UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, ~~D.C.~~DC 20549

FORM 10-Q

~~Quarterly Report pursuant to Section~~☒ QUARTERLY REPORT PURSUANT TO SECTION 13 orOR 15(d)

~~of the Securities Exchange Act of~~ OF THE SECURITIES EXCHANGE ACT OF 1934

For the ~~Quarterly Period Ended~~quarterly period ended September 30, ~~2017~~2019

☐ 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. 001-15725~~1-15725~~

Alpha Pro Tech, Ltd.

(~~exact name~~Exact Name of ~~registrant~~Registrant as ~~specified~~Specified in ~~its charter)~~Its Charter)

Delaware, U.S.A.	63-1009183
(State or ~~other jurisdiction~~Other Jurisdiction of ~~incorporation)~~Incorporation or Organization)	(I.R.S. Employer Identification No.)

60 Centurian Drive,, Suite 112
Markham, Ontario, Canada	L3R 9R2
(Address of ~~principal executive offices)~~ Principal Executive Offices)	(Zip Code)

~~Registrant~~’sRegistrant’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 X ☒ No ~~___~~☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes X ☒ 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___~~filer ☐ Accelerated filer ~~___~~☐ Non-accelerated filer ~~____~~☐ Smaller reporting company X

☒ 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 X ☒

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

Class		Outstanding November ~~3, 2017~~ 1, 2019
Common Stock, $0.01 par value		~~15,155,523~~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~~Balance Sheets (Unaudited)	2 1

	Condensed Consolidated Statements of ~~Comprehensive~~ Income (Unaudited)	32

	Condensed Consolidated ~~Statement~~Statements of ~~Shareholders~~’Shareholders’ Equity (Unaudited)	4 3

	Condensed Consolidated Statements of Cash Flows (Unaudited)	54

	Notes to Condensed Consolidated Financial Statements (Unaudited)	65

ITEM 2.	~~Management~~’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations	14

~~ITEM 3.~~	~~Quantitative and Qualitative Disclosures about Market Risk~~	21 13

ITEM 4. 3.	~~Controls~~Quantitative and ~~Procedures~~ Qualitative Disclosures about Market Risk	21 22

ITEM 4.	Controls and Procedures	22

PART II.		OTHER INFORMATION

~~ITEM 1.~~	~~Legal Proceedings~~	22

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22

~~ITEM 6.~~	~~Exhibits~~	23

~~SIGNATURES~~ ITEM 6.	Exhibits	24

SIGNATURES		25

EXHIBITS

	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, ~~2016~~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).

	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).

										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).

	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).

Alpha Pro Tech, Ltd.

~~Condensed~~ ~~Consolidated Statements of Income (Unaudited)~~

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Net sales
$ 12,049,000 $ 11,779,000 $ 34,082,000 $ 36,334,000

Cost of goods sold, excluding depreciation and amortization
7,337,000 7,263,000 20,589,000 23,032,000
Gross profit
4,712,000 4,516,000 13,493,000 13,302,000

Operating expenses:

Selling, general and administrative
3,450,000 3,158,000 10,269,000 9,950,000
Depreciation and amortization
147,000 153,000 426,000 425,000
Total operating expenses
3,597,000 3,311,000 10,695,000 10,375,000

Income from operations
1,115,000 1,205,000 2,798,000 2,927,000

Other income:

Equity in income of unconsolidated affiliate
105,000 242,000 339,000 433,000
Gain on sale of property
385,000 - 385,000 -
Interest income, net
1,000 1,000 3,000 3,000
Total other income
491,000 243,000 727,000 436,000

Income before provision for income taxes
1,606,000 1,448,000 3,525,000 3,363,000

Provision for income taxes
503,000 429,000 1,068,000 1,040,000

Net income
$ 1,103,000 $ 1,019,000 $ 2,457,000 $ 2,323,000

Basic earnings per common share
$ 0.07 $ 0.06 $ 0.16 $ 0.14

Diluted earnings per common share
$ 0.07 $ 0.06 $ 0.16 $ 0.14

Basic weighted average common shares outstanding
14,732,173 16,695,059 14,962,606 17,190,073

Diluted weighted average common shares outstanding
14,933,426 16,706,532 15,075,940 17,190,073

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

~~Alpha Pro Tech, Ltd.~~

~~Condensed Consolidated Statements of~~ ~~Comprehensive Income (Unaudited)~~

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Net income
$ 1,103,000 $ 1,019,000 $ 2,457,000 $ 2,323,000
Other comprehensive income (loss):

Change in unrealized gain (loss) on marketable securities, net of tax
(208,000 ) 28,000 (243,000 ) (50,000 )
Comprehensive income
$ 895,000 $ 1,047,000 $ 2,214,000 $ 2,273,000

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

~~Alpha Pro Tech, Ltd.~~

~~Condensed~~ ~~Consolidated Statement of Shareholders’ Equity (Unaudited)~~

For the Nine Months Ended September 30, 2017

Accumulated

Additional

Other

Common Stock

Paid-in

Comprehensive

Retained

Shares

Amount

Capital

Loss

Earnings

Total

Balance as of December 31, 2016
15,411,556 $ 154,000 $ 9,990,000 $ (204,000 ) $ 22,724,000 $ 32,664,000
Common stock repurchased and retired
(898,242 ) (9,000 ) (2,892,000 ) - - (2,901,000 )
Stock-based compensation expense
- - 244,000 - - 244,000
Options exercised
70,001 1,000 124,000 - - 125,000
Net income
- - - - 2,457,000 2,457,000
Other comprehensive loss
- - - (243,000 ) - (243,000 )
Cumulative-effect adjustment of change in accounting for stock-based compensation
- - (866,000 ) - 866,000 -
Balance as of September 30, 2017
14,583,315 $ 146,000 $ 6,600,000 $ (447,000 ) $ 26,047,000 $ 32,346,000

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

~~Alpha Pro Tech, Ltd.~~

~~Condensed~~ ~~Consolidated Statements of Cash Flows (Unaudited)~~

For the Nine Months Ended September 30,

2017

2016

Cash Flows From Operating Activities:

Net income
$ 2,457,000 $ 2,323,000
Adjustments to reconcile net income to net cash provided by operating activities:

Stock-based compensation expense
244,000 115,000
Depreciation and amortization
426,000 425,000
Equity in income of unconsolidated affiliate
(339,000 ) (433,000 )
Gain on sale of property
(385,000 ) -
Changes in assets and liabilities:

Accounts receivable, net
(797,000 ) (1,953,000 )
Accounts receivable, unconsolidated affiliate
(276,000 ) (11,000 )
Inventories
1,530,000 4,544,000
Prepaid expenses and other current assets
254,000 191,000
Accounts payable and accrued liabilities
(440,000 ) 815,000

Net cash provided by operating activities
2,674,000 6,016,000

Cash Flows From Investing Activities:

Purchase of property and equipment
(923,000 ) (212,000 )
Proceeds from sale of property
537,000 -
Purchase of marketable securities
- (41,000 )

Net cash used in investing activities
(386,000 ) (253,000 )

Cash Flows From Financing Activities:

Repurchase of common stock
(2,901,000 ) (3,689,000 )
Proceeds from exercise of stock options
125,000 17,000

Net cash used in financing activities
(2,776,000 ) (3,672,000 )

Increase (decrease) in cash
(488,000 ) 2,091,000

Cash, beginning of the period
9,456,000 9,681,000

Cash, end of the period
$ 8,968,000 $ 11,772,000

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

~~Alpha Pro Tech, Ltd.~~

Notes to Condensed Consolidated Financial Statements (Unaudited)

2.	Basis of Presentation and Revenue Recognition Policy

The interim financial information included ~~herein~~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.~~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, ~~on Form 10-Q and Form 8-K,~~ as well as the Company’s consolidated financial statements for the year ended December 31, ~~2016,~~2018, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the ~~“2016~~“2018 Form 10-K”), ~~which was~~ filed with the SEC on March ~~8, 2017.~~6, 2019. The results of operations for the three and nine months ended September 30, ~~2017~~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, ~~2016~~2018 was prepared using information from the audited consolidated balance sheet contained in the ~~2016~~2018 Form ~~10-K and~~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.

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

For the nine months ended September 30, ~~2017, 25,000~~2019 and 2018, 370,000 and 349,750 stock options were granted under the Company’s option ~~plan. For the nine months ended September 30, 2016, 810,000 stock options were granted under the Company’s option plan.~~plan, respectively. The Company recognized ~~$244,000~~$353,000 and ~~$115,000~~$312,000 in stock-based compensation expense for the nine months ended September 30, ~~2017~~2019 and ~~2016, respectively, related to the vesting of previously issued options.~~2018, respectively.

~~Stock options to purchase~~ ~~999,999 shares of common stock were outstanding as of September 30, 2017, and stock options to purchase 1,065,000 shares of common stock were outstanding as of December 31, 2016.~~

~~Alpha Pro Tech, Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

The Company ~~use~~suses 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 ~~the~~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, ~~2017:~~2019:

				Weighted					Weighted
				Average					Average
				Exercise Price					Exercise Price
	Shares			Per Option		Options			Per Option

Options outstanding, December 31, 2016		1,065,000		$	2.06
Options outstanding, December 31, 2018							1,022,913		$	2.69
Granted to employees and non-employee directors		25,000			3.66		370,000			3.59
Exercised		(70,001	)		1.78		(49,833	)		1.90
Canceled/expired/forfeited		(20,000	)		1.58		-			0.00
Options outstanding, Septermber 30, 2017		999,999			2.13
Options exercisable, September 30, 2017		330,000			1.96
Options outstanding, September 30, 2019							1,343,080			2.96
Options exercisable, September 30, 2019							676,580			2.44

As of September 30, ~~2017, $602,000~~2019, $354,000 of total unrecognized compensation cost related to stock options was expected to be recognized over a weighted average period of ~~1.70~~2.13 years.

~~As a result of the Company adopting Accounting Standards Update (“ASU”) 2016-09,~~ ~~Compensation - Stock Compensation~~ ~~(Topic 718):~~ ~~Improvements to Employee Share-Based Payment Accounting~~, during the quarter ended March 31, 2017, the Company recorded a one-time $866,000 cumulative-effect adjustment to reduce additional paid-in capital and increase retained earnings for excess tax benefits from stock option exercises that had previously been recorded to additional paid-in capital.

4.	~~Investments~~

~~As of~~ ~~September 30, 2017 and December 31, 2016, investments totaled $252,000 and $607,000 respectively, which consisted of marketable securities.~~

~~The following provides information regarding the Company’s marketable securities as of September 30, 2017 and December 31, 2016:~~

September 30,

December 31,

2017

2016

Cost basis
$ 543,000 $ 543,000
Gains previously recognized on warrants
380,000 380,000
Loss included in accumulated other comprehensive loss before tax benefit
(671,000 ) (316,000 )
Fair value
$ 252,000 $ 607,000

~~Alpha Pro Tech, Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~No marketable securities were sold during the~~ nine months ended September 30, 2017 and the year ended December 31, 2016. The change in unrealized loss of $208,000 and unrealized gain of $28,000 for the three months ended September 30, 2017 and 2016, respectively, in the statements of comprehensive income are presented net of tax for the quarters ended September 30, 2017 and 2016, respectively. The tax benefit on the unrealized loss was $105,000, and the tax expense on the unrealized gain was $15,000 for the quarters ended September 30, 2017 and 2016, respectively. The change in unrealized loss of $243,000 and $50,000 for the nine months ended September 30, 2017 and 2016, respectively, in the statements of comprehensive income are presented net of tax for the nine months ended September 30, 2017 and 2016. The tax benefit on the unrealized loss was $113,000 and $31,000 for the nine months ended September 30, 2017 and 2016, respectively.

5.	~~Recent Accounting Pronouncements~~

~~Accounting Standards Update (“ASU”) 2014-09,~~ ~~Revenue from Contracts with Customers~~ (Topic 606) (“ASU 2014-09”) is a comprehensive new revenue recognition model requiring a company to recognize revenue to depict the transfer of goods or services to a customer at an amount reflecting the consideration that it expects to receive in exchange for those goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. ASU 2014-09 is effective for the first interim period within an annual reporting period beginning after December 15, 2017, and early adoption is not permitted. The Company will adopt ASU 2014-09 during the first quarter of 2018. Management is evaluating the provisions of this update and at this point in time has determined that its adoption will have limited to no impact on the Company’s financial position or results of operations.

~~In November 2015, the FASB issued ASU 2015-17,~~ ~~Income Taxes~~ ~~(Topic 740):~~ ~~Balance Sheet Classification of Deferred Taxes~~, which requires deferred income tax liabilities and assets to be classified as noncurrent on the balance sheet rather than being separated into current and noncurrent. The guidance was effective for public entities for annual periods beginning after December 15, 2016 and interim periods within those annual periods, with early adoption being permitted. The Company adopted this guidance in the first quarter of 2017. The Company netted $410,000 in deferred tax assets against deferred tax liabilities as of the end of the first quarter of 2017. Prior periods were not retrospectively adjusted.

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Financial Instruments~~ - ~~Overall~~ ~~(Subtopic 825-10):~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~, which provides guidance for the recognition, measurement, presentation and disclosure of financial instruments. The new guidance revises the accounting requirements related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The guidance also changes certain disclosure requirements associated with the fair value of financial instruments. These changes will require an entity to measure, at fair value, investments in equity securities and other ownership interests in an entity and recognize the changes in fair value within net income. The guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. The Company has not yet adopted this guidance and has not yet determined the impact of adoption on the Company’s financial position or results of operations.

I~~n February 2016, the FASB issued ASU 2016-02,~~ ~~Leases~~ (Topic 842), which requires lessees to recognize most leases on the balance sheet. The provisions of this guidance are effective for annual periods beginning after December 15, 2018 and interim periods within those years, with early adoption permitted. Management is evaluating the requirements of this guidance and has not yet determined the impact of the adoption on the Company’s financial position or results of operations.

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

5.	Recent Accounting Pronouncements

In ~~March~~February 2016, the FASB issued ASU ~~2016-09,~~ 2016-02, ~~Compensation - Stock Compensation~~ ~~(Topic 718):~~ ~~Improvements to Employee Share-Based Payment Accounting~~Leases, which ~~simplifies several aspects~~introduces the recognition of ~~accounting~~lease assets and lease liabilities by lessees for ~~share-based payment transactions, including the income tax consequences, classification of awards~~those leases classified as ~~either equity~~finance leases or ~~liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows.~~operating leases under previous guidance. The ~~provisions of this guidance were~~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. T~~hepermitted 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 ~~this guidance during~~ the quarter ended March 31, 2017, and the Company recorded a one-time $866,000 cumulative-effect adjustment to reduce additional paid-in capital and increase retained earnings for excess tax benefits from stock option exercises that had previously been recorded to additional paid-in capital. The adoptionprovisions of this ~~guidance also increased the number of dilutive shares because excess tax benefits are no longer included~~ASU in the ~~assumed proceeds when calculating~~first quarter of 2019. Adoption of the ~~number of dilutive shares. In addition, the effective tax rate will be reduced in future periods when there are excess tax benefits from stock options exercised.~~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.~~discussion at this time.

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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.~~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~~.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~~associates and collateralized by the assets of Harmony, were utilized to purchase the original manufacturing facility in India. Harmony currently has ~~five~~four facilities in India (three owned and ~~two~~one rented), consisting of: (1) a ~~102,000~~113,000 square foot building for manufacturing building products; (2) a ~~71,500~~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; ~~(4) a 12,000 square foot rented facility for coating material;~~ and ~~(5)~~(4) a 93,000 square foot ~~rented~~ facility (rented) for ~~the~~ manufacturing ~~of building~~Building Supply segment products. All additions have been financed by Harmony with no guarantees from the Company.

In accordance with ~~Accounting Standards Codification (“ASC”)~~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.

~~Alpha Pro Tech, Ltd.~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

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, ~~2017.~~2019 or December 31, 2018.

For the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, Alpha Pro Tech purchased ~~$3,258,000~~$4,849,000 and ~~$3,716,000~~$4,535,000 of inventories, respectively, from Harmony. For the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, Alpha Pro Tech purchased ~~$11,097,000~~$15,300,000 and ~~$9,646,000~~$12,036,000 of inventories, respectively, from Harmony.

For the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, the Company recorded equity in income of unconsolidated affiliate of ~~$105,000~~$10,000 and ~~$242,000,~~$103,000, respectively, related to Harmony. For the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, the Company recorded equity in income of unconsolidated affiliate of ~~$339,000~~$371,000 and ~~$433,000,~~$393,000, respectively, related to Harmony.

As of September 30, ~~2017,~~2019, the Company’s investment in Harmony was ~~$3,877,000,~~$4,851,000, which consisted of its original $1,450,000 investment and cumulative equity in income of unconsolidated affiliate of ~~$3,446,000,~~$4,420,000, less $942,000 in repayments of the advance and $77,000 in dividends.

8.	~~Accrued Liabilities~~

~~As of~~ ~~September 30, 2017 and December 31, 2016, accrued liabilities consisted of the following:~~

September 30,

December 31,

2017

2016

Bonuses payable
$ 696,000 $ 904,000
Payroll expenses
281,000 556,000
$ 977,000 $ 1,460,000

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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, ~~2017~~2019 and ~~2016.~~2018:

	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
	2017		2016		2017		2016		2019		2018		2019		2018
Net income (numerator)	$	1,103,000	$	1,019,000	$	2,457,000	$	2,323,000	$	437,000	$	1,539,000	$	2,665,000	$	3,007,000

Shares (denominator):
Basic weighted average common shares outstanding		14,732,173		16,695,059		14,962,606		17,190,073		13,056,173		13,795,007		13,209,598		14,031,518
Add: dilutive effect of common stock options		201,253		11,473		113,334		-		19,519		58,612		28,428		44,515

Diluted weighted average common shares outstanding		14,933,426		16,706,532		15,075,940		17,190,073		13,075,692		13,853,619		13,238,026		14,076,033

Earnings per common share:
Basic	$	0.07	$	0.06	$	0.16	$	0.14	$	0.03	$	0.11	$	0.20	$	0.21
Diluted	$	0.07	$	0.06	$	0.16	$	0.14	$	0.03	$	0.11	$	0.20	$	0.21

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

10.

Activity of Business Segments

The Company operates through ~~three~~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 ~~clothing, such as~~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 ~~medical~~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.

~~Infection Control~~~~: consisting of a line of~~Previously, face masks and ~~eye shields.~~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, ~~2017~~2019 and ~~2016:~~2018:

	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,				September 30,				September 30,
	2017		2016		2017		2016		2019		2018		2019		2018
Building Supply	$	7,076,000	$	7,022,000	$	19,298,000	$	21,700,000	$	7,215,000	$	6,979,000	$	20,423,000	$	20,220,000
Disposable Protective Apparel		3,845,000		3,698,000		10,914,000		11,147,000		4,812,000		5,125,000		15,322,000		15,435,000
Infection Control		1,128,000		1,059,000		3,870,000		3,487,000
Consolidated net sales	$	12,049,000	$	11,779,000	$	34,082,000	$	36,334,000	$	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

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

~~The following table~~ ~~presents the reconciliation of consolidated segment income to consolidated net income for the three and nine months ended September 30, 2017 and 2016:~~

For the Three Months Ended

For the Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Building Supply
$ 1,339,000 $ 1,618,000 $ 3,471,000 $ 4,287,000
Disposable Protective Apparel
764,000 617,000 1,977,000 1,327,000
Infection Control
396,000 375,000 1,405,000 1,211,000
Total segment income
2,499,000 2,610,000 6,853,000 6,825,000

Unallocated corporate overhead expenses
893,000 1,162,000 3,328,000 3,462,000
Provision for income taxes
503,000 429,000 1,068,000 1,040,000
Consolidated net income
$ 1,103,000 $ 1,019,000 $ 2,457,000 $ 2,323,000

The following table presents the consolidated net property and equipment, goodwill and definite-lived intangible assets (“consolidated assets”) by segment as of September 30, ~~2017~~2019 and December 31, ~~2016:~~2018:

	September 30,		December 31,		September 30,		December 31,
	2017		2016		2019		2018

Building Supply	$	2,168,000	$	2,208,000	$	1,908,000	$	1,908,000
Disposable Protective Apparel		341,000		346,000		1,109,000		400,000
Infection Control		14,000		140,000
Total segment assets		2,523,000		2,694,000		3,017,000		2,308,000

Unallocated corporate assets		556,000		41,000		1,053,000		1,007,000
Total consolidated assets	$	3,079,000	$	2,735,000	$	4,070,000	$	3,315,000

11.11.

~~Related Party Transactions~~Financial Information about Geographic Areas

The ~~Company has historically used a law firm~~following table summarizes the Company’s net sales by geographic region for ~~various legal matters whose majority member was a member of the Company’s Board of Directors. Effective March 31, 2017, the Board member resigned from the Board of Directors, which removed the related party relationship with this law firm. For~~ the three ~~months ended September 30, 2016, the Company expensed $95,000 for legal services from this related party. For the~~and nine months ended September 30, ~~2017~~2019 and ~~2016,~~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 ~~expensed $65,000 and $145,000, respectively, for legal services~~did not generate sales from ~~this related party. As of December 31, 2016,~~any single country, other than the United States, that were significant to the Company’s ~~outstanding balance to this related party was $163,000.~~consolidated net sales.

~~12.~~

~~Commitments~~ ~~and Contingencies~~

The ~~Company is presently involved in protracted litigation against a competitor in an action styled Alpha Pro Tech, Inc. v. VWR International, LLC, pending in~~following table summarizes the ~~U.S. District Court for~~locations of the ~~Eastern District~~Company’s long-lived assets by geographic region as of ~~Pennsylvania, CV 12-1615, wherein the Company originally sought damages for unfair trade practices~~September 30, 2019 and false advertising against the competitor, and the competitor has counterclaimed asserting similar claims against the Company. In August of 2017, the court ruled against the Company on its claims against the competitor, and the competitor is presently seeking attorneys’ fees and costs as the prevailing party with respect to those claims. The Company is in the process of evaluating, with current litigation counsel, the remaining counterclaims against the Company and the claim for attorneys’ fees and costs and intends to vigorously defend against these claims. Although the Company believes that it will prevail in its defense of these claims, any material loss amount that might be incurred cannot reasonably be estimated at this time.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

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

13.

Leases

The Company ~~is subject~~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 ~~other pending~~the Company’s manufacturing facilities in Valdosta, Georgia, Nogales, Arizona and ~~threatened litigation actions~~Salt Lake City, Utah, as well as the Company’s corporate headquarters in ~~the ordinary course~~Markham, Ontario, Canada.

As of ~~business. Although it is not possible to determine with certainty at this point in time what liability, if any,~~September 30, 2019, the Company ~~will~~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 ~~as a result of such litigation, based on consultation with legal counsel, management does not anticipate that the ultimate liability, if~~ any ~~resulting from such litigation will have a material effect~~finance leases recorded on the Company’s ~~financial condition~~condensed consolidated balance sheet. Operating lease expense was approximately $201,000 and ~~results~~$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 ~~operations.~~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%.

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.~~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”).

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 ~~relating to potential acquisitions~~ 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.~~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~~’sCompany’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.

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 ~~Internet~~ 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~~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 ~~Securities and Exchange Commission (“SEC”).~~SEC. In addition, in accordance with SEC rules, we provide electronic or paper copies of our filings free of charge upon request.

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~~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, ~~with~~and, effective January 1, 2018, unrealized gains and losses ~~net of deferred income taxes,~~are reported as a component of ~~accumulated~~net income in the statements of income. Prior to January 1, 2018, unrealized gains and losses were reported as other comprehensive income ~~(loss). Realized gains and losses, and declines in value deemed to be other-than-temporary on available-for-sale investments, are recognized in earnings.~~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.

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 ~~management determines that~~ 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: ~~For~~ Net sales ~~transactions,~~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 ~~comply~~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 ~~provisions~~promised products to the customer, with revenue being recognized at the point in time at which the customer obtains control of the ~~SEC Staff Accounting Bulletin No. 104,~~ ~~Revenue Recognition~~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 ~~states that~~appear elsewhere in this report, for information on revenue ~~should be recognized when all of the following revenue recognition criteria are met: (1) persuasive evidence of an arrangement exists; (2) title transfers~~disaggregated by type and the customer assumes the risk of loss; (3) the selling price is fixed or determinable; and (4) collection of the resulting receivable is reasonably assured. These criteria are satisfied upon shipment of product, and sales are recognized accordingly.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.

Stock-Based Compensation: We 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 ~~fair~~ value of ~~stock-based awards determined on the date of grant,~~all outstanding and unvested share-based payments, including employee stock ~~options.~~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~~’smanagement’s expectations of future volatility, risk-free interest rates from published sources, expected ~~life~~term based on historical data and no dividend yield, as the Board of Directors currently has no ~~current~~ plans to pay dividends in the ~~near~~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. ~~The~~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.

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 ~~and infection control~~ 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 ~~three~~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 ~~apparel such as~~garments (including shoecovers, bouffant caps, ~~gowns,~~ coveralls, ~~lab coats,~~gowns, frocks and ~~other miscellaneous products; and the Infection Control segment, consisting of~~lab coats), face masks and ~~eye~~face shields. All financial information presented ~~herein~~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.

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

Three and ~~nine~~Nine months ended September 30, ~~2017~~ 2019, compared to ~~three~~Three and ~~nine~~Nine months ended September 30, ~~201~~62018

Sales.Consolidated sales for the three months ended September 30, ~~2017 increased~~2019 decreased slightly to ~~$12,049,000~~$12,027,000 from ~~$11,779,000~~$12,104,000 for the three months ended September 30, ~~2016,~~2018, representing ~~an increase~~a decrease of ~~$270,000,~~$77,000, or ~~2.3%~~0.6%. This ~~increase~~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 ~~$54,000, increased sales in the Disposable Protective Apparel segment of $147,000 and increased sales in the Infection Control segment of $69,000.~~$236,000.

Building Supply segment sales for the three months ended September 30, ~~2017~~2019 increased by ~~$54,000,~~$236,000, or ~~0.8%~~3.4%, to ~~$7,076,000,~~$7,215,000, compared to ~~$7,022,000~~$6,979,000 for the same period of ~~2016.~~2018. This segment increase was primarily due to ~~a 20.3%~~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 ~~37.2% increase~~decrease in sales of other woven material ~~partially offset by a 14.9% decrease in sales~~ 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 ~~(including REX™, TECHNOply™~~products, and we are very encouraged by the early success of our new TECHNO ~~SB).~~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, ~~2017~~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 ~~10% for other woven material. This compared to 57% for synthetic roof underlayment, 35% for housewrap and 8%~~14% for other woven material for the three months ended September 30, ~~2016.~~2018.

Although synthetic roof underlayment segment sales were down, housewrap sales remained strong, with increased sales in the third quarter of 20.3% and 10.0% year to date. At the end of the third quarter, we announced a new, innovative and exciting product line to our housewrap family, REX™ Wrap Fortis with JX ALTA 360° Drainage Technology™. With its one-of-a-kind construction, this product uniquely enables the drainage of water in EVERY direction to protect buildings from the elements exponentially better than a traditional housewrap, while decreasing job site material waste, simplifying installation to reduce labor and allowing fewer products to be carried. This new product offering will compete in a segment of the housewrap market that is currently untapped for us, and we anticipate that it will provide us with significant growth opportunities. Synthetic roof underlayment sales were down in the third quarter of 2017, primarily due to lower sales to private label customers and competitive pricing pressure. In particular, sales to one of our largest private label distributors were down significantly in the third quarter as well as year to date, as they are struggling with a general decline in their overall building sales. In addition, sales to another smaller private label distributor were down due to a change in strategy during 2016. Although sales were down, the number of rolls of label synthetic roof underlayment sold, excluding sales to the two distributors mentioned above, were actually up 5.9% for the quarter. We believe that our line of synthetic roof underlayment will be a growth driver in the coming year. Management expects the Building Supply segment to experience growth in 2018.

Sales for the Disposable Protective Apparel segment for the three months ended September 30, ~~2017 increased~~2019 decreased by ~~$147,000,~~$313,000, or ~~4.0%~~6.1%, to ~~$3,845,000,~~$4,812,000, compared to ~~$3,698,000~~$5,125,000 for the same period of ~~2016,~~2018. This segment decrease was primarily due to ~~increased~~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, ~~partially offset by decreased sales to national and regional distributors.~~

~~Infection Control segment~~however, this partner’s sales for the three months ended September 30, ~~2017 increased by $69,000, or 6.5%~~2019 to its end users were up 8%, ~~to $1,128,000,~~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 ~~$1,059,000~~76% for disposable protective garments, 14% for face masks and 10% for face shields for the ~~same period of 2016. Mask sales were up by 6.1%, or $43,000, to $751,000, and shield sales were up by 7.4%, or $26,000, to $377,000.~~three months ended September 30, 2018.

Consolidated sales ~~for the~~ ~~nine months ended September 30, 2017 decreased to $34,082,000 from $36,334,000~~ for the nine months ended September 30, ~~2016,~~2019 increased slightly to $35,745,000 from $35,655,000 for the nine months ended September 30, 2018, representing ~~a decrease~~an increase of ~~$2,252,000,~~$90,000, or ~~6.2%~~0.3%. This, ~~decrease was due to decreased~~increase consisted of increased sales in the Building Supply segment of ~~$2,402,000 and~~$203,000, partially offset by decreased sales in the Disposable Protective Apparel ~~segment~~Segment of ~~$233,000, partially offset by increased sales in the Infection Control segment of $383,000.~~$113,000.

Building Supply segment sales for the nine months ended September 30, ~~2017 decreased~~2019 increased by ~~$2,402,000,~~$203,000, or ~~11.1%~~1.0%, to ~~$19,298,000,~~$20,423,000, compared to ~~$21,700,000~~$20,220,000 for the same period of ~~2016. This~~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 ~~decrease~~increase was primarily due to a ~~25.3% decrease~~5.3% increase in our core building products, including an increase in sales of synthetic roof underlayment ~~(including REX™, TECHNOply™~~of 11.1% and ~~our new TECHNO SB), partially offset by a 10.0%~~an increase in sales of housewrap ~~and a 30.3% increase in sales~~of 1.5% compared to the same period of 2018. Sales of other woven ~~material.~~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, ~~2017~~2019 was ~~51%~~47% for synthetic roof underlayment, ~~41%~~45% for housewrap and 8% for other woven material. This compared to ~~61%~~43% for synthetic roof underlayment, ~~33%~~45% for housewrap and 6%12% for other woven material for the nine months ended September 30, ~~2016.~~2018.

Sales for the Disposable Protective Apparel segment for the nine months ended September 30, ~~2017~~2019 slightly decreased by ~~$233,000,~~$113,000, or ~~2.1%~~0.7%, to ~~$10,914,000,~~$15,322,000, compared to ~~$11,147,000~~$15,435,000 for the same period of ~~2016. Although Disposable Protective Apparel~~2018. This segment ~~sales were~~ ~~down year to date, sales have been up in the two most recent quarters. The year to date~~ decrease was primarily due to ~~decreased~~a decrease in sales ~~to our national~~of face masks and ~~regional distributors,~~face shields, partially offset by ana 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.~~

~~Infection Control~~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 ~~sales~~ for the nine months ended September 30, ~~2017 increased by $383,000, or 11.0%, to $3,870,000,~~2019 was 76% for disposable protective clothing, 16% for face masks and 8% for face shields. This sales mix is compared to ~~$3,487,000~~75% for disposable protective garments, 16% for face masks and 9% for face shields for the ~~same period of 2016. Mask sales were up by 12.7%, or $303,000, to $2,695,000, and shield sales were up by 7.3%, or $80,000, to $1,175,000.~~nine months ended September 30, 2018.

Gross Profit. Gross profit ~~increased~~decreased by ~~$196,000,~~$365,000, or ~~4.3%~~8.0%, to ~~$4,712,000~~$4,220,000 for the three months ended September 30, ~~2017~~2019, from ~~$4,516,000~~$4,585,000 for the same period of ~~2016.~~2018. The gross profit margin was ~~39.1%~~35.1% for the three months ended September 30, ~~2017,~~2019, compared to ~~38.3%~~37.9% for the same period of ~~2016.~~

~~Gross profit~~ increased by $191,000, or 1.4%, to $13,493,000 for the nine months ended September 30, 2017 from $13,302,000 for the same period of 2016. The gross profit margin was 39.6% for the nine months ended September 30, 2017, compared to 36.6% for the same period of 2016.

~~Management expects gross profit margin to be~~ ~~around 39% for fiscal 2017.~~

~~Selling, General and Administrative Expenses.~~ ~~Selling, general and administrative expenses increased by $292,000, or 9.2%, to $3,450,000 for~~2018. For the three months ended September 30, ~~2017 from $3,158,000 for~~2019, gross profit margin was negatively affected as certain products that were tariff free until June 4, 2019 under the ~~three months ended September 30, 2016. As a percentage~~U.S. Customs and Borders Protection Generalized System of ~~net sales, selling, general and administrative expenses increased to 28.6% for~~Preferences (“GSP”) will no longer be duty free, as the ~~three months ended September 30, 2017, from 26.8% for~~government program was terminated. This termination of tariff free GSP products primarily affected gross profit of the ~~same period of 2016.~~

~~The change in~~ ~~selling, general and administrative expenses for the third quarter of 2017 by segment was as follows: Building Supply was up $153,000, or 14.6%, Infection Control was up $2,000, or 1.5%,~~ 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 ~~up $29,000, or 3.5%, and corporate unallocated expenses were up $108,000, or 9.3%. The increase was primarily due to an increase~~also affected by a change in ~~sales and marketing expenses, as we invested in additional sales representatives primarily~~product mix in the Building Supply ~~segment.~~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.

Gross profit decreased by ~~$319,000,~~$630,000, or ~~3.2%~~4.6%, to ~~$10,269,000~~$13,129,000 for the nine months ended September 30, ~~2017~~2019, from ~~$9,950,000~~$13,759,000 for the same period of 2018. The gross profit margin was 36.7% for the nine months ended September 30, ~~2016.~~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 ~~30.1%~~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, ~~2017,~~2019, from ~~27.4%~~$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 ~~2016.~~2018. The increase was primarily a result of increased Building Supply segment trade show expenses.

The change in ~~selling, general and administrative~~ expenses by segment for the ~~first~~ nine months ~~of 2017 by segment~~ended September 30, 2019 was as follows: Building Supply ~~was up $204,000,~~increased by $174,000, or ~~6.1%, Infection Control was up $4,000,~~4.6%; Disposable Protective Apparel decreased by $70,000 or ~~1.0%,~~2.1%; and corporate unallocated expenses were ~~up $234,000,~~down $20,000, or ~~6.8%,~~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 ~~down $123,000, or 4.5%.~~related to lower commissions, and the decrease in corporate unallocated expenses was primarily due to lower expenses for professional fees.

~~Pursuant to~~ ~~their~~In accordance with the terms of his employment ~~agreements,~~agreement, the Company’s President and Chief Executive Officer ~~and President are each~~is entitled to aan annual bonus equal to 5% of the pre-tax profits of the Company, excluding bonus expense. ~~Bonuses~~A bonus amount of ~~$190,000 were~~$36,000 was accrued for the three months ended September 30, ~~2017,~~2019, as compared to ~~$76,000~~$100,000 for the same period of ~~2016. Bonuses~~2018. A bonus amount of ~~$392,000 were~~$171,000 was accrued for the nine months ended September 30, ~~2017,~~2019, as compared to ~~$177,000~~$193,000 for the same period of ~~2016. The Chief Executive Officer was not entitled to receive this bonus during 2016.~~2018.

Depreciation and Amortization. Depreciation and amortization expense ~~decreased~~increased by ~~$6,000,~~$2,000, or ~~3.9%~~1.4%, to ~~$147,000~~$142,000 for the three months ended September 30, ~~2017~~2019, from ~~$153,000~~$140,000 for the ~~same period of 2016.~~

three months ended September 30, 2018. Depreciation and amortization expense ~~increased~~decreased by ~~$1,000,~~$20,000, or ~~0.2%~~4.7%, to ~~$426,000~~$410,000 for the nine months ended September 30, ~~2017~~2019, from ~~$425,000~~$430,000 for the same period of ~~2016.~~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 ~~$90,000,~~$863,000, or ~~7.5%~~48.8%, to ~~$1,115,000~~$906,000 for the three months ended September 30, ~~2017,~~2019, compared to ~~$1,205,000~~$1,769,000 for the three months ended September 30, ~~2016.~~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 ~~$292,000, partially offset by~~$496,000 and an increase in ~~gross profit~~depreciation and amortization expense of ~~$196,000.~~$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.

Income from operations decreased by ~~$129,000,~~$694,000, or ~~4.4%~~21.0%, to ~~$2,798,000~~$2,611,000 for the nine months ended September 30, ~~2017,~~2019, compared to ~~$2,927,000~~$3,305,000 for the nine months ended September 30, ~~2016.~~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 ~~$319,000,~~$84,000, partially offset by ~~an increase~~a decrease in ~~gross profit~~depreciation and amortization expense of ~~$191,000.~~$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 ~~increased~~decreased by ~~$248,000~~$488,000 to ~~$491,000~~a loss of $359,000 for the three months ended September 30, ~~2017~~2019 from ~~$243,000~~income of $129,000 for the same period of ~~2016.~~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 ~~$105,000,~~$393,000, a ~~gain~~loss on ~~the sale~~marketable securities of ~~property of $385,000~~$40,000 and interest income of $1,000 for the three months ended September 30, 2017. Other income consisted primarily of equity in income of unconsolidated affiliate of $242,000 and interest income of $1,000 for the three months ended September 30, 2016.

~~Other income~~ ~~increased by $291,000 to $727,000~~$2,000 for the nine months ended September 30, 2017 from $436,000 for the same period of 2016. Other income consisted primarily of equity in income of unconsolidated affiliate of $339,000, a gain on the sale of property of $385,000 and interest income of $3,000 for the nine months ended September 30, 2017. Other income consisted primarily of equity in income of unconsolidated affiliate of $433,000 and interest income of $3,000 for the nine months ended September 30, 2016.2018.

Income before Provision for Income Taxes. Income before provision for income taxes for the three months ended September 30, ~~2017~~2019 was ~~$1,606,000,~~$547,000, compared to income before provision for income taxes of ~~$1,448,000~~$1,898,000 for the three months ended September 30, ~~2016,~~2018, representing ~~an increase~~a decrease of ~~$158,000,~~$1,351,000, or ~~10.9%~~71.2%. This ~~increase~~decrease in income before provision for income taxes was primarily due to ~~an increase in other income of $248,000, partially offset by~~ a decrease in income from operations of ~~$90,000.~~$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.

~~Income before provision for income taxes for the~~ nine months ended September 30, 2017 was $3,525,000, compared to income before provision for income taxes of $3,363,000 for the nine months ended September 30, 2016, representing an increase of $162,000, or 4.8%. The increase in income before provision for income taxes was primarily due to an increase in other income of $291,000, partially offset by a decrease in income from operations of $129,000.

~~Provision for Income Taxes.~~ The provision for income taxes for the three months ended September 30, 2017 was $503,000, compared to $429,000 for the same period of 2016. The effective tax rate was 31.3% for the three months ended September 30, 2017, compared to 29.6% for the same period of 2016. The Company does not record a tax provision on equity in income of unconsolidated affiliate. For the three months ended September 30, 2017, the estimated effective tax rate would have been 33.5% if the equity in income of unconsolidated affiliate was taxable. Management expects the effective tax rate to be in the low 30% range for fiscal 2017.

~~The provision for income taxes for the~~ nine months ended September 30, 2017 was $1,068,000, compared to $1,040,000 for the same period of 2016. The effective tax rate was 30.3% for the nine months ended September 30, 2017, compared to 30.9% for the same period of 2016.

Net Income. Net income for the three months ended September 30, ~~2017~~2019 was ~~$1,103,000,~~$437,000, compared to net income of ~~$1,019,000~~$1,539,000 for the ~~three months ended September 30, 2016,~~same period of 2018, representing ~~an increase~~a decrease of ~~$84,000,~~$1,102,000, or ~~8.2%~~71.6%. The net income ~~increase~~decrease was due to ~~an increase~~a decrease in income before provision for income taxes of ~~$158,000,~~$1,351,000, partially offset by ~~an increase~~a decrease in provision for income taxes of ~~$74,000.~~$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, ~~2017~~2019 was ~~9.2%~~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 ~~2016~~2018 was ~~8.7%. Basic and diluted earnings per common share for the three months ended September 30, 2017 and 2016 were $0.07 and $0.06, respectively.~~

~~Net income for the~~ nine months ended September 30, 2017 was $2,457,000, compared to net income of $2,323,000 for the nine months ended September 30, 2016, representing an increase of $134,000, or 5.8%. The net income increase was due to an increase in income before provision for income taxes of $162,000, partially offset by an increase in provision for income taxes of $28,000. Net income as a percentage of net sales for the nine months ended September 30, 2017 was 7.2%, and net income as a percentage of net sales for the same period of 2016 was 6.4%8.4%. Basic and diluted earnings per common share for the nine months ended September 30, ~~2017~~2019 and ~~2016~~2018 were ~~$0.16~~$0.20 and ~~$0.14,~~$0.21, respectively.

As of September 30, ~~2017, we~~2019, the Company had cash of ~~$8,968,000~~$5,106,000 and working capital of ~~$25,646,000,~~$24,516,000, representing a decrease in working capital of ~~5.7%, or $1,552,000,~~$24,000 from $24,540,000 as of December 31, ~~2016.~~2018. As of September 30, ~~2017, our~~2019, the Company’s current ratio (current assets/current liabilities) was ~~14:~~12:1, compared to a ~~12:~~14:1 current ratio as of December 31, ~~2016.~~2018. Cash decreased by ~~5.2%~~27.1%, or ~~$488,000,~~$1,901,000, to ~~$8,968,000~~$5,106,000 as of September 30, ~~2017,~~2019, compared to ~~$9,456,000~~$7,007,000 as of December 31, ~~2016.~~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 ~~$2,776,000~~$1,969,000 and cash used in investing activities of ~~$386,000, partially offset by cash provided by operating activities of $2,674,000.~~$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, ~~2017,~~2019, the prime interest rate was ~~4.25%~~5.00%. This credit line ~~was renewed~~will expire in May ~~2016 and expires in May 2018.~~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, ~~2017.~~2019. As of September 30, ~~2017,~~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 $~~2,674,000~~$1,099,000 for the nine months ended September 30, ~~2017~~2019 was due to net income of ~~$2,457,000, adjusted~~$2,665,000, impacted primarily by the following: stock-based compensation expense of ~~$244,000,~~$353,000, depreciation and amortization expense of ~~$426,000,~~$410,000, loss on marketable securities of $223,000, equity in income of unconsolidated affiliate of ~~$339,000, gain on sale~~$371,000, operating lease expense net of ~~property~~accretion of ~~$385,000,~~$532,000, an increase in accounts receivable of ~~$1,073,000, a decrease in inventory of $1,530,000,~~$851,000, a decrease in prepaid expenses ~~and other current assets~~ of ~~$254,000 and~~$855,000, an increase in inventory of $1,377,000, a decrease in accounts payable and accrued liabilities of ~~$440,000.~~$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,

Prepaid expenses decreased by ~~$1,073,000,~~$855,000, or ~~22.3%~~21.4%, to ~~$5,895,000~~$3,144,000 as of September 30, ~~2017~~2019, from ~~$4,822,000~~$3,999,000 as of December 31, 2016. The increase in accounts receivable was primarily related to increased revenue in the third quarter of 2017 compared to the fourth quarter of 2016. The number of days that sales remained outstanding as of September 30, 2017, calculated by using an average of accounts receivable outstanding, was 42 days, compared to 30 days as of December 31, 2016.

~~Inventory decreased by $1,530,000, or 13.9%, to $9,464,000 as of September 30, 2017 from $10,994,000 as of December 31, 2016.~~2018. The decrease was primarily due to ~~a decrease in inventory~~prepayments for ~~the Disposable Protective Apparel segment of $1,014,000, or 27.1%, to $2,722,000, a decrease in inventory for the Building Supply segment of $474,000, or 9.7%, to $4,435,000,~~equipment that has now been received and a decrease in ~~inventory for the Infection Control segment of $42,000, or 1.8%, to $2,307,000.~~

~~Prepaid expenses~~tax prepayments, partially offset by increased prepaid insurance and ~~other current assets decreased by $254,000, or 7.6%, to $3,092,000 as of September 30, 2017 from $3,346,000 as of December 31, 2016. The decrease was primarily due to a decrease in~~ 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, ~~2017~~2019 decreased by ~~$440,000,~~$402,000, or ~~17.8%~~20.9%, to ~~$2,025,000,~~$1,518,000, from ~~$2,465,000~~$1,920,000 as of December 31, ~~2016.~~2018. The change was primarily due to a decrease in accrued liabilities as a result of ~~$483,000~~payments of 2018 year-end commissions and ~~an increase in trade payables of $43,000.~~bonuses and a decreased accrued payroll.

Net cash used in investing activities was $~~386,000~~$1,031,000 for the nine months ended September 30, ~~2017,~~2019, compared to net cash used in investing activities of ~~$253,000~~$409,000 for the same period of ~~2016. Our investing~~2018. Investing activities for the nine months ended September 30, ~~2017~~2019 consisted of the purchase of property and equipment of ~~$923,000~~$1,164,000 for both the Building Supply segment and the Disposable Apparel Products segment and proceeds ~~of $537,000~~ from the sale of ~~property. Our investing~~marketable securities of $133,000. Investing activities for the nine months ended September 30, ~~2016~~2018 consisted of the purchase of property and equipment of ~~$212,000~~$424,000 and proceeds from the ~~purchase~~sale of marketable securities of ~~$41,000.~~$15,000.

Net cash used in financing activities was $~~2,776,000~~$1,969,000 for the nine months ended September 30, ~~2017,~~2019, compared to net cash used in financing activities of ~~$3,672,000~~$2,604,000 for the same period of ~~2016. The net~~2018. Net cash used in financing activities for the nine months ended September 30, ~~2017 was due to~~2019 resulted from the payment of ~~$2,901,000~~$2,064,000 for the repurchase of ~~shares of our~~ common stock, partially offset by proceeds of $95,000 from the exercise of stock ~~options of $125,000. The net~~options. Net cash used in financing activities for the nine months ended September 30, ~~2016 was due to~~2018 resulted from the payment of ~~$3,689,000~~$2,828,000 for the repurchase of ~~shares of our~~ common stock, partially offset by proceeds of $224,000 from the exercise of stock ~~options of $17,000.~~options.

As of September 30, ~~2017~~,2019, we had ~~$1,604,000~~$635,000 available for additional stock purchases under our stock repurchase program. ~~During~~For the nine months ended September 30, ~~2017,~~2019, we repurchased ~~898,242~~548,000 shares of common stock at a cost of ~~$2,901,000.~~$2,064,000. As of September 30, ~~2017,~~2019, we had repurchased a total of ~~15,869,773~~17,751,917 shares of common stock at a cost of ~~$27,916,000~~$33,834,000 through our repurchase program. We retire all stock upon ~~its~~ 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.

~~Accounting Standards Update (“ASU”) 2014-09,~~In February 2016, the FASB issued ASU 2016-02, ~~Revenue from Contracts with Customers~~Leases ~~(Topic 606) (“ASU 2014-09”) is a comprehensive new revenue~~, which introduces the recognition ~~model requiring a company to recognize revenue to depict the transfer~~ of ~~goods or services to a customer at an amount reflecting the consideration that it expects to receive in exchange~~lease assets and lease liabilities by lessees for those ~~goods or services. In adopting ASU 2014-09, companies may use either a full retrospective or a modified retrospective approach. ASU 2014-09~~leases classified as operating leases under previous guidance. The update is effective for ~~the first interim period within an~~ annual reporting ~~period~~periods beginning after December 15, ~~2017, and~~2018, including interim periods within those reporting periods, with early adoption ~~is not~~ permitted. The ~~Company will adopt~~original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU ~~2014-09 during~~2018-11, Targeted Improvements to ASC 842, which includes an option to not restate comparative periods in transition and elect to use the ~~first quarter~~effective date of ~~2018. Management is evaluating~~ASC 842, Leases, as the ~~provisions~~date of ~~this update and at this point in time has determined that its adoption will have limited to no impact~~initial application of transition. Based on the ~~Company’s financial position~~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 ~~results~~existing contracts are or contain leases, not reassessing the lease classification of ~~operations.~~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.

In ~~November 2015,~~June 2016, the FASB issued ASU ~~2015-17,~~ 2016-13 ~~Income Taxes~~Financial Instruments - Credit Losses (Topic ~~740)~~326): ~~Balance Sheet Classification~~Measurement of ~~Deferred Taxes~~Credit Losses on Financial Instruments~~, which~~. ASU 2016-13 requires ~~deferred income tax liabilities~~an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and ~~assets to be classified as noncurrent on the balance sheet rather than being separated into current~~reasonable and ~~noncurrent. The guidance was~~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, ~~2016 and interim periods within those annual periods, with early adoption being permitted. The Company adopted this~~2019. This guidance in the first quarter of 2017. The Company netted $410,000 in deferred tax assets netted against deferred tax liabilities as of the end of the first quarter of 2017. Prior periods were not retrospectively adjusted.

~~In January 2016, the FASB issued ASU 2016-01,~~ ~~Financial Instruments~~ - ~~Overall~~ ~~(Subtopic 825-10):~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~~~, which provides guidance for the recognition, measurement, presentation and disclosure of financial instruments. The new guidance revises the accounting requirements related~~is applicable to the ~~classification and measurement~~Company’s fiscal year beginning January 1, 2020. Management is currently evaluating the requirements of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The guidance also changes certain disclosure requirements associated with the fair value of financial instruments. These changes will require an entity to measure, at fair value, investments in equity securities and other ownership interests in an entity and recognize the changes in fair value within net income. The guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2017. The Company has not yet adopted this guidance and has not yet determined the impact ofon the adoption onof the Company’s financial position or results offrom operations.

I~~n February 2016,~~In June 2018, the FASB issued ASU ~~2016-02,~~2018-07, ~~Leases~~ ~~(Topic 842)~~Compensation - Stock Compensation (Topic 718), ~~which requires lessees~~Improvements to ~~recognize most leases on~~Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the ~~balance sheet. The provisions of this~~ guidance ~~are~~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 years, with early adoption permitted. Management is evaluating the requirements of this guidance and has not yet determined the impact of the adoption on the Company’s financial position or results of operations.

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Compensation - Stock Compensation~~ ~~(Topic 718):~~ ~~Improvements to Employee Share-Based Payment Accounting~~, which simplifies several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The provisions of this guidance were effective for annual reporting periods beginning after December 15, 2016 and interim periods within those annual periods, with early adoptions permitted but no earlier than an entity’s adoption ~~permitted. The Company~~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 ~~this guidance during~~ the quarter ended March 31, 2017, and the Company recorded a one-time $866,000 cumulative-effect adjustment to reduce additional paid-in capital and increase retained earnings for excess tax benefits from stock option exercises that had previously been recorded to additional paid-in capital. The adoptionprovisions of this ~~guidance also increased the number of dilutive shares because excess tax benefits are no longer included~~ASU in the ~~assumed proceeds when calculating~~first quarter of 2019. Adoption of the ~~number of dilutive shares. In addition, the effective tax rate will be reduced in future periods when there are excess tax benefits from stock options exercised.~~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.~~discussion at this time.

ITEM 3. Q~~UANTITATIVE~~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.

Under the supervision and with the participation of our management, including our President and ~~Chairman and our~~ Chief Executive Officer (principal executive ~~officers)~~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, ~~2017,~~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 ~~officers~~ 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.

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.

~~The Company is presently involved in protracted litigation against a competitor in an action styled~~ Alpha Pro Tech, Inc. v. VWR International, LLC, pending in the U.S. District Court for the Eastern District of Pennsylvania, CV 12-1615, wherein the Company originally sought damages for unfair trade practices and false advertising against the competitor, and the competitor has counterclaimed asserting similar claims against the Company. In August of 2017, the court ruled against the Company on its claims against the competitor, and the competitor is presently seeking attorneys’ fees and costs as the prevailing party with respect to those claims. The Company is in the process of evaluating, with current litigation counsel, the remaining counterclaims against the Company and the claim for attorneys’ fees and costs and intends to vigorously defend against these claims. Although the Company believes that it will prevail in its defense of these claims, any material loss amount that might be incurred cannot reasonably be estimated at this time.

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:

(1) On ~~June 22, 2017,~~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.

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

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.

	September 30,		December 31,		September 30,		December 31,
	2017		2016		2019		2018

Raw materials	$	4,081,000	$	4,313,000	$	4,466,000	$	4,732,000
Work in process		1,609,000		2,535,000		2,578,000		825,000
Finished goods		3,774,000		4,146,000		4,211,000		4,321,000
	$	9,464,000	$	10,994,000	$	11,255,000	$	9,878,000

	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, 2017		167,000	$	3.33		167,000	$	2,321,000
August 1 - 31, 2017		135,200		3.46		135,200		1,850,000
September 1 - 30, 2017		70,742		3.45		70,742		1,604,000
		372,942		3.40		372,942

	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

~~3.1.1~~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~~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~~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~~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)
~~10.1~~		~~Amendment One to Executive Employment Agreement~~ ~~– Lloyd Hoffman – Chief Executive Officer, incorporated by reference to Exhibit 10.1 to Form 8-K, filed on October 26, 2017 (file No. 001-15725)~~.
31.1		Certification of President and ~~Chairman pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.~~
~~31.2~~		~~Certification of~~ Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
~~31.3~~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 Chairman.~~
~~32.2~~		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.
~~32.3~~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~~’sLtd’s Form 10-Q for the period ended September 30, ~~2017.~~2019.

				ALPHA PRO TECH, LTD.

~~DATE:~~	~~November 8, 2017~~	~~BY: /~~s~~/ Lloyd Hoffman~~


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

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2017			2016			2017			2016			2019			2018			2019			2018
Net sales		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Gross profit		39.1	%		38.3	%		39.6	%		36.6	%		35.1	%		37.9	%		36.7	%		38.6	%
Selling, general and administrative expenses		28.6	%		26.8	%		30.1	%		27.4	%		26.4	%		22.1	%		28.3	%		28.1	%
Income from operations		9.3	%		10.2	%		8.2	%		8.1	%		7.5	%		14.6	%		7.3	%		9.3	%
Income before provision for income taxes		13.3	%		12.3	%		10.3	%		9.3	%		4.5	%		15.7	%		9.1	%		10.3	%
Net income		9.2	%		8.7	%		7.2	%		6.4	%		3.6	%		12.7	%		7.5	%		8.4	%




DATE:	November ~~8, 2017~~6, 2019	BY:	/s/Colleen McDonald
			Colleen McDonald
			~~Colleen McDonald~~
		Chief Financial Officer