Note 6 - Equity Investment in Unconsolidated Affiliate

6 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Equity Method Investments and Joint Ventures Disclosure [Text Block]

6. Equity Investment in Unconsolidated Affiliate

In 2005, Alpha ProTech Engineered Products, Inc. (a subsidiary of Alpha Pro Tech, Ltd.) entered into a joint venture with a manufacturer in India, Maple Industries and associates, for the production of building products. Under the terms of the joint venture agreement, a private company, Harmony Plastics Private Limited (“Harmony”), was created with ownership interests of 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 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 comprehensive income. The Company periodically reviews its investment in Harmony for impairment. Management has determined that no impairment was required as of June 30, 2022 or December 31, 2021.

For the three months ended June 30, 2022 and 2021, the Company purchased $5,676,000 and $7,435,000 of inventories, respectively, from Harmony. For the six months ended June 30, 2022 and 2021, the Company purchased $11,859,000 and $13,789,000 of inventories, respectively, from Harmony. For the three months ended June 30, 2022 and 2021, the Company sold $0 and $451,000 of inventories, respectively, to Harmony. For the six months ended June 30, 2022 and 2021, the Company sold $258,000 and $821,000 of inventories, respectively, to Harmony.

For the three months ended June 30, 2022 and 2021, the Company recorded equity in income of unconsolidated affiliate of $50,000 and $188,000, respectively, related to Harmony. For the six months ended June 30, 2022 and 2021, the Company recorded equity in income of unconsolidated affiliate of $99,000 and $510,000, respectively, related to Harmony.

As of June 30, 2022, the Company’s investment in Harmony was $6,219,000, which consisted of its original $1,450,000 investment and cumulative equity in income of unconsolidated affiliate of $5,788,000, less $942,000 in repayments of the advance and $77,000 in dividends.