets and related operating lease liabilities (see Note 5).

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

4

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. The Company

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

The Building Supply segment consists of construction weatherization products, such as housewrap and synthetic roof 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. Previously, face masks and face shields were included in a separate business segment called Infection Control. 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. Based on these similarities, the Infection Control segment was combined with the Disposable Protective Apparel segment during the first quarter of 2019. The disclosures herein reflect this current segmentation.

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 (“US”).

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 US generally accepted accounting principles (“US 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, 2018, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “2018 Form 10-K”), filed with the SEC on March 6, 2019. The results of operations for the three and nine months ended September 30, 2019 reported 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, 2018 was prepared using information from the audited consolidated balance sheet contained in the 2018 Form 10-K; however, it does not include all disclosures required by US GAAP for annual consolidated financial statements.

As of January 1, 2018, the Company adopted the new accounting standard, Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. This standard was retrospectively adopted for the 2017 year, and there was no cumulative effect adjustment upon adoption. Under ASC 606, net sales includes revenue from 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 applicable contract. We recognize revenue in connection with transferring 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, 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 estimate rebates based on 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 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 labelling. In connection with the adoption of ASC 606, the Company determined 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.

5

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

For the nine months ended September 30, 2019 and 2018, 370,000 and 349,750 stock options were granted under the Company’s option plan, respectively. The Company recognized $353,000 and $312,000 in stock-based compensation expense for the nine months ended September 30, 2019 and 2018, respectively.

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

The following table summarizes stock option activity for the nine months ended September 30, 2019:

				Weighted
				Average
				Exercise Price
	Options			Per Option
Options outstanding, December 31, 2018		1,022,913		$	2.69
Granted to employees and non-employee directors		370,000			3.59
Exercised		(49,833	)		1.90
Canceled/expired/forfeited		-			0.00
Options outstanding, September 30, 2019		1,343,080			2.96
Options exercisable, September 30, 2019		676,580			2.44

As of September 30, 2019, $354,000 of total unrecognized compensation cost related to stock options was expected to be recognized over a weighted average period of 2.13 years.

6

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

4. Investments

As of September 30, 2019 and December 31, 2018, investments totaled $348,000 and $258,000, respectively, which consisted of equity securities. No marketable securities were sold during the three months ended September 30, 2019, and 20,000 shares were sold during the three months ended September 30, 2018. The total loss on marketable securities during the three months ended September 30, 2019 was $387,000, and the unrealized gain on marketable securities during the three months ended September 30, 2018 was $25,000. The loss for the three months ended September 30, 2019 was due to an unrealized loss of $387,000. Certain marketable securities were sold during the nine months ended September 30, 2019 and September 30, 2018. The total gain on marketable securities during the nine months ended September 30, 2019 was $223,000 and the unrealized loss on marketable securities during the nine months ended September 30, 2018 was $40,000. The gain for the nine months ended September 30, 2019 was due to an unrealized gain of $168,000 and a realized gain of $55,000. The gain for the nine months ended September 30, 2018 was due to an unrealized loss of $43,000 and a realized gain of $3,000.

5. Recent Accounting Pronouncements

In 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 finance leases or 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, the Company adopted this ASU beginning on January 1, 2019 and elected the transition option provided under ASU 2018-11. This standard had a material effect on our consolidated balance sheet 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, both assets and liabilities on our consolidated balance sheet increased by approximately $3,455,000. The Company elected a package of transition practical expedients which include not reassessing whether any expired or existing contracts are or contain leases, not reassessing the lease classification of expired or existing leases, and not reassessing initial direct costs for existing leases. The Company also elected a practical expedient to not separate lease and non-lease components. The Company did not elect the practical expedient to use hindsight in determining the lease terms or assessing impairment of the Right-of-Use (“ROU”) assets. See Note 13. Leases for more information.

In June 2016, the FASB issued ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 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 2016-13 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.

In June 2018, the FASB issued ASU 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 2018-07 is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods, with early adoption permitted but no 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. The Company adopted the provisions of this ASU in the first quarter of 2019. Adoption of the new standard did not 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.

7

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

6. Inventories

As of September 30, 2019 and December 31, 2018, inventories consisted of the following:

	September 30,		December 31,
	2019		2018
Raw materials	$	4,466,000	$	4,732,000
Work in process		2,578,000		825,000
Finished goods		4,211,000		4,321,000
	$	11,255,000	$	9,878,000

7. Equity Investment in Unconsolidated Affiliate

In 2005, Alpha ProTech Engineered Products, Inc. (a subsidiary of Alpha Pro Tech, Ltd.) entered into a joint venture with a manufacturer in India, Maple Industries and associates, for the production of building products. Under the terms of the joint venture agreement, a private company, Harmony Plastics Private Limited (“Harmony”), was created with ownership interests of 41.66% owned by Alpha ProTech Engineered Products, Inc. and 58.34% owned by Maple Industries and associates.

This joint venture positions Alpha ProTech Engineered Products, Inc. to respond to current and expected increased product demand for housewrap and synthetic roof underlayment and provides future capacity for sales of specialty roofing component products and custom products for industrial applications requiring high quality extrusion coated fabrics. In addition, the joint venture now supplies products for the Company’s Disposable Protective Apparel segment.

The capital from the initial funding and a bank loan, which 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 113,000 square foot building for manufacturing building products; (2) a 73,000 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; and (4) a 93,000 square foot facility (rented) for manufacturing Building Supply segment products. All additions have been financed by Harmony with no guarantees from the Company.

In accordance with ASC 810, Consolidation, the Company assesses whether or not related entities are variable interest entities (“VIEs”). For those related entities that qualify as VIEs, ASC 810 requires the Company to determine whether 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 investment in unconsolidated affiliate” in the accompanying condensed 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 condensed consolidated statements of income. The Company periodically reviews its investment in Harmony for impairment. Management has determined that no impairment was required as of September 30, 2019 or December 31, 2018.

For the three months ended September 30, 2019 and 2018, Alpha Pro Tech purchased $4,849,000 and $4,535,000 of inventories, respectively, from Harmony. For the nine months ended September 30, 2019 and 2018, Alpha Pro Tech purchased $15,300,000 and $12,036,000 of inventories, respectively, from Harmony.

For the three months ended September 30, 2019 and 2018, the Company recorded equity in income of unconsolidated affiliate of $10,000 and $103,000, respectively, related to Harmony. For the nine months ended September 30, 2019 and 2018, the Company recorded equity in income of unconsolidated affiliate of $371,000 and $393,000, respectively, related to Harmony.

As of September 30, 2019, the Company’s investment in Harmony was $4,851,000, which consisted of its original $1,450,000 investment and cumulative equity in income of unconsolidated affiliate of $4,420,000, less $942,000 in repayments of the advance and $77,000 in dividends.

8

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

8. Accrued Liabilities

As of September 30, 2019 and December 31, 2018, accrued liabilities consisted of the following:

	September 30,		December 31,
	2019		2018
Payroll expenses and taxes payable	$	216,000	$	269,000
Commissions and bonuses payable and general accrued liabilities		628,000		1,073,000
Total accrued liabilities	$	844,000	$	1,342,000

9. Basic and Diluted Earnings Per Common Share

The following table provides a reconciliation of both net income and the number of shares used in the computation of “basic” earnings per common share (“EPS”), which utilizes the weighted average number of common shares outstanding without regard to dilutive shares, and “diluted” EPS, which includes all such dilutive shares, for the three and nine months ended September 30, 2019 and 2018:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Net income (numerator)	$	437,000	$	1,539,000	$	2,665,000	$	3,007,000
Shares (denominator):
Basic weighted average common shares outstanding		13,056,173		13,795,007		13,209,598		14,031,518
Add: dilutive effect of common stock options		19,519		58,612		28,428		44,515
Diluted weighted average common shares outstanding		13,075,692		13,853,619		13,238,026		14,076,033
Earnings per common share:
Basic	$	0.03	$	0.11	$	0.20	$	0.21
Diluted	$	0.03	$	0.11	$	0.20	$	0.21

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Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

10. Activity of Business Segments

The Company operates through two business segments:

(1) Building Supply: consisting of a line of construction supply weatherization products. The construction supply weatherization products consist of housewrap and synthetic roof underlayment, as well as other woven material. 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.

Previously, face masks and face shields were included in a separate business segment called Infection Control. All of our disposable protective apparel, 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 FDA approved facilities, regardless of the market served. Based on these similarities, we determined that it would be best to consolidate the Infection Control segment into the Disposable Protective Apparel segment beginning with the first quarter of 2019.   

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 following table presents consolidated net sales for each segment for the three and nine months ended September 30, 2019 and 2018:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Building Supply	$	7,215,000	$	6,979,000	$	20,423,000	$	20,220,000
Disposable Protective Apparel		4,812,000		5,125,000		15,322,000		15,435,000
Consolidated net sales	$	12,027,000	$	12,104,000	$	35,745,000	$	35,655,000

The following table presents the reconciliation of consolidated segment income to consolidated net income for the three and nine months ended September 30, 2019 and 2018:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Building Supply	$	1,010,000	$	1,130,000	$	2,819,000	$	3,191,000
Disposable Protective Apparel		839,000		1,194,000		3,140,000		3,502,000
Total segment income		1,849,000		2,324,000		5,959,000		6,693,000
Unallocated corporate overhead expenses		1,302,000		426,000		2,702,000		3,033,000
Provision for income taxes		110,000		359,000		592,000		653,000
Consolidated net income	$	437,000	$	1,539,000	$	2,665,000	$	3,007,000

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Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table presents the consolidated net property and equipment, goodwill and definite-lived intangible assets (“consolidated assets”) by segment as of September 30, 2019 and December 31, 2018:

	September 30,		December 31,
	2019		2018
Building Supply	$	1,908,000	$	1,908,000
Disposable Protective Apparel		1,109,000		400,000
Total segment assets		3,017,000		2,308,000
Unallocated corporate assets		1,053,000		1,007,000
Total consolidated assets	$	4,070,000	$	3,315,000

11. Financial Information about Geographic Areas

The following table summarizes the Company’s net sales by geographic region for the three and nine months ended September 30, 2019 and 2018:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Net sales by geographic region
United States	$	11,806,000	$	11,918,000	$	35,004,000	$	34,977,000
International		221,000		186,000		741,000		678,000
Consolidated net sales	$	12,027,000	$	12,104,000	$	35,745,000	$	35,655,000

Net sales by geographic region are based on the countries in which our customers are located. For the three and nine months ended September 30, 2019 and 2018, 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 September 30, 2019 and December 31, 2018:

	September 30,		December 31,
	2019		2018
Long-lived assets by geographic region
United States	$	3,240,000	$	2,528,000
International		762,000		716,000
Consolidated total long-lived assets	$	4,002,000	$	3,244,000

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Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

12. Related Party Transactions

As of September 30, 2019, the Company had no related party transactions, other than the Company’s transactions with its non-consolidated affiliate, Harmony. See Note 7 to these Notes to Condensed Consolidated Financial Statements (Unaudited).

13. Leases

The Company has operating leases for the Company’s corporate office and manufacturing facilities, which expire at various dates through 2024. The Company’s primary operating lease commitments at September 30, 2019 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 Markham, Ontario, Canada.

As of September 30, 2019, the Company had operating lease right-of-use assets of $2,921,000 and operating lease liabilities of $2,962,000. As of September 30, 2019, we did not have any finance leases recorded on the Company’s condensed consolidated balance sheet. Operating lease expense was approximately $201,000 and $603,000 during the three and nine months ended September 30, 2019, respectively.

The aggregate future minimum lease payments and reconciliation to lease liabilities as of September 30, 2019 were as follows:

	September 30,
	2019
Remaining three months of 2019	$	181,000
2020		797,000
2021		776,000
2022		670,000
2023		676,000
Thereafter		135,000
Total future minimum lease payments		3,235,000
Less imputed interest		(273,000	)
Total lease liabilities	$	2,962,000

As of September 30, 2019, the weighted average remaining lease term of the Company’s operating leases was 4.78 years. During the nine months ended September 30, 2019, the weighted average discount rate with respect to these leases was 4.32%.

14. Subsequent Events

The Company has reviewed and evaluated whether subsequent events have occurred from the condensed consolidated balance sheet date of September 30, 2019 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.

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Alpha Pro Tech, Ltd.

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 the year ended December 31, 2018, filed with the Securities and Exchange Commission (the “SEC”) on March 6, 2019 (the “2018 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 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.

Any expectations based on these forward-looking statements are subject to risks and uncertainties, including the risks described in Part I, Item IA, “Risk Factors, “in the 2018 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, our most recent Quarterly Report on Form 10-Q, 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 electronic or paper copies of our filings free of charge upon request.

Critical Accounting Policies

The preparation of our financial statements in conformity with US generally accepted accounting principles (“US 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 reported periods. 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 critical accounting policies include the following:

Marketable Securities: 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 US GAAP. The Company does not have any investments classified as held-to-maturity or trading securities. Available-for-sale investments are carried at their fair value using quoted prices in active markets for identical securities, and, effective January 1, 2018, unrealized gains and losses are reported as a component of net income in the statements of income. Prior to January 1, 2018, unrealized gains and losses were reported as other comprehensive income as a component of equity. 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 condensed consolidated balance sheets.

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Alpha Pro Tech, Ltd.

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 inventory. We assess our inventory for estimated obsolescence or unmarketable inventory and write down the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future sales and quantities on hand, if necessary. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

Accounts Receivable: Accounts receivable are recorded at the invoice amount and do not bear interest. The general term for receivables is net 30 days.  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 customers’ current ability to pay.  Account balances are charged against the allowance when the potential for recovery is considered remote.

Leases: We determine if an arrangement is a lease at inception. Operating leases are included as right-of-use (“ROU”) assets and lease liabilities on our condensed consolidated balance sheet. ROU assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. Our leases do not provide an implicit rate, and, therefore, we estimate our incremental borrowing rate based on the information available at the commencement date in determining the present value of future minimum lease payments. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise such options. We do not record leases on our condensed consolidated balance sheet with a term of one year or less. We elected a package of transition practical expedients, which included not reassessing whether any expired or existing contracts are or contain leases, not reassessing the lease classification of expired or existing leases, and not reassessing initial direct costs for existing leases. We also elected a practical expedient to not separate lease and non-lease components. We did not elect the practical expedient to use hindsight in determining our lease terms or assessing impairment of our ROU assets.

Revenue Recognition: Net sales includes revenue from 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 applicable contract. We recognize revenue in connection with transferring the promised products to the customer, with revenue being recognized at the point in time at which the customer obtains control of the products. This generally occurs when title passes to the customer upon delivery, 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 at which the products are delivered to or picked up by the customer. 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. Our contracts have a single performance obligation. Sales taxes and value added taxes in domestic and 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 has determined that it has no material contract assets, and has concluded that its contract liabilities (primarily rebates) have the right of offset against customer receivables.

See Note 10 and Note 11 of the Notes to Condensed Consolidated Financial Statements (Unaudited), which appear elsewhere in this report, for information on revenue disaggregated by type and by geographic region.

Sales Returns, Rebates and Allowances: Sales are reduced for any anticipated sales returns, rebates and allowances based on historical experience. Since our return policy is only 90 days and our products are not generally susceptible to external factors such as technological obsolescence or significant changes in demand, we are able to make a reasonable estimate for returns. We offer end-user, product-specific and sales volume rebates to select distributors. Our rebates are based on actual sales and are accrued monthly.

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Alpha Pro Tech, Ltd.

Stock-Based Compensation: The Company accounts for stock-based awards using Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 718, Stock Compensation. ASC 718 requires companies to record compensation expense for the value of all outstanding and unvested share-based payments, including employee stock options and similar awards.

The fair values of stock option grants are determined using the Black-Scholes option-pricing model and are based on the following assumptions: expected stock price volatility based on historical data and management’s expectations of future volatility, risk-free interest rates from published sources, expected term based on historical data and no dividend yield, as the Board of Directors currently has no plans to pay dividends in the foreseeable future. The Company accounts for option forfeitures as they occur. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and that are fully transferable. In addition, the option-pricing model requires the input of highly subjective assumptions, including expected stock price volatility. Our stock options have characteristics significantly different from those of traded options, and changes in the subjective input assumptions can materially affect the fair value of such options.

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 products for the cleanroom, industrial, pharmaceutical, medical and dental markets. We also manufacture a line of building supply construction weatherization products. 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: the Building Supply segment, consisting of construction weatherization products, such as housewrap and synthetic roof underlayment as well as other woven material; and 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.

Previously, face masks and face shields were included in a separate business segment called Infection Control. All of our disposable protective apparel, 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 FDA approved facilities, regardless of the market served. Based on these similarities we determined that it would be best to consolidate the Infection Control segment into the Disposable Protective Apparel segment beginning with the first quarter of 2019.    

Our target markets include pharmaceutical manufacturing, bio-pharmaceutical manufacturing, 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.

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Alpha Pro Tech, Ltd.

RESULTS OF OPERATIONS

The following table sets forth certain operational data as a percentage of net sales for the periods indicated:

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2019			2018			2019			2018
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Gross profit		35.1	%		37.9	%		36.7	%		38.6	%
Selling, general and administrative expenses		26.4	%		22.1	%		28.3	%		28.1	%
Income from operations		7.5	%		14.6	%		7.3	%		9.3	%
Income before provision for income taxes		4.5	%		15.7	%		9.1	%		10.3	%
Net income		3.6	%		12.7	%		7.5	%		8.4	%

Three and Nine months ended September 30, 2019, compared to Three and Nine months ended September 30, 2018

Sales. Consolidated sales for the three months ended September 30, 2019 decreased slightly to $12,027,000 from $12,104,000 for the three months ended September 30, 2018, representing a decrease of $77,000, or 0.6%. This decrease consisted of decreased sales in the Disposable Protective Apparel segment (now including face masks and face shields) of $313,000, partially offset by increased sales in the Building Supply segment of $236,000.

Building Supply segment sales for the three months ended September 30, 2019 increased by $236,000, or 3.4%, to $7,215,000, compared to $6,979,000 for the same period of 2018. This segment increase was primarily due to an increase in sales of the economy TECHNO SB® family brand of synthetic roof underlayment and by an increase in sales of economy REX™ Wrap brand of housewrap, partially offset by a decrease in sales of other woven material. For the three months ended September 30, 2019, synthetic roof underlayment sales increased by 16.7% and housewrap sales increased by 15.4%, partially offset by a decrease in sales of other woven material of 56.1% compared to the same period of 2018.

In the second quarter of 2019, we expanded our TECHNO family of spunbond based (SB) synthetic roof underlayment products, and we are very encouraged by the early success of our new TECHNO SB® 25 product, which was instrumental in our 60.6% growth of the TECHNO family and 16.7% overall growth in synthetic roof underlayment during the third quarter of 2019 compared to the same quarter of 2018. Housewrap sales were up 15.4% for the quarter as a result of improved U.S. housing starts and our increased efforts to grow market share, and we expect continued growth as optimism continues in the market. Sales of other woven material were down significantly as a result of our largest customer in this category having excess inventory and a slowdown in orders from its customers. As mentioned in our second quarter Form 10-Q, we do expect this to continue for the remainder of the year. The sales mix of the Building Supply segment for the three months ended September 30, 2019 was 48% for synthetic roof underlayment, 46% for housewrap and 6% for other woven material. This sales mix is compared to 44% for synthetic roof underlayment, 42% for housewrap and 14% for other woven material for the three months ended September 30, 2018.

Sales for the Disposable Protective Apparel segment for the three months ended September 30, 2019 decreased by $313,000, or 6.1%, to $4,812,000, compared to $5,125,000 for the same period of 2018. This segment decrease was primarily due to a 7.2% decrease in sales of disposable protective garments and a decrease in sales of face shields, partially offset by an increase in sales of face masks. The decrease was primarily due to decreased sales to a large national distributor that lost business in a bid situation to another one of our national distributors. The end user continues to use our Critical Cover® Brand, and, once such end user runs through its current inventory, we expect to continue to purchase our brand through the distributor that won the bid. To a lesser extent, the decrease was due to lower sales to our major international supply chain partner, however, this partner’s sales for the three months ended September 30, 2019 to its end users were up 8%, demonstrating demand for our products. The sales mix of the Disposable Protective Apparel segment for the three months ended September 30, 2019 was 76% for disposable protective garments, 16% for face masks and 8% for face shields. This sales mix is compared to 76% for disposable protective garments, 14% for face masks and 10% for face shields for the three months ended September 30, 2018.

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Alpha Pro Tech, Ltd.

Consolidated sales for the nine months ended September 30, 2019 increased slightly to $35,745,000 from $35,655,000 for the nine months ended September 30, 2018, representing an increase of $90,000, or 0.3%. This, increase consisted of increased sales in the Building Supply segment of $203,000, partially offset by decreased sales in the Disposable Protective Apparel Segment of $113,000.

Building Supply segment sales for the nine months ended September 30, 2019 increased by $203,000, or 1.0%, to $20,423,000, compared to $20,220,000 for the same period of 2018. Our synthetic roof underlayment product line includes REX™, TECHNOply™ and TECHNO SB®, and our housewrap line consists of REX™ Wrap, REX™ Wrap Plus and REX™ Wrap Fortis. The Building Supply segment increase was primarily due to a 5.3% increase in our core building products, including an increase in sales of synthetic roof underlayment of 11.1% and an increase in sales of housewrap of 1.5% compared to the same period of 2018. Sales of other woven material decreased by 26.8% compared to the same period of 2018. Synthetic roof underlayment sales have increased as a result of increased sales of the TECHNO family products and management expects continued growth from this product line. Although Housewrap sales in the first half of 2019 were negatively affected by softer U.S. housing starts due in part to unusually severe weather across many parts of the country, sales in the third quarter of 2019 increased 15.4% and we expect continued growth in housewrap sales due to the current positive outlook towards housing starts. Other woven material sales were down significantly in the third quarter of 2019, as mentioned above, due to lower orders from a customer that currently has excess inventory and has seen a decline in its business. The sales mix of the Building Supply segment for the nine months ended September 30, 2019 was 47% for synthetic roof underlayment, 45% for housewrap and 8% for other woven material. This compared to 43% for synthetic roof underlayment, 45% for housewrap and 12% for other woven material for the nine months ended September 30, 2018.

Sales for the Disposable Protective Apparel segment for the nine months ended September 30, 2019 slightly decreased by $113,000, or 0.7%, to $15,322,000, compared to $15,435,000 for the same period of 2018. This segment decrease was primarily due to a decrease in sales of face masks and face shields, partially offset by a 1.3% increase in sales of disposable protective garments. Mask sales have been negatively affected by a less severe flu season in 2019, and face shield sales have decreased primary due to a one-time sale in 2018 that did not recur in 2019. The increase in disposable protective garments was primarily due to increased sales to our major international supply chain partner, primarily offset by decreased sales to a national distributor whose end-user was over stocked and who we anticipate will be purchasing again in the future. The sales mix of the Disposable Protective Apparel segment for the nine months ended September 30, 2019 was 76% for disposable protective clothing, 16% for face masks and 8% for face shields. This sales mix is compared to 75% for disposable protective garments, 16% for face masks and 9% for face shields for the nine months ended September 30, 2018.

Gross Profit. Gross profit decreased by $365,000, or 8.0%, to $4,220,000 for the three months ended September 30, 2019, from $4,585,000 for the same period of 2018. The gross profit margin was 35.1% for the three months ended September 30, 2019, compared to 37.9% for the same period of 2018. For the three months ended September 30, 2019, gross profit margin was negatively affected as certain products that were tariff free until June 4, 2019 under the U.S. Customs and Borders Protection Generalized System of Preferences (“GSP”) will no longer be duty free, as the government program was terminated. This termination of tariff free GSP products primarily affected gross profit of the Disposable Protective Apparel segment and to a much lesser extent the Building Supply segment. In addition, both segments were negatively impacted by increased rebates. Gross profit margin was also affected by a change in product mix in the Building Supply segment, with significant growth in the TECHNO family economy line of synthetic roof underlayment, which has a lower gross margin. As stated above, in the second quarter of 2019, we expanded our TECHNO family of spunbond based (SB) products to include our new TECHNO SB® 25 product, which was marketed with a lower introductory price that impacted gross profit in the quarter. Pricing of the TECHNO SB® family will be increased during the latter part of the fourth quarter this year, which will improve gross profit margin going forward. Management expects that gross profit margin should be in the mid-to-high thirty percent range next year.

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Alpha Pro Tech, Ltd.

Gross profit decreased by $630,000, or 4.6%, to $13,129,000 for the nine months ended September 30, 2019, from $13,759,000 for the same period of 2018. The gross profit margin was 36.7% for the nine months ended September 30, 2019, compared to 38.6% for the same period of 2018. Gross profit margin was negatively affected by a change in product mix in the Building Supply segment, with significant growth in the economy line of synthetic roof underlayment, which has a lower gross margin. In addition, both segments were negatively impacted by increased rebates, as well as the elimination of tariff free GSP products.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $496,000, or 18.5%, to $3,172,000 for the three months ended September 30, 2019, from $2,676,000 for the three months ended September 30, 2018. As a percentage of net sales, selling, general and administrative expenses increased to 26.4% for the three months ended September 30, 2019, from 22.1% for the same period of 2018. The increase in selling, general and administrative expenses was primarily the result of a cost recovery in the third quarter of 2018 that did not recur in the third quarter of 2019. The recovery in 2018 was due to a cost recovery from our former litigation counsel.

The change in expenses by segment for the three months ended September 30, 2019 was as follows: Corporate unallocated expenses increased by $480,000, or 109.1%; Building Supply increased by $28,000, or 2.3%; and Disposable Protective Apparel (which now includes expenses from the former Infection Control segment) decreased by $12,000, or 1.2%. The increase in corporate unallocated expenses was primarily due to the cost recovery from our former litigation counsel that occurred in 2018 and did not recur in 2019, mentioned above.

Selling, general and administrative expenses increased slightly by $84,000, or 0.8%, to $10,108,000 for the nine months ended September 30, 2019, from $10,024,000 for the nine months ended September 30, 2018. As a percentage of net sales, selling, general and administrative expenses increased slightly to 28.3% for the nine months ended September 30, 2019, from 28.1% for the same period of 2018. The increase was primarily a result of increased Building Supply segment trade show expenses.

The change in expenses by segment for the nine months ended September 30, 2019 was as follows: Building Supply increased by $174,000, or 4.6%; Disposable Protective Apparel decreased by $70,000 or 2.1%; and corporate unallocated expenses were down $20,000, or 0.7%. The increase in the Building Supply segment expenses was primarily due to increased trade show, sales commission and sales-related travel expenses. The decrease in the Disposable Protective Apparel segment expenses was related to lower commissions, and the decrease in corporate unallocated expenses was primarily due to lower expenses for professional fees.

In accordance with the terms of his employment agreement, the Company’s 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. A bonus amount of $36,000 was accrued for the three months ended September 30, 2019, as compared to $100,000 for the same period of 2018. A bonus amount of $171,000 was accrued for the nine months ended September 30, 2019, as compared to $193,000 for the same period of 2018.

Depreciation and Amortization. Depreciation and amortization expense increased by $2,000, or 1.4%, to $142,000 for the three months ended September 30, 2019, from $140,000 for the three months ended September 30, 2018. Depreciation and amortization expense decreased by $20,000, or 4.7%, to $410,000 for the nine months ended September 30, 2019, from $430,000 for the same period of 2018. The decrease was primarily attributable to decreased depreciation for machinery and equipment in the Building Supply segment.

Income from Operations. Income from operations decreased by $863,000, or 48.8%, to $906,000 for the three months ended September 30, 2019, compared to $1,769,000 for the three months ended September 30, 2018. The decreased income from operations was primarily due to a decrease in gross profit of $365,000, an increase in selling, general and administrative expenses of $496,000 and an increase in depreciation and amortization expense of $2,000. Income from operations for the third quarter of 2018 was positively impacted by the cost recovery from our former litigation counsel, as mentioned above, and is the primary reason for the increase in selling, general and administrative expenses in the third quarter of 2019. Income from operations as a percentage of net sales for the three months ended September 30, 2019 was 7.5%, compared to 14.6% for the same period of 2018.

18

Alpha Pro Tech, Ltd.

Income from operations decreased by $694,000, or 21.0%, to $2,611,000 for the nine months ended September 30, 2019, compared to $3,305,000 for the nine months ended September 30, 2018. The decreased income from operations was primarily due to a decrease in gross profit of $630,000 and an increase in selling, general and administrative expenses of $84,000, partially offset by a decrease in depreciation and amortization expense of $20,000. Income from operations as a percentage of net sales for the nine months ended September 30, 2019 was 7.3%, compared to 9.3% for the same period of 2018.

Other Income. Other income decreased by $488,000 to a loss of $359,000 for the three months ended September 30, 2019 from income of $129,000 for the same period of 2018. The decrease was primarily due to a loss on marketable securities in the third quarter of 2019 compared to a gain on marketable securities during the same period of 2018 for a net change of $412,000, and a decrease in equity in income of unconsolidated affiliate of $93,000, partially offset by an increase in interest income of $17,000 due to restructuring the interest terms on our operating cash accounts.

Other income consisted of equity in income of unconsolidated affiliate of $10,000, a loss on marketable securities of $387,000 and interest income of $18,000 for the three months ended September 30, 2019. Other income consisted of equity in income of unconsolidated affiliate of $103,000, a gain on marketable securities of $25,000 and interest income of $1,000 for the three months ended September 30, 2018.

Other income increased by $291,000 to $646,000 for the nine months ended September 30, 2019, from $355,000 for the same period of 2018. The increase was primarily due to the gain on marketable securities for the nine months ended September 30, 2019 compared to a loss on marketable securities during the same period of 2018, for a net change of $263,000, and an increase in interest income of $50,000, partially offset by a decrease in equity in income of unconsolidated affiliate of $22,000.

Other income consisted of equity in income of unconsolidated affiliate of $371,000, a gain on marketable securities of $223,000 and interest income of $52,000 for the nine months ended September 30, 2019. Other income consisted primarily of equity in income of unconsolidated affiliate of $393,000, a loss on marketable securities of $40,000 and interest income of $2,000 for the nine months ended September 30, 2018.

Income before Provision for Income Taxes. Income before provision for income taxes for the three months ended September 30, 2019 was $547,000, compared to income before provision for income taxes of $1,898,000 for the three months ended September 30, 2018, representing a decrease of $1,351,000, or 71.2%. This decrease in income before provision for income taxes was primarily due to a decrease in income from operations of $863,000, which was negatively impacted by the mediated litigation settlement in the third quarter of 2018 that did not recur in the third quarter of 2019 and a decrease in other income of $488,000, which was primarily related to an unrealized loss on marketable securities in the third quarter of 2019.

Income before provision for income taxes for the nine months ended September 30, 2019 was $3,257,000, compared to income before provision for income taxes of $3,660,000 for the nine months ended September 30, 2018, representing a decrease of $403,000, or 11.0%. This decrease in income before provision for income taxes was due to a decrease in income from operations of $694,000, partially offset by an increase in other income of $291,000.

Provision for Income Taxes. The provision for income taxes for the three months ended September 30, 2019 was $110,000, compared to $359,000 for the same period of 2018. The effective tax rate was 20.1% for the three months ended September 30, 2019, compared to 18.9% for the same period of 2018. The Company does not record a tax provision on equity in income of unconsolidated affiliate.

The provision for income taxes for the nine months ended September 30, 2019 was $592,000, compared to $653,000 for the same period of 2018. The effective tax rate was 18.2% for the nine months ended September 30, 2019, compared to 17.8% for the same period of 2018. As mentioned above, the Company does not record a tax provision on equity in income of unconsolidated affiliate.

19

Alpha Pro Tech, Ltd.

Net Income. Net income for the three months ended September 30, 2019 was $437,000, compared to net income of $1,539,000 for the same period of 2018, representing a decrease of $1,102,000, or 71.6%. The net income decrease was due to a decrease in income before provision for income taxes of $1,351,000, partially offset by a decrease in provision for income taxes of $249,000. As mentioned above, net income in the third quarter of 2019 was negatively impacted by two large factors; the cost recovery from our former litigation counsel in the third quarter of 2018 that did not recur in third quarter of 2019 and the unrealized loss on marketable securities in the third quarter of 2019. Net income as a percentage of net sales for the three months ended September 30, 2019 was 3.6%, compared to 12.7% for the same period of 2018. Basic and diluted earnings per common share for the three months ended September 30, 2019 and 2018 were $0.03 and $0.11, respectively.

Net income for the nine months ended September 30, 2019 was $2,665,000, compared to net income of $3,007,000 for the same period of 2018, representing a decrease of $342,000, or 11.4%. The net income decrease was due to a decrease in income before provision for income taxes of $403,000, partially offset by a decrease in provision for income taxes of $61,000. Net income as a percentage of net sales for the nine months ended September 30, 2019 was 7.5%, and net income as a percentage of net sales for the same period of 2018 was 8.4%. Basic and diluted earnings per common share for the nine months ended September 30, 2019 and 2018 were $0.20 and $0.21, respectively.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2019, the Company had cash of $5,106,000 and working capital of $24,516,000, representing a decrease in working capital of $24,000 from $24,540,000 as of December 31, 2018. As of September 30, 2019, the Company’s current ratio (current assets/current liabilities) was 12:1, compared to a 14:1 current ratio as of December 31, 2018. Cash decreased by 27.1%, or $1,901,000, to $5,106,000 as of September 30, 2019, compared to $7,007,000 as of December 31, 2018. The decrease in cash from December 31, 2018 was due to cash provided by operating activities of $1,099,000, cash used in financing activities of $1,969,000 and cash used in investing activities of $1,031,000.

We have a $3,500,000 credit facility with Wells Fargo Bank, consisting of a line of credit with interest at prime plus 0.5%. As of September 30, 2019, the prime interest rate was 5.00%. This credit line will expire in May 2020. The available line of credit is based on a formula of eligible accounts receivable and inventories. Our borrowing capacity on the line of credit was $3,500,000 as of September 30, 2019. As of September 30, 2019, we did not have any borrowings under this credit facility and do not anticipate using it in the near future. The credit facility includes customary financial and non-financial debt covenants. As of September 30, 2019 we believe that we are in compliance with all such covenants.

Net cash provided by operating activities of $1,099,000 for the nine months ended September 30, 2019 was due to net income of $2,665,000, impacted primarily by the following: stock-based compensation expense of $353,000, depreciation and amortization expense of $410,000, loss on marketable securities of $223,000, equity in income of unconsolidated affiliate of $371,000, operating lease expense net of accretion of $532,000, an increase in accounts receivable of $851,000, a decrease in prepaid expenses of $855,000, an increase in inventory of $1,377,000, a decrease in accounts payable and accrued liabilities of $402,000 and a decrease in lease liabilities of $492,000.

Accounts receivable increased by $851,000, or 16.0%, to $6,169,000 as of September 30, 2019, from $5,318,000 as of December 31, 2018. The increase in accounts receivable was primarily related to increased sales in the latter half of the third quarter of 2019 compared to the same period fourth quarter of 2018. The number of days that sales remained outstanding as of September 30, 2019, calculated by using an average of accounts receivable outstanding and annual revenue, was 44 days, compared to 40 days as of December 31, 2018.

Inventory increased by $1,377,000, or 13.9%, to $11,255,000 as of September 30, 2019, from $9,878,000 as of December 31, 2018. The increase was primarily due to an increase in inventory for the Building Supply segment of $1,454,000, or 33.8%, to $5,756,000, partially offset by a decrease in inventory for the Disposable Protective Apparel segment of $77,000, or 1.4%, to $5,499,000,

20

Alpha Pro Tech, Ltd.

Prepaid expenses decreased by $855,000, or 21.4%, to $3,144,000 as of September 30, 2019, from $3,999,000 as of December 31, 2018. The decrease was primarily due to prepayments for equipment that has now been received and a decrease in tax prepayments, partially offset by increased prepaid insurance and deposits for the purchase of inventory.

Right-of-use assets as of September 30, 2019 decreased by $534,000 to $2,921,000 from $3,455,000 as of January 1, 2019 when ASC 842 Leases was adopted.

Lease liabilities as of September 30, 2019 decreased by $493,000 to $2,962,000 from $3,455,000 as of January 1, 2019. The recording of the lease liabilities was the result of adopting ASC 842, Leases. The decrease in the lease liabilities was the result of amortizing the balance over the life of the lease.

Accounts payable and accrued liabilities as of September 30, 2019 decreased by $402,000, or 20.9%, to $1,518,000, from $1,920,000 as of December 31, 2018. The change was primarily due to a decrease in accrued liabilities as a result of payments of 2018 year-end commissions and bonuses and a decreased accrued payroll.

Net cash used in investing activities was $1,031,000 for the nine months ended September 30, 2019, compared to net cash used in investing activities of $409,000 for the same period of 2018. Investing activities for the nine months ended September 30, 2019 consisted of the purchase of property and equipment of $1,164,000 for both the Building Supply segment and the Disposable Apparel Products segment and proceeds from the sale of marketable securities of $133,000. Investing activities for the nine months ended September 30, 2018 consisted of the purchase of property and equipment of $424,000 and proceeds from the sale of marketable securities of $15,000.

Net cash used in financing activities was $1,969,000 for the nine months ended September 30, 2019, compared to net cash used in financing activities of $2,604,000 for the same period of 2018. Net cash used in financing activities for the nine months ended September 30, 2019 resulted from the payment of $2,064,000 for the repurchase of common stock, partially offset by proceeds of $95,000 from the exercise of stock options. Net cash used in financing activities for the nine months ended September 30, 2018 resulted from the payment of $2,828,000 for the repurchase of common stock, partially offset by proceeds of $224,000 from the exercise of stock options.

As of September 30, 2019, we had $635,000 available for additional stock purchases under our stock repurchase program. For the nine months ended September 30, 2019, we repurchased 548,000 shares of common stock at a cost of $2,064,000. As of September 30, 2019, we had repurchased a total of 17,751,917 shares of common stock at a cost of $33,834,000 through our repurchase program. 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 the funds available under our credit facility will be sufficient to satisfy our projected working capital and planned capital expenditures for the foreseeable future.

Recent Accounting Pronouncements

In 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, we adopted this ASU beginning on January 1, 2019 and elected the transition option provided under ASU 2018-11. This standard had a material effect on our consolidated balance sheet 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, both assets and liabilities on our consolidated balance sheet increased by approximately $3,455,000. We have elected a package of transition practical expedients which include not reassessing whether any expired or existing contracts are or contain leases, not reassessing the lease classification of expired or existing leases, and not reassessing initial direct costs for existing leases. We have also elected a practical expedient to not separate lease and non-lease components. We did not elect the practical expedient to use hindsight in determining the lease terms or assessing impairment of the ROU assets. See also Note 13 to the Condensed Consolidated Financial Statements (Unaudited), which appear elsewhere in this report.

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Alpha Pro Tech, Ltd.

In June 2016, the FASB issued ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 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 2016-13 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.

In June 2018, the FASB issued ASU 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 2018-07 is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods, with early adoptions permitted but no 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 adopted the provisions of this ASU in the first quarter of 2019. Adoption of the new standard did not 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.

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 September 30, 2019, 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.     

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 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.

22

Alpha Pro Tech, Ltd.

PART II. OTHER INFORMATION

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:

	Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased		Weighted Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program (1)		Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (1)
July 1 - 31, 2019		44,000	$	3.51		44,000	$	907,000
August 1 - 31, 2019		48,000		3.51		48,000		737,000
September 1 - 30, 2019		29,010		3.49		29,010		635,000
		121,010		3.51		121,010

(1) On December 20, 2018, the Company announced that the Board of Directors had authorized a $2,000,000 expansion of the Company’s existing share repurchase program.

SECURITIES SOLD

We did not sell unregistered equity securities during the period covered by this report.

23

Alpha Pro Tech, Ltd.

ITEM 6. EXHIBITS

3.1.1*	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).
3.1.2*	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).
3.1.3*	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).
3.2*	Bylaws of Alpha Pro Tech, Ltd., incorporated by reference to Exhibit 3(g) to Form 10-K for the year ended December 31, 1994, filed on March 31, 1995 (File No. 000-19893).
31.1	Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – President and Chief Executive Officer.
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer.
101	Interactive Data Files for Alpha Pro Tech, Ltd’s Form 10-Q for the period ended September 30, 2019.
	* Filed in paper form with SEC

24

Alpha Pro Tech, Ltd.

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:	November 6, 2019		BY:	/s/ Lloyd Hoffman
				Lloyd Hoffman
				President and Chief Executive Officer

DATE:	November 6, 2019	BY:	/s/ Colleen McDonald
			Colleen McDonald
			Chief Financial Officer

25

EX-31.1

Certification Under Exchange Act Rules 13a – 14(a) and 15d – 14(a) EXHIBIT 31.1

I, Lloyd Hoffman, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Alpha Pro Tech, Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

DATE:     November 6, 2019	BY:	/s/ Lloyd Hoffman
		Lloyd Hoffman President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

Certification Under Exchange Act Rules 13a – 14(a) and 15d – 14(a) EXHIBIT 31.2

I, Colleen McDonald, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Alpha Pro Tech, Ltd.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

DATE:      November 6, 2019	BY:	/s/ Colleen McDonald
		Colleen McDonald Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

Alpha Pro Tech, Ltd.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Alpha Pro Tech, Ltd. (the “Company”) on Form 10-Q for the quarter ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lloyd Hoffman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

DATE:     November 6, 2019	BY:	/s/ Lloyd Hoffman
		Lloyd Hoffman President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

Alpha Pro Tech, Ltd.

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Alpha Pro Tech, Ltd. (the “Company”) on Form 10-Q for the quarter ended September 30, 2019, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Colleen McDonald, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

DATE:     November 6, 2019	BY:	/s/ Colleen McDonald
		Colleen McDonald Chief Financial Officer

XML

Note 8 - Accrued Liabilities - Accrued Liabilities (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Payroll expenses and taxes payable	$ 216,000	$ 269,000
Commissions and bonuses payable and general accrued liabilities	628,000	1,073,000
Total accrued liabilities	$ 844,000	$ 1,342,000	[1]

[1] The condensed consolidated balance sheet as of December 31, 2018 has been prepared using information from the audited consolidated balance sheet as of that date.

XML

Note 4 - Investments (Details Textual)	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Equity Securities, FV-NI	$ 348,000		$ 348,000		$ 258,000
Number of Equity Securities Sold	0	20,000
Equity Securities, FV-NI, Gain (Loss), Total	$ (387,000)	$ 25,000	223,000	$ (40,000)
Equity Securities, FV-NI, Unrealized Gain (Loss), Total	$ (387,000)		168,000	(43,000)
Equity Securities, FV-NI, Realized Gain (Loss), Total			$ 55,000	$ 3,000

XML

Note 12 - Related Party Transactions

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

1 2 . Related Party Transactions

As of

September 30, 2019,

the Company had

no

related party transactions, other than the Company’s transactions with its non-consolidated affiliate, Harmony. See Note

7

to these Notes to Condensed Consolidated Financial Statements (Unaudited).

XML

Note 4 - Investments

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

4. Investments

As of

September 30, 2019

and

December 31, 2018,

investments totaled

$348,000

and

$258,000,

respectively, which consisted of equity securities.

No

marketable securities were sold during the

three

months ended

September 30, 2019,

and

20,000

shares were sold during the

three

months ended

September 30, 2018.

The total loss on marketable securities during the

three

months ended

September 30, 2019

was

$387,000,

and the unrealized gain on marketable securities during the

three

months ended

September 30, 2018

was

$25,000.

The loss for the

three

months ended

September 30, 2019

was due to an unrealized loss of

$387,000.

Certain marketable securities were sold during the

nine

months ended

September 30, 2019

and

September 30, 2018.

The total gain on marketable securities during the

nine

months ended

September 30, 2019

was

$223,000

and the unrealized loss on marketable securities during the

nine

months ended

September 30, 2018

was

$40,000.

The gain for the

nine

months ended

September 30, 2019

was due to an unrealized gain of

$168,000

and a realized gain of

$55,000.

The gain for the

nine

months ended

September 30, 2018

was due to an unrealized loss of

$43,000

and a realized gain of

$3,000.

XML

Note 8 - Accrued Liabilities

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

8 . Accrued Liabilities

As of

September 30, 2019

and

December 31, 2018,

accrued liabilities consisted of the following:

	September 30,		December 31,
	2019		2018
Payroll expenses and taxes payable	$	216,000	$	269,000
Commissions and bonuses payable and general accrued liabilities		628,000		1,073,000
Total accrued liabilities	$	844,000	$	1,342,000

XML

Note 6 - Inventories (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Inventory, Current [Table Text Block]

	September 30,		December 31,
	2019		2018
Raw materials	$	4,466,000	$	4,732,000
Work in process		2,578,000		825,000
Finished goods		4,211,000		4,321,000
	$	11,255,000	$	9,878,000

XML

Note 11 - Financial Information about Geographic Areas (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Revenue from External Customers and Long-Lived Assets, by Geographical Areas [Table Text Block]

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Net sales by geographic region
United States	$	11,806,000	$	11,918,000	$	35,004,000	$	34,977,000
International		221,000		186,000		741,000		678,000
Consolidated net sales	$	12,027,000	$	12,104,000	$	35,745,000	$	35,655,000

	September 30,		December 31,
	2019		2018
Long-lived assets by geographic region
United States	$	3,240,000	$	2,528,000
International		762,000		716,000
Consolidated total long-lived assets	$	4,002,000	$	3,244,000

XML

Supplemental Disclosure of Non-cash Financing Activities

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Cash Flow, Supplemental Disclosures [Text Block]

Supplemental disclosure of non-cash financing activities:

Upon adoption of ASC

842,

Leases

, on

January 1, 2019,

the Company recorded

$

3,455,000

of right-of-use assets and related operating lease liabilities (see Note

5

).

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

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Sep. 30, 2019	Dec. 31, 2018	[1]
Accounts Receivable, allowance	$ 58,000	$ 64,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	50,000,000	50,000,000
Common stock, shares outstanding (in shares)	13,004,507	13,502,684

[1] The condensed consolidated balance sheet as of December 31, 2018 has been prepared using information from the audited consolidated balance sheet as of that date.

XML

Note 11 - Financial Information about Geographic Areas - Consolidated Net Sales and Long-lived Asset Information by Geographic Area (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Net sales by geographic region
Consolidated sales	$ 12,027,000	$ 12,104,000	$ 35,745,000	$ 35,655,000
Long-lived assets by geographic region
Consolidated long-lived assets	4,002,000		4,002,000		$ 3,244,000
Reportable Geographical Components [Member]
Net sales by geographic region
Consolidated sales	12,027,000
UNITED STATES
Long-lived assets by geographic region
Consolidated long-lived assets	3,240,000		3,240,000		2,528,000
UNITED STATES | Reportable Geographical Components [Member]
Net sales by geographic region
Consolidated sales	11,806,000	11,918,000	35,004,000	34,977,000
International Member
Long-lived assets by geographic region
Consolidated long-lived assets	762,000		762,000		$ 716,000
International Member | Reportable Geographical Components [Member]
Net sales by geographic region
Consolidated sales	$ 221,000	$ 186,000	$ 741,000	$ 678,000

XML

Note 3 - Stock-based Compensation (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Share-based Payment Arrangement, Option, Activity [Table Text Block]

				Weighted
				Average
				Exercise Price
	Options			Per Option
Options outstanding, December 31, 2018		1,022,913		$	2.69
Granted to employees and non-employee directors		370,000			3.59
Exercised		(49,833	)		1.90
Canceled/expired/forfeited		-			0.00
Options outstanding, September 30, 2019		1,343,080			2.96
Options exercisable, September 30, 2019		676,580			2.44

XML

Note 10 - Activity of Business Segments (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Building Supply	$	7,215,000	$	6,979,000	$	20,423,000	$	20,220,000
Disposable Protective Apparel		4,812,000		5,125,000		15,322,000		15,435,000
Consolidated net sales	$	12,027,000	$	12,104,000	$	35,745,000	$	35,655,000

Reconciliation of Revenue from Segments to Consolidated [Table Text Block]

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Building Supply	$	1,010,000	$	1,130,000	$	2,819,000	$	3,191,000
Disposable Protective Apparel		839,000		1,194,000		3,140,000		3,502,000
Total segment income		1,849,000		2,324,000		5,959,000		6,693,000
Unallocated corporate overhead expenses		1,302,000		426,000		2,702,000		3,033,000
Provision for income taxes		110,000		359,000		592,000		653,000
Consolidated net income	$	437,000	$	1,539,000	$	2,665,000	$	3,007,000

Reconciliation of Assets from Segment to Consolidated [Table Text Block]

	September 30,		December 31,
	2019		2018
Building Supply	$	1,908,000	$	1,908,000
Disposable Protective Apparel		1,109,000		400,000
Total segment assets		3,017,000		2,308,000
Unallocated corporate assets		1,053,000		1,007,000
Total consolidated assets	$	4,070,000	$	3,315,000

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2019		Sep. 30, 2018
Cash Flows From Operating Activities:
Net income	$ 2,665,000		$ 3,007,000
Adjustments to reconcile net income to net cash used in operating activities:
Stock-based compensation	353,000		312,000
Depreciation and amortization	410,000		430,000
Gain (loss) on marketable securities	(223,000)		40,000
Equity in income of unconsolidated affiliate	(371,000)		(393,000)
Operating lease expense, net of accretion	532,000
Changes in assets and liabilities:
Accounts receivable, net	(479,000)		(1,166,000)
Accounts receivable, related party	(372,000)		(134,000)
Inventories	(1,377,000)		897,000
Prepaid expenses	855,000		(834,000)
Accounts payable and accrued liabilities	(402,000)		(1,086,000)
Lease liabilities	(492,000)
Net cash provided by operating activities	1,099,000		1,073,000
Cash Flows From Investing Activities:
Purchase of property and equipment	(1,164,000)		(424,000)
Proceeds from sales of marketable securities	133,000		15,000
Net cash used in investing activities	(1,031,000)		(409,000)
Cash Flows From Financing Activities:
Proceeds from exercise of stock options	95,000		224,000
Repurchase of common stock	(2,064,000)		(2,828,000)
Net cash used in financing activities	(1,969,000)		(2,604,000)
Decrease in cash	(1,901,000)		(1,940,000)
Cash, beginning of the period	7,007,000	[1]	8,763,000
Cash, end of the period	$ 5,106,000		$ 6,823,000

[1] The condensed consolidated balance sheet as of December 31, 2018 has been prepared using information from the audited consolidated balance sheet as of that date.

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Current assets:
Cash	$ 5,106,000	$ 7,007,000	[1]
Investments	348,000	258,000	[1]
Accounts receivable, net of allowance for doubtful accounts of $58,000 and $64,000 as of September 30, 2019 and December 31, 2018	5,414,000	4,935,000	[1]
Accounts receivable, related party	755,000	383,000	[1]
Inventories	11,255,000	9,878,000	[1]
Right-of-use assets	682,000		[1]
Prepaid expenses	3,144,000	3,999,000	[1]
Total current assets	26,704,000	26,460,000	[1]
Property and equipment, net	4,002,000	3,244,000	[1]
Goodwill	55,000	55,000	[1]
Definite-lived intangible assets, net	13,000	16,000	[1]
Right-of-use assets, net of current portion	2,239,000		[1]
Equity investment in unconsolidated affiliate	4,851,000	4,480,000	[1]
Total assets	37,864,000	34,255,000	[1]
Current liabilities:
Accounts payable	674,000	578,000	[1]
Accrued liabilities	844,000	1,342,000	[1]
Lease liabilities	670,000		[1]
Total current liabilities	2,188,000	1,920,000	[1]
Lease liabilities, net of current portion	2,292,000		[1]
Deferred income tax liabilities, net	141,000	141,000	[1]
Total liabilities	4,621,000	2,061,000	[1]
Commitments
Shareholders' equity:
Common stock, $.01 par value: 50,000,000 shares authorized; 13,004,507 and 13,502,684 shares outstanding as of September 30, 2019 and December 31, 2018, respectively	130,000	135,000	[1]
Additional paid-in capital	1,058,000	2,669,000	[1]
Retained earnings	32,055,000	29,390,000	[1]
Total shareholders' equity	33,243,000	32,194,000	[1]
Total liabilities and shareholders' equity	$ 37,864,000	$ 34,255,000	[1]

[1] The condensed consolidated balance sheet as of December 31, 2018 has been prepared using information from the audited consolidated balance sheet as of that date.

XML

Note 12 - Related Party Transactions (Details Textual) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Related Party Transaction, Amounts of Transaction	$ 0

XML

Note 9 - Basic and Diluted Earnings Per Common Share - Reconciliation of Net Income and Number of Shares Used in Computations of Basic and Diluted EPS (Details) - USD ($)	3 Months Ended						9 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018
Net income	$ 437,000	$ 1,010,000	$ 1,218,000	$ 1,539,000	$ 959,000	$ 508,000	$ 2,665,000	$ 3,007,000
Shares (denominator):
Basic weighted average common shares outstanding (in shares)	13,056,173			13,795,007			13,209,598	14,031,518
Add: dilutive effect of common stock options (in shares)	19,519			58,612			28,428	44,515
Diluted weighted average common shares outstanding (in shares)	13,075,692			13,853,619			13,238,026	14,076,033
Earnings per common share:
Basic (in dollars per share)	$ 0.03			$ 0.11			$ 0.20	$ 0.21
Diluted (in dollars per share)	$ 0.03			$ 0.11			$ 0.20	$ 0.21

XML

Note 5 - Recent Accounting Pronouncements (Details Textual) - USD ($)	Sep. 30, 2019	Jan. 01, 2019	Dec. 31, 2018	[1]
Assets, Total	$ 37,864,000		$ 34,255,000
Liabilities, Total	$ 4,621,000		$ 2,061,000
Accounting Standards Update 2016-02 [Member]
Assets, Total		$ 3,455,000
Liabilities, Total		$ 3,455,000

[1] The condensed consolidated balance sheet as of December 31, 2018 has been prepared using information from the audited consolidated balance sheet as of that date.

XML

Note 3 - Stock-based Compensation

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

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

For the

nine

months ended

September 30, 2019

and

2018,

370,000

and

349,750

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

$353,000

and

$312,000

in stock-based compensation expense for the

nine

months ended

September 30, 2019

and

2018,

respectively.

The Company uses the Black-Scholes option-pricing model to value the options. The Company uses historical data to estimate the expected life of the options. The risk-free interest rate for periods within the contractual life of an award is based on the US Treasury yield curve in effect at the time of grant. The estimated volatility is based on historical volatility and management’s expectations of future volatility. The Company uses an estimated dividend payout of

zero

, as the Company has

not

paid dividends in the past and, at this time, does

not

expect to do so in the future. The Company accounts for option forfeitures as they occur.

The following table summarizes stock option activity for the

nine

months ended

September 30, 2019:

				Weighted
				Average
				Exercise Price
	Options			Per Option
Options outstanding, December 31, 2018		1,022,913		$	2.69
Granted to employees and non-employee directors		370,000			3.59
Exercised		(49,833	)		1.90
Canceled/expired/forfeited		-			0.00
Options outstanding, September 30, 2019		1,343,080			2.96
Options exercisable, September 30, 2019		676,580			2.44

As of

September 30, 2019,

$354,000

of total unrecognized compensation cost related to stock options was expected to be recognized over a weighted average period of

2.13

years.

XML

Note 7 - Equity Investment in Unconsolidated Affiliate

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

7 . Equity I nvestment in Unconsolidated Affiliate

In

2005,

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

41.66%

owned by Alpha ProTech Engineered Products, Inc. and

58.34%

owned by Maple Industries and associates.

This joint venture positions Alpha ProTech Engineered Products, Inc. to respond to current and expected increased product demand for housewrap and synthetic roof underlayment and provides future capacity for sales of specialty roofing component products and custom products for industrial applications requiring high quality extrusion coated fabrics. In addition, the joint venture now supplies products for the Company’s Disposable Protective Apparel segment.

The capital from the initial funding and a bank loan, which 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

113,000

square foot building for manufacturing building products; (

2

) a

73,000

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; and (

4

) a

93,000

square foot facility (rented) for manufacturing Building Supply segment products. All additions have been financed by Harmony with

no

guarantees from the Company.

In accordance with ASC

810,

Consolidation

, the Company assesses whether or

not

related entities are variable interest entities (“VIEs”). For those related entities that qualify as VIEs, ASC

810

requires the Company to determine whether 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 investment in unconsolidated affiliate” in the accompanying condensed 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 condensed consolidated statements of income. The Company periodically reviews its investment in Harmony for impairment. Management has determined that

no

impairment was required as of

September 30, 2019

or

December 31, 2018.

For the

three

months ended

September 30, 2019

and

2018,

Alpha Pro Tech purchased

$4,849,000

and

$4,535,000

of inventories, respectively, from Harmony. For the

nine

months ended

September 30, 2019

and

2018,

Alpha Pro Tech purchased

$15,300,000

and

$12,036,000

of inventories, respectively, from Harmony.

For the

three

months ended

September 30, 2019

and

2018,

the Company recorded equity in income of unconsolidated affiliate of

$10,000

and

$103,000,

respectively, related to Harmony. For the

nine

months ended

September 30, 2019

and

2018,

the Company recorded equity in income of unconsolidated affiliate of

$371,000

and

$393,000,

respectively, related to Harmony.

As of

September 30, 2019,

the Company’s investment in Harmony was

$4,851,000,

which consisted of its original

$1,450,000

investment and cumulative equity in income of unconsolidated affiliate of

$4,420,000,

less

$942,000

in repayments of the advance and

$77,000

in dividends.

XML

Note 11 - Financial Information about Geographic Areas

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Financial Information about Geographic Areas [Text Block]

11. Financial Information about Geographic Areas

The following table summarizes the Company’s net sales by geographic region for the

three

and

nine

months ended

September 30, 2019

and

2018:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Net sales by geographic region
United States	$	11,806,000	$	11,918,000	$	35,004,000	$	34,977,000
International		221,000		186,000		741,000		678,000
Consolidated net sales	$	12,027,000	$	12,104,000	$	35,745,000	$	35,655,000

Net sales by geographic region are based on the countries in which our customers are located. For the

three

and

nine

months ended

September 30, 2019

and

2018,

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

September 30, 2019

and

December 31, 2018:

	September 30,		December 31,
	2019		2018
Long-lived assets by geographic region
United States	$	3,240,000	$	2,528,000
International		762,000		716,000
Consolidated total long-lived assets	$	4,002,000	$	3,244,000

XML

Condensed Consolidated Statements of Income (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Net sales	$ 12,027,000	$ 12,104,000	$ 35,745,000	$ 35,655,000
Cost of goods sold, excluding depreciation and amortization	7,807,000	7,519,000	22,616,000	21,896,000
Gross profit	4,220,000	4,585,000	13,129,000	13,759,000
Operating expenses:
Selling, general and administrative	3,172,000	2,676,000	10,108,000	10,024,000
Depreciation and amortization	142,000	140,000	410,000	430,000
Total operating expenses	3,314,000	2,816,000	10,518,000	10,454,000
Income from operations	906,000	1,769,000	2,611,000	3,305,000
Other income:
Equity in income of unconsolidated affiliate	10,000	103,000	371,000	393,000
Gain (loss) on marketable securities	(387,000)	25,000	223,000	(40,000)
Interest income, net	18,000	1,000	52,000	2,000
Total other income (loss)	(359,000)	129,000	646,000	355,000
Income before provision for income taxes	547,000	1,898,000	3,257,000	3,660,000
Provision for income taxes	110,000	359,000	592,000	653,000
Net income	$ 437,000	$ 1,539,000	$ 2,665,000	$ 3,007,000
Basic earnings per common share (in dollars per share)	$ 0.03	$ 0.11	$ 0.20	$ 0.21
Diluted earnings per common share (in dollars per share)	$ 0.03	$ 0.11	$ 0.20	$ 0.21
Basic weighted average common shares outstanding (in shares)	13,056,173	13,795,007	13,209,598	14,031,518
Diluted weighted average common shares outstanding (in shares)	13,075,692	13,853,619	13,238,026	14,076,033

XML

Note 1 - The Company

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Nature of Operations [Text Block]

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 and synthetic roof 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. Previously, face masks and face shields were included in a separate business segment called Infection Control. 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. Based on these similarities, the Infection Control segment was combined with the Disposable Protective Apparel segment during the

first

quarter of

2019.

The disclosures herein reflect this current segmentation.

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 (“US”).

XML

Note 13 - Leases (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

	September 30,
	2019
Remaining three months of 2019	$	181,000
2020		797,000
2021		776,000
2022		670,000
2023		676,000
Thereafter		135,000
Total future minimum lease payments		3,235,000
Less imputed interest		(273,000	)
Total lease liabilities	$	2,962,000

XML

Note 13 - Leases

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

13 . Leases

The Company has operating leases for the Company’s corporate office and manufacturing facilities, which expire at various dates through 

2024.

The Company’s primary operating lease commitments at 

September 30, 2019 

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 Markham, Ontario, Canada.

As of 

September 30, 2019,

the Company had operating lease right-of-use assets of 

$2,921,000

 and operating lease liabilities of 

$2,962,000.

As of 

September 30, 2019,

we did

not

have any finance leases recorded on the Company’s condensed consolidated balance sheet. Operating lease expense was approximately 

$201,000

and

$603,000

 during the 

three

and

nine

months ended

September 30, 2019,

respectively.

The aggregate future minimum lease payments and reconciliation to lease liabilities as of 

September 30, 2019

were as follows:

	September 30,
	2019
Remaining three months of 2019	$	181,000
2020		797,000
2021		776,000
2022		670,000
2023		676,000
Thereafter		135,000
Total future minimum lease payments		3,235,000
Less imputed interest		(273,000	)
Total lease liabilities	$	2,962,000

As of

September 30, 2019,

the weighted average remaining lease term of the Company’s operating leases was 

4.78

years. During the

nine

months ended

September 30, 2019,

the weighted average discount rate with respect to these leases was 

4.32%.

XML

Note 8 - Accrued Liabilities (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Accrued Liabilities [Table Text Block]

	September 30,		December 31,
	2019		2018
Payroll expenses and taxes payable	$	216,000	$	269,000
Commissions and bonuses payable and general accrued liabilities		628,000		1,073,000
Total accrued liabilities	$	844,000	$	1,342,000

XML

Note 13 - Leases - Future Minimum Lease Payment (Details)	Sep. 30, 2019 USD ($)
Remaining three months of 2019	$ 181,000
2020	797,000
2021	776,000
2022	670,000
2023	676,000
Thereafter	135,000
Total future minimum lease payments	3,235,000
Less imputed interest	(273,000)
Total lease liabilities	$ 2,962,000

XML

Note 10 - Activity of Business Segments - Consolidated Net Property and Equipment, Goodwill and Intangible Assets (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Consolidated assets	$ 4,070,000	$ 3,315,000
Operating Segments [Member]
Consolidated assets	3,017,000	2,308,000
Operating Segments [Member] | Building Supply [Member]
Consolidated assets	1,908,000	1,908,000
Operating Segments [Member] | Disposable Protective Apparel [Member]
Consolidated assets	1,109,000	400,000
Corporate, Non-Segment [Member]
Consolidated assets	$ 1,053,000	$ 1,007,000

XML

Note 5 - Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

5. Recent Accounting Pronouncements

In

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 finance leases or 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, the Company adopted this ASU beginning on

January 1, 2019

and elected the transition option provided under ASU

2018

-

11.

This standard had a material effect on our consolidated balance sheet 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, both assets and liabilities on our consolidated balance sheet increased by approximately

$

3,455,000

.

The Company elected a package of transition practical expedients which include

not

reassessing whether any expired or existing contracts are or contain leases,

not

reassessing the lease classification of expired or existing leases, and

not

reassessing initial direct costs for existing leases. The Company also elected a practical expedient to

not

separate lease and non-lease components. The Company did

not

elect the practical expedient to use hindsight in determining the lease terms or assessing impairment of the Right-of-Use (“ROU”) assets. See Note

13.

Leases for more information.

In

June 2016,

the FASB issued ASU

2016

-

13

Financial Instruments - Credit Losses (Topic

326

): Measurement of Credit Losses on Financial Instruments

. ASU

2016

-

13

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

-

13

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.

In

June 2018,

the FASB issued ASU

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

-

07

is effective for annual periods beginning after

December 15, 2018

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

no

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. The Company adopted the provisions of this ASU in the

first

quarter of

2019.

Adoption of the new standard did

not

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.

XML

Note 9 - Basic and Diluted Earnings Per Common Share

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Earnings Per Share [Text Block]

9 . Basic and Diluted Earnings Per Common Share

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

three

and

nine

months ended

September 30, 2019

and

2018:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Net income (numerator)	$	437,000	$	1,539,000	$	2,665,000	$	3,007,000
Shares (denominator):
Basic weighted average common shares outstanding		13,056,173		13,795,007		13,209,598		14,031,518
Add: dilutive effect of common stock options		19,519		58,612		28,428		44,515
Diluted weighted average common shares outstanding		13,075,692		13,853,619		13,238,026		14,076,033
Earnings per common share:
Basic	$	0.03	$	0.11	$	0.20	$	0.21
Diluted	$	0.03	$	0.11	$	0.20	$	0.21

XML

Note 7 - Equity Investment in Unconsolidated Affiliate (Details Textual)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2019 USD ($) ft²	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) ft²	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)	Dec. 31, 2005
Expense To Acquire Inventory	$ 4,849,000	$ 4,535,000	$ 15,300,000	$ 12,036,000
Income (Loss) from Equity Method Investments, Total	$ 10,000	$ 103,000	$ 371,000	$ 393,000
INDIA | Harmony [Member]
Number of Stores	4		4
Number Of Stores Owned	3		3
Number Of Stores Rented	1		1
INDIA | Harmony [Member] | Manufacturing Building Products [Member]
Area of Real Estate Property | ft²	113,000		113,000
INDIA | Harmony [Member] | Manufacturing Coated Material and Sewing Proprietary Disposable Protective Apparel [Member]
Area of Real Estate Property | ft²	73,000		73,000
INDIA | Harmony [Member] | Sewing Proprietary Disposable Protective Apparel [Member]
Area of Real Estate Property | ft²	16,000		16,000
INDIA | Harmony [Member] | Manufacturing Of Building Products [Member]
Area of Real Estate Property | ft²	93,000		93,000
Harmony [Member]
Equity Method Investment, Other than Temporary Impairment			$ 0		$ 0
Equity Method Investments	$ 4,851,000		4,851,000
Equity Method Investment, Aggregate Cost	1,450,000		1,450,000
Cumulative Equity In Income Of Unconsolidated Affiliate	$ 4,420,000		4,420,000
Proceeds from Equity Method Investment, Distribution, Return of Capital			942,000
Proceeds from Equity Method Investment, Distribution			$ 77,000
Harmony [Member] | Alpha Pro Tech Engineered Products [Member]
Equity Method Investment, Ownership Percentage						41.66%
Harmony [Member] | Maple Industries and Associates [Member]
Equity Method Investment, Ownership Percentage						58.34%

XML

Note 3 - Stock-based Compensation - Stock Option Activity (Details)	9 Months Ended
	Sep. 30, 2019 $ / shares shares	Sep. 30, 2018 shares
Options outstanding (in shares) | shares	1,022,913
Options outstanding, weighted average exercise price (in dollars per share) | $ / shares	$ 2.69
Granted to employees and non-employee directors (in shares) | shares	370,000	349,750
Granted to employees and non-employee directors, weighted average exercise price (in dollars per share) | $ / shares	$ 3.59
Exercised (in shares) | shares	(49,833)
Exercised, weighted average exercise price (in dollars per share) | $ / shares	$ 1.90
Canceled/expired/forfeited (in shares) | shares
Canceled/expired/forfeited, weighted average exercise price (in dollars per share) | $ / shares	$ 0
Options outstanding (in shares) | shares	1,343,080
Options outstanding, weighted average exercise price (in dollars per share) | $ / shares	$ 2.96
Options exercisable (in shares) | shares	676,580
Options exercisable, weighted average exercise price (in dollars per share) | $ / shares	$ 2.44

XML

Note 10 - Activity of Business Segments - Consolidated Net Sales (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Net sales	$ 12,027,000	$ 12,104,000	$ 35,745,000	$ 35,655,000
Building Supply [Member] | Operating Segments [Member]
Net sales	7,215,000	6,979,000	20,423,000	20,220,000
Disposable Protective Apparel [Member] | Operating Segments [Member]
Net sales	$ 4,812,000	$ 5,125,000	$ 15,322,000	$ 15,435,000

XML

Note 6 - Inventories

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Inventory Disclosure [Text Block]

6. Inventories

As of

September 30, 2019

and

December 31, 2018,

inventories consisted of the following:

	September 30,		December 31,
	2019		2018
Raw materials	$	4,466,000	$	4,732,000
Work in process		2,578,000		825,000
Finished goods		4,211,000		4,321,000
	$	11,255,000	$	9,878,000

XML

Note 10 - Activity of Business Segments

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

10 . Activity of Business Segments

The Company operates through

two

business segments:

(

1

)

Building Supply

: consisting of a line of construction supply weatherization products. The construction supply weatherization products consist of housewrap and synthetic roof underlayment, as well as other woven material. 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.

Previously, face masks and face shields were included in a separate business segment called Infection Control. All of our disposable protective apparel, 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 FDA approved facilities, regardless of the market served. Based on these similarities, we determined that it would be best to consolidate the Infection Control segment into the Disposable Protective Apparel segment beginning with the

first

quarter of

2019.

   

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 following table presents consolidated net sales for each segment for the

three

and

nine

months ended

September 30, 2019

and

2018:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Building Supply	$	7,215,000	$	6,979,000	$	20,423,000	$	20,220,000
Disposable Protective Apparel		4,812,000		5,125,000		15,322,000		15,435,000
Consolidated net sales	$	12,027,000	$	12,104,000	$	35,745,000	$	35,655,000

The following table presents the reconciliation of consolidated segment income to consolidated net income for the

three

and

nine

months ended

September 30, 2019

and

2018:

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Building Supply	$	1,010,000	$	1,130,000	$	2,819,000	$	3,191,000
Disposable Protective Apparel		839,000		1,194,000		3,140,000		3,502,000
Total segment income		1,849,000		2,324,000		5,959,000		6,693,000
Unallocated corporate overhead expenses		1,302,000		426,000		2,702,000		3,033,000
Provision for income taxes		110,000		359,000		592,000		653,000
Consolidated net income	$	437,000	$	1,539,000	$	2,665,000	$	3,007,000

The following table presents the consolidated net property and equipment, goodwill and definite-lived intangible assets (“consolidated assets”) by segment as of

September 30, 2019

and

December 31, 2018:

	September 30,		December 31,
	2019		2018
Building Supply	$	1,908,000	$	1,908,000
Disposable Protective Apparel		1,109,000		400,000
Total segment assets		3,017,000		2,308,000
Unallocated corporate assets		1,053,000		1,007,000
Total consolidated assets	$	4,070,000	$	3,315,000

XML

Note 10 - Activity of Business Segments (Details Textual)	9 Months Ended
	Sep. 30, 2019
Number of Operating Segments	2

XML

Note 6 - Inventories - Inventories (Details) - USD ($)	Sep. 30, 2019	Dec. 31, 2018
Raw materials	$ 4,466,000	$ 4,732,000
Work in process	2,578,000	825,000
Finished goods	4,211,000	4,321,000
	$ 11,255,000	$ 9,878,000	[1]

[1] The condensed consolidated balance sheet as of December 31, 2018 has been prepared using information from the audited consolidated balance sheet as of that date.

XML

Note 3 - Stock-based Compensation (Details Textual) - USD ($) xbrli-pure in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	370,000	349,750
Share-based Payment Arrangement, Expense	$ 353,000	$ 312,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Amount, Total	$ 354,000
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition	2 years 47 days
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions, Expected Dividend Rate	0.00%

XML

Note 2 - Basis of Presentation and Revenue Recognition Policy

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Significant Accounting Policies [Text Block]

2. Basis of Presentation and Revenue Recognition P olicy

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 US generally accepted accounting principles (“US 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, 2018,

which are included in the Company’s Annual Report on Form

10

-K for the fiscal year ended

December 31, 2018 (

the

“2018

Form

10

-K”), filed with the SEC on

March 6, 2019.

The results of operations for the

three

and

nine

months ended

September 30, 2019

reported 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, 2018

was prepared using information from the audited consolidated balance sheet contained in the

2018

Form

10

-K; however, it does

not

include all disclosures required by US GAAP for annual consolidated financial statements.

As of

January 1, 2018,

the Company adopted the new accounting standard, Accounting Standards Codification (“ASC”)

606,

Revenue from Contracts with Customers

. This standard was retrospectively adopted for the

2017

year, and there was

no

cumulative effect adjustment upon adoption. Under ASC

606,

net sales includes revenue from 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 applicable contract. We recognize revenue in connection with transferring 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, 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 estimate rebates based on 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 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 labelling. In connection with the adoption of ASC

606,

the Company determined 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.

XML

Condensed Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	AOCI Attributable to Parent [Member]	Retained Earnings [Member]	Total
Balance (in shares) at Dec. 31, 2017	14,290,749
Balance at Dec. 31, 2017	$ 143,000	$ 5,415,000	$ (458,000)	$ 26,223,000	$ 31,323,000
Net income				508,000	508,000
Common stock repurchased and retired (in shares)	(153,000)
Common stock repurchased and retired	$ (1,000)	(575,000)			(576,000)
Stock-based compensation expense		78,000			78,000
Options exercised (in shares)	50,000
Options exercised		77,000			77,000
Balance (in shares) at Mar. 31, 2018	14,187,749
Balance at Mar. 31, 2018	$ 142,000	4,995,000		26,273,000	31,410,000
Balance (in shares) at Dec. 31, 2017	14,290,749
Balance at Dec. 31, 2017	$ 143,000	5,415,000	(458,000)	26,223,000	31,323,000
Net income					3,007,000
Balance (in shares) at Sep. 30, 2018	13,629,583
Balance at Sep. 30, 2018	$ 136,000	3,130,000		28,772,000	32,038,000
Cumulative-effect adjustment of change in accounting for unrealized loss on marketable securities			458,000	(458,000)
Balance (in shares) at Mar. 31, 2018	14,187,749
Balance at Mar. 31, 2018	$ 142,000	4,995,000		26,273,000	31,410,000
Net income				959,000	959,000
Common stock repurchased and retired (in shares)	(300,000)
Common stock repurchased and retired	$ (4,000)	(1,037,000)			(1,041,000)
Stock-based compensation expense		118,000			118,000
Options exercised (in shares)	21,667
Options exercised	$ 1,000	42,000			43,000
Balance (in shares) at Jun. 30, 2018	13,909,416
Balance at Jun. 30, 2018	$ 139,000	4,118,000		27,232,000	31,489,000
Net income				1,540,000	1,539,000
Common stock repurchased and retired (in shares)	(340,000)
Common stock repurchased and retired	$ (3,000)	(1,208,000)			(1,211,000)
Stock-based compensation expense		116,000			116,000
Options exercised (in shares)	60,167
Options exercised		104,000			104,000
Balance (in shares) at Sep. 30, 2018	13,629,583
Balance at Sep. 30, 2018	$ 136,000	3,130,000		28,772,000	$ 32,038,000
Balance (in shares) at Dec. 31, 2018	13,502,684				13,502,684	[1]
Balance at Dec. 31, 2018	$ 135,000	2,669,000		29,390,000	$ 32,194,000	[2]
Net income				1,218,000	1,218,000
Common stock repurchased and retired (in shares)	(255,000)
Common stock repurchased and retired	$ (2,000)	(1,006,000)			(1,008,000)
Stock-based compensation expense		122,000			122,000
Options exercised (in shares)	33,334
Options exercised		60,000			60,000
Balance (in shares) at Mar. 31, 2019	13,281,018
Balance at Mar. 31, 2019	$ 133,000	1,845,000		30,608,000	$ 32,586,000
Balance (in shares) at Dec. 31, 2018	13,502,684				13,502,684	[1]
Balance at Dec. 31, 2018	$ 135,000	2,669,000		29,390,000	$ 32,194,000	[2]
Net income					$ 2,665,000
Options exercised (in shares)					49,833
Balance (in shares) at Sep. 30, 2019	13,004,507				13,004,507
Balance at Sep. 30, 2019	$ 130,000	1,058,000		32,055,000	$ 33,243,000
Balance (in shares) at Mar. 31, 2019	13,281,018
Balance at Mar. 31, 2019	$ 133,000	1,845,000		30,608,000	32,586,000
Net income				1,010,000	1,010,000
Common stock repurchased and retired (in shares)	(172,000)
Common stock repurchased and retired	$ (2,000)	(626,000)			(628,000)
Stock-based compensation expense		138,000			138,000
Options exercised
Balance (in shares) at Jun. 30, 2019	13,109,018
Balance at Jun. 30, 2019	$ 131,000	1,357,000		31,618,000	33,106,000
Net income				437,000	437,000
Common stock repurchased and retired (in shares)	(121,010)
Common stock repurchased and retired	$ (1,000)	(427,000)			(428,000)
Stock-based compensation expense		93,000			93,000
Options exercised (in shares)	16,499
Options exercised		35,000			$ 35,000
Balance (in shares) at Sep. 30, 2019	13,004,507				13,004,507
Balance at Sep. 30, 2019	$ 130,000	$ 1,058,000		$ 32,055,000	$ 33,243,000

[1] The condensed consolidated balance sheet as of December 31, 2018 has been prepared using information from the audited consolidated balance sheet as of that date.

[2] The condensed consolidated balance sheet as of December 31, 2018 has been prepared using information from the audited consolidated balance sheet as of that date.

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Nov. 01, 2019
Document Information [Line Items]
Entity Registrant Name	ALPHA PRO TECH LTD
Entity Central Index Key	0000884269
Trading Symbol	apt
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		13,021,171
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Sep. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Amendment Flag	false
Title of 12(b) Security	Common Stock, $0.01 par value

XML

Note 14 - Subsequent Events

9 Months Ended

Sep. 30, 2019

Notes to Financial Statements

Subsequent Events [Text Block]

1 4 . Subsequent Events

The Company has reviewed and evaluated whether subsequent events have occurred from the condensed consolidated balance sheet date of

September 30, 2019

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.

XML

Note 9 - Basic and Diluted Earnings Per Common Share (Tables)

9 Months Ended

Sep. 30, 2019

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Net income (numerator)	$	437,000	$	1,539,000	$	2,665,000	$	3,007,000
Shares (denominator):
Basic weighted average common shares outstanding		13,056,173		13,795,007		13,209,598		14,031,518
Add: dilutive effect of common stock options		19,519		58,612		28,428		44,515
Diluted weighted average common shares outstanding		13,075,692		13,853,619		13,238,026		14,076,033
Earnings per common share:
Basic	$	0.03	$	0.11	$	0.20	$	0.21
Diluted	$	0.03	$	0.11	$	0.20	$	0.21

XML

Supplemental Disclosure of Non-cash Financing Activities (Details Textual) - USD ($)	Sep. 30, 2019	Jan. 01, 2019
Operating Lease, Right-of-Use Asset	$ 2,921,000
Operating Lease, Liability, Total	$ 2,962,000
Accounting Standards Update 2016-02 [Member]
Operating Lease, Right-of-Use Asset		$ 3,455,000
Operating Lease, Liability, Total		$ 3,455,000

XML

Note 13 - Leases (Details Textual)	3 Months Ended	9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2019 USD ($)
Operating Lease, Right-of-Use Asset	$ 2,921,000	$ 2,921,000
Operating Lease, Liability, Total	2,962,000	2,962,000
Finance Lease, Liability, Total	0	0
Operating Lease, Expense	$ 201,000	$ 603,000
Operating Lease, Weighted Average Remaining Lease Term	4 years 284 days	4 years 284 days
Operating Lease, Weighted Average Discount Rate, Percent	4.32%	4.32%

XML

Note 10 - Activity of Business Segments - Reconciliation of Total Segment Income to Total Consolidated Net Income (Details) - USD ($)	3 Months Ended						9 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018
Consolidated net income	$ 437,000	$ 1,010,000	$ 1,218,000	$ 1,539,000	$ 959,000	$ 508,000	$ 2,665,000	$ 3,007,000
Provision for income taxes	110,000			359,000			592,000	653,000
Operating Segments [Member]
Consolidated net income	1,849,000			2,324,000			5,959,000	6,693,000
Operating Segments [Member] | Building Supply [Member]
Consolidated net income	1,010,000			1,130,000			2,819,000	3,191,000
Operating Segments [Member] | Disposable Protective Apparel [Member]
Consolidated net income	839,000			1,194,000			3,140,000	3,502,000
Corporate, Non-Segment [Member]
Consolidated net income	$ 1,302,000			$ 426,000			$ 2,702,000	$ 3,033,000