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.