UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

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

For the quarterly period ended ~~March 31,~~September 30, 2020

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

For the transition period from to .

Commission File No. 01-15725

Alpha Pro Tech, Ltd.

(Exact Name of Registrant as Specified in Its Charter)

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

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

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

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

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

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

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

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

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

Emerging growth company ☐

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

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

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

Class		Outstanding ~~May 1,~~November 2, 2020
Common Stock, $0.01 par value		13,577,845 shares

	March 31,		December 31,		September 30,		December 31,
	2020		2019 (1)		2020		2019 (1)
Assets
Current assets:
Cash and cash equivalents	$	17,365,000	$	6,548,000	$	24,583,000	$	6,548,000
Investments		228,000		335,000		173,000		335,000
Accounts receivable, net of allowance for doubtful accounts of $53,000 as of March 31, 2020 and December 31, 2019		7,362,000		3,568,000
Accounts receivable, net of allowance for doubtful accounts of $68,000 as of September 30, 2020 and $53,000 as of December 31, 2019						9,137,000		3,568,000
Accounts receivable, related party		916,000		724,000		833,000		724,000
Inventories		11,148,000		11,303,000		13,155,000		11,303,000
Right-of-use assets		906,000		898,000
Prepaid expenses		4,237,000		3,587,000		4,859,000		3,587,000
Total current assets		42,162,000		26,963,000		52,740,000		26,065,000

Property and equipment, net		4,050,000		3,943,000		4,086,000		3,943,000
Goodwill		55,000		55,000		55,000		55,000
Definite-lived intangible assets, net		10,000		11,000		9,000		11,000
Right-of-use assets, net of current portion		2,048,000		2,280,000
Right-of-use assets						2,501,000		3,178,000
Equity investment in unconsolidated affiliate		4,926,000		4,839,000		5,295,000		4,839,000
Total assets	$	53,251,000	$	38,091,000	$	64,686,000	$	38,091,000

Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable	$	1,727,000	$	501,000	$	992,000	$	501,000
Accrued liabilities		764,000		920,000		2,969,000		920,000
Customer advance payments of orders		7,161,000		-		3,218,000		-
Lease liabilities		886,000		882,000		893,000		882,000
Total current liabilities		10,538,000		2,303,000		8,072,000		2,303,000

Lease liabilities, net of current portion		2,113,000		2,337,000		1,657,000		2,337,000
Deferred income tax liabilities, net		224,000		224,000		224,000		224,000
Total liabilities		12,875,000		4,864,000		9,953,000		4,864,000
Commitments
Shareholders' equity:
Common stock, $.01 par value: 50,000,000 shares authorized; 13,563,012 and 13,502,684 shares outstanding as of March 31, 2020 and December 31, 2019, respectively		136,000		129,000
Common stock, $.01 par value: 50,000,000 shares authorized; 13,577,847 and 12,885,273 shares outstanding as of September 30, 2020 and December 31, 2019, respectively						136,000		129,000
Additional paid-in capital		2,508,000		708,000		2,539,000		708,000
Retained earnings		37,732,000		32,390,000		52,058,000		32,390,000
Total shareholders' equity		40,376,000		33,227,000		54,733,000		33,227,000
Total liabilities and shareholders' equity	$	53,251,000	$	38,091,000	$	64,686,000	$	38,091,000

(1) The condensed consolidated balance sheet as of December 31, 2019 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 March 31,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
Cash Flows From Operating Activities:
Net income	$	5,342,000		$	1,218,000		$	19,668,000		$	2,665,000
Adjustments to reconcile net income to net cash provided (used in) by operating activities:
Adjustments to reconcile net income to net cash used in operating activities:
Stock-based compensation		91,000			122,000			274,000			353,000
Depreciation and amortization		182,000			127,000			546,000			410,000
Gain (loss) on marketable securities		59,000			(170,000	)
Loss (gain) on marketable securities								42,000			(223,000	)
Equity in income of unconsolidated affiliate		(87,000	)		(277,000	)		(456,000	)		(371,000	)
Operating lease expense, net of accretion		224,000			164,000			677,000			532,000
Changes in assets and liabilities:
Accounts receivable		(3,794,000	)		(2,267,000	)
Accounts receivable, net								(5,569,000	)		(479,000	)
Accounts receivable, related party		(192,000	)		(454,000	)		(109,000	)		(372,000	)
Inventories		155,000			(529,000	)		(1,852,000	)		(1,377,000	)
Prepaid expenses		(650,000	)		1,302,000			(1,272,000	)		855,000
Accounts payable and accrued liabilities		1,072,000			(505,000	)		2,540,000			(402,000	)
Customer advance payments of orders		7,161,000			-			3,218,000			-
Lease liabilities		(221,000	)		(160,000	)		(669,000	)		(492,000	)

Net cash provided (used) by operating activities		9,342,000			(1,429,000	)
Net cash provided by operating activities								17,038,000			1,099,000

Cash Flows From Investing Activities:
Purchase of property and equipment		(288,000	)		(152,000	)		(687,000	)		(1,164,000	)
Proceeds from sales of marketable securities		47,000			10,000			120,000			133,000

Net cash used in investing activities		(241,000	)		(142,000	)		(567,000	)		(1,031,000	)

Cash Flows From Financing Activities:
Proceeds from exercise of stock options		1,841,000			60,000			1,970,000			95,000
Repurchase of common stock		(125,000	)		(1,008,000	)		(406,000	)		(2,064,000	)

Net cash provided (used) by financing activities		1,716,000			(948,000	)
Net cash provided (used) in financing activities								1,564,000			(1,969,000	)

Increase (decrease) in cash		10,817,000			(2,519,000	)		18,035,000			(1,901,000	)

Cash and cash equivalents, beginning of the period		6,548,000			7,007,000
Cash, beginning of the period								6,548,000			7,007,000

Cash and cash equivalents, end of the period	$	17,365,000		$	4,488,000
Cash, end of the period							$	24,583,000		$	5,106,000

1.	The Company

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

The Building Supply segment consists of construction weatherization products, such as housewrap and synthetic roof underlayment, as well as other woven material.

The Disposable Protective Apparel segment consists of a complete line of disposable protective ~~garments~~clothing (shoecovers, bouffant caps, coveralls, gowns, frocks and lab coats), face masks ~~(including the Company’s proprietary N-95 Particulate Respirator face mask)~~ and face shields. Previously, face masks and face shields were included in a separate business segment called Infection Control. All of our disposable protective apparel products, including face masks and face shields, are sold through similar distribution channels, are single-use and disposable, have the purpose of protecting people, products and environments, and have to be produced in Food and Drug Administration (“FDA”) approved facilities, regardless of the market served. Based on these similarities, the Infection Control segment was combined with the Disposable Protective Apparel segment during the first quarter of 2019. The disclosures herein reflect this current segmentation.

The Company’s products are sold under the "Alpha Pro Tech" brand name as well as under private label, and are predominantly sold in the United States of America (“~~U.S.”~~US”).

The ongoing novel coronavirus (COVID-19) pandemic has adversely affected global economies, financial markets and the overall environment in which we do business. The impact of the COVID-19 pandemic continues to unfold. Overall, the increase in sales of our Disposable Protective Apparel segment products resulting from the pandemic has had a positive impact on our year-to-date results. The extent of the pandemic’s effect on our future operational and financial performance will depend in large part on future developments, which cannot be predicted with confidence at this time. Future developments include the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, the impact on governmental programs and budgets, the development of treatments or vaccines, and the resumption of widespread economic activity in certain sectors. Due to the inherent uncertainty of the unprecedented and rapidly evolving situation, we are unable to predict with any certainty the likely impact of the COVID-19 pandemic on our future operations.

2.	Basis of Presentation and Revenue Recognition Policy

The interim financial information included in this report is unaudited; however, the information reflects all adjustments (consisting of normal recurring adjustments) that are, in the opinion of management, necessary for the fair presentation of the consolidated financial position, results of operations and cash flows for the interim periods reflected herein. These interim condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, omit certain information and note disclosures that would be necessary to present the statements in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The interim condensed consolidated financial statements should be read in conjunction with the Company’s current year SEC filings, as well as the Company’s consolidated financial statements for the year ended December 31, 2019, which are included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “2019 Form 10-K”), filed with the SEC on March 10, 2020. The results of operations for the three and nine months ended ~~March 31,~~September 30, 2020 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, 2019 was prepared using information from the audited consolidated balance sheet contained in the 2019 Form 10-K; however, it does not include all disclosures required by U.S. GAAP for annual consolidated financial statements.

The ongoing novel coronavirus (COVID-19) pandemic has adversely affected global economies, financial markets and the overall environment in which we do business, and the extent to which it may impact our future results of operations and overall financial performance remains uncertain. The pandemic had a mixed impact on first quarter results. We will continue to monitor for developments as the pandemic continues.

~~Alpha Pro Tech, Ltd.~~

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

Net sales includes revenue from products and shipping and handling charges, net of estimates for product returns and any related sales incentives. Our customer contracts have a single performance ~~obligation-transfer~~obligation: transfer control of products to customers. Revenue is measured as the amount of consideration that we expect to receive in exchange for transferring control of products. All revenue is recognized when we satisfy our performance obligations under the applicable contract. We recognize revenue in connection with transferring control of 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 to a third party carrier for FOB shipping point arrangements and to the customer for FOB destination arrangements, at which time a receivable is created for the invoice sent to the customer. Shipping and handling activities are performed prior to the customer obtaining control of the goods, and are accounted for as fulfillment activities and are not a promised good or service. Shipping and handling charges billed to customers are included in revenue. Shipping and handling costs, associated with the distribution of the Company’s product to the customers, are recorded in cost of goods sold and are recognized when control of the product is transferred to the customer, which is atgenerally when title passes to the ~~time~~customer upon delivery to a third party carrier for FOB shipping point arrangements and to the ~~products are delivered to or picked up by the customer.~~customer for FOB destination arrangements. 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. 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. The Company has determined as of September 30, 2020 that it had no material contract assets, and concluded that its contract liabilities (primarily rebates) had the right of offset against customer receivables. As of ~~March 31,~~September 30, 2020, we had contract liabilities of ~~$7,161,000~~$3,218,000 as a result of customer advance payments of orders ~~connected to~~in connection with the COVID-19 pandemic. No such contract liabilities existed as of December 31, 2019. 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 (the “2004 Option Plan”) under which the Company may grant incentive stock options and non-qualified stock options to employees and non-employee directors. Stock options have been granted with exercise prices at or above the fair market value of the underlying shares of common stock on the date of grant. Options vest and expire according to terms established at the grant date.

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

For the ~~three~~nine months ended ~~March 31,~~September 30, 2020 noand 2019, 0 and 370,000 stock options were granted under the ~~Company’s option plan, and for the three months ended March 31, 2019, 310,000 stock options were granted.~~2004 Option Plan, respectively. The Company recognized ~~$91,000~~$274,000 and ~~$122,000~~$353,000 in stock-based compensation expense for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019, respectively.

The Company uses the Black-Scholes option-pricing model to value the options. The Company uses historical data to estimate the expected life of the options. The risk-free interest rate for periods within the contractual life of an award is based on the ~~U.S.~~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.

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table summarizes stock option activity for the ~~three~~nine months ended ~~March 31,~~September 30, 2020:

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

Options outstanding, December 31, 2019		1,326,414		$	2.86		1,326,414		$	2.86
Granted to employees and non-employee directors		-			0.00		-			-
Exercised		(712,839	)		2.58		(747,674	)		2.63
Canceled/expired/forfeited		-			0.00		-			-
Options outstanding, March 31, 2020		613,575			3.43
Options exercisable, March 31, 2020		182,002			3.24
Options outstanding, September 30, 2020							578,740			3.43
Options exercisable, September 30, 2020							172,167			3.22

As of ~~March 31,~~September 30, 2020, ~~$497,000~~$315,000 of total unrecognized compensation cost related to stock options was expected to be recognized over a weighted average period of ~~1.7~~1.31 years.

At the Company’s 2020 Annual Meeting of Shareholders held on June 9, 2020, the Company’s shareholders approved the Alpha Pro Tech, Ltd. 2020 Omnibus Incentive Plan (the “2020 Incentive Plan”). The 2020 Incentive Plan provides for the grant of incentive and nonqualified stock options, stock appreciation rights, awards of restricted stock and restricted stock units, performance share awards, cash awards and other equity-based awards to employees (including officers), consultants and non-employee directors of the Company and its affiliates. A total of 1,800,000 shares of the Company’s common stock are reserved for issuance under the 2020 Incentive Plan, plus the number of shares underlying any award granted under the 2004 Option Plan that expires, terminates or is cancelled or forfeited under the terms of the 2004 Option Plan. As a result of the approval of the 2020 Incentive Plan, no future equity awards will be made pursuant to the 2004 Option Plan. Although no new awards may be granted under the 2004 Option Plan, all previously granted awards under the 2004 Option Plan will continue to be governed by the terms of the 2004 Option Plan. As of September 30, 2020, no equity awards had been granted under the 2020 Incentive Plan.

4.	Investments

As of ~~March 31,~~September 30, 2020 and December 31, 2019, investments totaled ~~$228,000~~$173,000 and $335,000, respectively, which consisted of equity securities. Certain marketable securities were sold during the three months ended ~~March 31,~~September 30, 2020, and ~~March 31,~~no marketable securities were sold during the three months ended September 30, 2019. The total loss on marketable securities during the three months ended ~~March 31,~~September 30, 2020 was ~~$59,000, whereas~~$24,000, consisting of an unrealized loss of $42,000 and a realized gain of $18,000. Certain marketable securities were sold during both the nine months ended September 30, 2020 and 2019. The total loss on marketable securities during the nine months ended September 30, 2020 was $42,000, and the total gain on marketable securities during the ~~three~~nine months ended ~~March 31,~~September 30, 2019 was ~~$170,000.~~$223,000. The loss for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 was due to an unrealized loss of ~~$76,000~~$77,000 and a realized gain of ~~$17,000.~~$35,000. The gain for the ~~three~~nine months ended ~~March 31,~~September 30, 2019 was due to an unrealized gain of ~~$167,000~~$168,000 and a realized gain of ~~$3,000.~~$55,000.

5.	Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases, which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The update is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those reporting periods, with early adoption permitted. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which includes an option to not restate comparative periods in transition and elect to use the effective date of ASC 842, Leases, as the date of initial application of transition. Based on the effective date, we adopted this ASU beginning on January 1, 2019 and elected the transition option provided under ASU 2018-11. This standard had a material effect on our consolidated balance sheet with the recognition of new right-of-use assets and lease liabilities for all operating leases, as these leases typically have a non-cancelable lease term of greater than one year. Upon adoption, both assets and liabilities on our consolidated balance sheet increased by approximately $3,455,000. We have elected a package of transition practical expedients, which include not reassessing whether any expired or existing contracts are or contain leases, not reassessing the lease classification of expired or existing leases, and not reassessing initial direct costs for existing leases. We have also elected a practical expedient to not separate lease and non-lease components. We did not elect the practical expedient to use hindsight in determining the lease terms or assessing impairment of the ROU assets. See also Note 13 of these Notes to ~~the~~ Condensed Consolidated Financial Statements ~~which appear elsewhere in this report.~~(Unaudited) for more information.

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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. Adoption of the new standard did not have a material impact on our consolidated financial statements.

~~Alpha Pro Tech, Ltd.~~

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

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting. This ASU is intended to simplify aspects of share-based compensation issued to non-employees by making the guidance consistent with accounting for employee share-based compensation. ASU 2018-07 is effective for annual periods beginning after December 15, 2018 and interim periods within those annual periods, with early ~~adoptions~~adoption permitted but no earlier than an entity’s adoption date of ASC Topic 606. The new guidance is required to be applied retrospectively with the cumulative effect recognized at the date of initial application. We adopted the provisions of this ASU in the first quarter of 2019. Adoption of the new standard did not have a material impact on our consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which is intended to simplify various aspects related to accounting for income taxes. ASU 2019-12 removes certain exceptions to the general principles in Topic 740 and also clarifies and amends existing guidance to improve consistent application. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements and related disclosures.

Management periodically reviews new accounting standards that are issued. Management has not identified any other new standards that it believes merit further discussion at this time.

6.	Inventories

As of ~~March 31,~~September 30, 2020 and December 31, 2019, inventories consisted of the following:

	September 30,		December 31,
	2020		2019

Raw materials	$	7,963,000	$	4,284,000
Work in process		1,905,000		2,559,000
Finished goods		3,287,000		4,460,000
	$	13,155,000	$	11,303,000

March 31,

December 31,

2020

2019

Raw materials
$ 4,855,000 $ 4,284,000
Work in process
2,890,000 2,559,000
Finished goods
3,403,000 4,460,000
$ 11,148,000 $ 11,303,000

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.

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

The capital from the initial funding and a bank loan, which loan is guaranteed exclusively by the individual shareholders of Maple Industries and associates and collateralized by the assets of Harmony, were utilized to purchase the original manufacturing facility in India. Harmony currently has four facilities in India (three owned and one rented), consisting of: (1) a 113,000 square foot building for manufacturing building products; (2) a 73,000 square foot building for manufacturing coated material and sewing proprietary disposable protective apparel; (3) a 16,000 square foot facility for sewing proprietary disposable protective apparel; and (4) a 93,000 square foot facility (rented) for manufacturing Building Supply segment products. All additions have been financed by Harmony with no guarantees from the Company.

~~Alpha Pro Tech, Ltd.~~

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

In accordance with ASC 810, Consolidation, the Company assesses whether or not related entities are variable interest entities (“VIEs”). For those related entities that qualify as VIEs, ASC 810 requires the Company to determine whether or not the Company is the primary beneficiary of the VIE, and, if so, to consolidate the VIE. The Company has determined that Harmony is not a VIE and is, therefore, considered to be an unconsolidated affiliate.

The Company records its investment in Harmony as “equity investment in unconsolidated affiliate” in the accompanying condensed consolidated balance sheets. The Company records its equity interest in Harmony’s results of operations as “equity in income of unconsolidated affiliate” in the accompanying condensed consolidated statements of income. The Company periodically reviews its investment in Harmony for impairment. Management has determined that no impairment was required as of ~~March 31,~~September 30, 2020 or December 31, 2019.

For the three months ended ~~March 31,~~September 30, 2020 and 2019, Alpha Pro Tech purchased ~~$4,705,000~~$4,156,000 and ~~$5,274,000~~$4,849,000 of inventories, respectively, from Harmony. For the nine months ended September 30, 2020 and 2019, Alpha Pro Tech purchased $12,636,000 and $15,300,000 of inventories, respectively, from Harmony.

For the three months ended ~~March 31,~~September 30, 2020 and 2019, the Company recorded equity in income of unconsolidated affiliate of ~~$87,000~~$250,000 and ~~$277,000,~~$10,000, respectively, related to Harmony. For the nine months ended September 30, 2020 and 2019, the Company recorded equity in income of unconsolidated affiliate of $456,000 and $371,000, respectively, related to Harmony.

As of ~~March 31,~~September 30, 2020, the Company’s investment in Harmony was ~~$4,926,000,~~$5,295,000, which consisted of its original $1,450,000 investment and cumulative equity in income of unconsolidated affiliate of ~~$4,495,000,~~$4,864,000, less $942,000 in repayments of the advance and $77,000 in dividends.

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

8.	Accrued Liabilities

As of ~~March 31,~~September 30, 2020 and December 31, 2019, accrued liabilities consisted of the following:

	March 31,		December 31,		September 30,		December 31,
	2020		2019		2020		2019

Payroll expenses and taxes payable	$	148,000	$	299,000	$	1,085,000	$	299,000
Commissions and bonuses payable and general accrued liabilities		616,000		621,000		1,884,000		621,000
Total accrued liabilities	$	764,000	$	920,000
					$	2,969,000	$	920,000

10.	Activity of Business Segments

The Company operates through two business segments:

(1) Building Supply: consisting of a line of construction supply weatherization products. The construction supply weatherization products consist of housewrap and synthetic roof underlayment, as well as other woven material. The majority of the Company’s equity in income of unconsolidated affiliate (Harmony) is included in the total segment income for the Building Supply segment.

(2) Disposable Protective Apparel: consisting of a complete line of disposable protective ~~garments,~~clothing, including shoecovers (including the Aqua Trak® and spunbond shoecovers), bouffant caps, coveralls, frocks, lab coats, gowns and hoods, as well as face masks ~~(including the Company’s proprietary N-95 Particulate Respiratory face mask)~~ and face shields for the pharmaceutical, cleanroom, industrial, medical and dental markets. A portion of the Company’s equity in income of unconsolidated affiliate (Harmony) is included in the total segment income for the Disposable Protective Apparel segment.

Previously, face masks and face shields were included in a separate business segment called Infection Control. All of our disposable protective apparel, including face masks and face shields, are sold through similar distribution channels, are single-use and disposable, have the purpose of protecting people, products and environments, and have to be produced in FDA-approved facilities, regardless of the market served. Based on these similarities, we determined that it would be best to consolidate the Infection Control segment into the Disposable Protective Apparel segment beginning with the first quarter of 2019.

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

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.

~~Alpha Pro Tech, Ltd.~~

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

The following table presents consolidated net sales for each segment for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019:

	For the Three Months Ended				For the Three Months Ended				For the Nine Months Ended
	March 31,				September 30,				September 30,
	2020		2019		2020		2019		2020		2019
Building Supply	$	7,557,000	$	6,498,000	$	7,668,000	$	7,215,000	$	22,677,000	$	20,423,000
Disposable Protective Apparel		10,597,000		5,806,000		22,359,000		4,812,000		51,004,000		15,322,000
Consolidated net sales	$	18,154,000	$	12,304,000	$	30,027,000	$	12,027,000	$	73,681,000	$	35,745,000

The following table presents the reconciliation of consolidated segment income to consolidated net income for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019:

The following table presents the consolidated net property and equipment, goodwill and definite-lived intangible assets (“consolidated assets”) by segment as of ~~March 31,~~September 30, 2020 and December 31, 2019:

~~11.~~11.

Financial Information about Geographic Areas

The following table summarizes the Company’s net sales by geographic region for the three and nine months ended ~~March 31,~~September 30, 2020 and 2019:

	For the Three Months Ended				For the Three Months Ended				For the Nine Months Ended
	March 31,				September 30,				September 30,
	2020		2019		2020		2019		2020		2019
Net sales by geographic region
United States	$	15,619,000	$	12,040,000	$	24,295,000	$	11,806,000	$	62,461,000	$	35,004,000
International		2,535,000		264,000		5,732,000		221,000		11,220,000		741,000

Consolidated net sales	$	18,154,000	$	12,304,000	$	30,027,000	$	12,027,000	$	73,681,000	$	35,745,000

Net sales by geographic region are based on the countries in which our customers are located. For the three and nine months ended ~~March 31,~~September 30, 2020, the Company generated approximately $4,514,000 and $6,567,000, respectively, in sales from Australia. No other single country other than the United States was significant to consolidated net sales. During the three and nine months ended September 30, 2019, the Company did not generate sales from any single country, other than the United States, that were significant to the Company’s consolidated net sales.

The following table summarizes the locations of the Company’s long-lived assets by geographic region as of ~~March 31,~~September 30, 2020 and December 31, 2019:

13.

Leases

The Company has operating leases for the Company’s corporate office and manufacturing facilities, which expire at various dates through 2024. The Company’s primary operating lease commitments ~~as of March 31,~~at September 30, 2020 related to the Company’s manufacturing facilities in Valdosta, ~~Georgia,~~Georgia; Nogales, ~~Arizona~~Arizona; and Salt Lake City, Utah, as well as the Company’s corporate headquarters in Markham, Ontario, Canada.

As of ~~March 31,~~September 30, 2020, the Company had operating lease right-of-use assets of ~~$2,954,000~~$2,501,000 and operating lease liabilities of ~~$2,999,000.~~$2,550,000. As of ~~March 31,~~September 30, 2020, we did not have any finance leases recorded on the Company’s condensed consolidated balance sheet. Operating lease expense was approximately $201,000 and $603,000 during the three and nine months ended ~~March 31, 2020.~~September 30, 2020, respectively.

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

The aggregate future minimum lease payments and reconciliation to lease liabilities as of ~~March 31,~~September 30, 2020 were as follows:

	March 31,			September 30,
	2020			2020
Remainder of 2020		820,000
Remaining three months of 2020				$	273,000
2021		1,000,000			1,000,000
2022		670,000			670,000
2023		676,000			676,000
Thereafter		126,000			126,000
Total future minimum lease payments		3,292,000			2,745,000
Less imputed interest		(293,000	)		(195,000	)
Total lease liabilities	$	2,999,000
Total Lease liabilities				$	2,550,000

As of ~~March 31,~~September 30, 2020, the weighted average remaining lease term of the Company’s operating leases was ~~4.0~~3.97 years. During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, the weighted average discount rate with respect to these leases was ~~4.35%~~4.28%.

~~14.~~14.

Income taxes

The Company accounts for income taxes using the asset and liability method. A valuation allowance is recorded to reduce the carrying amounts of deferred income tax assets unless it is more likely than not that such assets will be realized. The Company’s policy is to record any interest and penalties assessed by the Internal Revenue Service as a component of the provision for income taxes. The Company provides allowances for uncertain income tax positions when it is more likely than not that the position will not be sustained upon examination by the tax authority.

Alpha Pro Tech, Ltd. and its subsidiaries file income tax returns in the U.S. federal jurisdiction, and in various state and foreign jurisdictions.

An employer generally does not claim a corporate income tax deduction (which would be in an amount equal to the amount of income recognized by the employee) upon the exercise of its employee's Incentive Stock Options (“ISOs”) unless the employee does not meet the holding period requirements and sells early, making a disqualifying ~~disposition.~~disposition, or if the options otherwise do not qualify as ISOs under applicable tax laws. With Non-Qualified Stock Options (“NQSOs”), on the other hand, the employer is ~~always~~typically eligible to claim a deduction upon its employee's exercise of the NQSO.

The company had an estimated nonrecurring tax benefit of $2.0 million in the first quarter of 2020 as a result of the exercise of disqualified ISOs and the exercise of NQSOs, partially offset by tax expense of an estimated $1.0 million.

On March 27, 2020, President Trump signed into U.S. federal law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which is aimed at providing emergency assistance and health care for individuals, families and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. In particular, under the CARES Act, (i) for taxable years beginning before 2021, net operating loss carryforwards and carrybacks may offset 100% of taxable income, (ii) NOLs arising in the 2018, 2019 and 2020 taxable years may be carried back to each of the preceding five years to generate a refund and (iii) for taxable years beginning in 2019 and 2020, the base for interest deductibility is increased from 30% to 50% of EBITDA. ~~We are analyzing the different aspects of the~~The CARES Act ~~to determine whether any specific provisions may~~currently has minimal impact ~~us.~~on the Company.

Alpha Pro Tech, Ltd.

Notes to Condensed Consolidated Financial Statements (Unaudited)

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis together with our unaudited condensed consolidated financial statements and the notes to our unaudited condensed consolidated financial statements, which appear elsewhere in this report, as well as our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the Securities and Exchange Commission (the “SEC”) on March 10, 2020 (the “2019 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, including, without limitation, our expected orders, production levels and sales in 2020 and 2021, 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.

The following are some of the risks that could affect our financial performance or that could cause actual results to differ materially from those expressed or implied in our forward-looking statements:

The foregoing list of risks is not exclusive. For a more detailed discussion of the risk factors associated with our business, ~~, seethe~~see the risks described in Part I, Item IA, “Risk Factors,” in the 2019 Form 10-K and in Part II, Item IA, “Risk Factors,” in this Quarterly Report on Form ~~10-QA.~~10-Q. These and many other factors could affect the Company’s future operating results and financial condition and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by the Company or on its behalf.

We are filing this report as a “smaller reporting company” (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended). As a result of being a smaller reporting company, we are allowed and have elected to omit certain information from this Management’s Discussion and Analysis of Financial Condition and Results of Operations; however, we have provided all information for the periods presented that we believe to be appropriate.

Where to find more information about us. We make available, free of charge, on our website (http://www.alphaprotech.com) our most recent Annual Report on Form 10-K, our most recent Quarterly Report on Form 10-Q, any Current Reports on Form 8-K furnished or filed since our most recent Annual Report on Form 10-K, and any amendments to such reports, as soon as reasonably practicable following the electronic filing of such reports with the SEC. In addition, in accordance with SEC rules, we provide ~~electronic or~~ paper copies of our filings free of charge upon request.

The preparation of our financial statements in conformity with U.S. generally accepted accounting principles (“U.S. 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 periods reported. 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 significant accounting policies and estimates are more fully described in Note 2 – “Summary of Significant Accounting Policies” in the notes to our condensed consolidated financial statements in Part I, Item 8 of the 2019 Form 10-K. Our critical accounting policies and estimates include the following:

Accounts Receivable: Accounts receivable are recorded at the invoice amount and do not bear interest. The general terms for receivables is net 30 days. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s existing accounts receivable; however, changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the future. The Company determines the allowance based upon historical write-off experience and known conditions about customers’ current ability to pay. Account balances are charged against the allowance when the potential for recovery is considered remote. For new customers with no order history with the Company we may require advance payments to reduce our credit risk.

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 supply on-hand, if necessary. If actual market conditions are less favorable than those projected by management, additional inventory write-downs may be required.

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

Revenue Recognition: Net sales includes revenue from products and shipping and handling charges, net of estimates for product returns and any related sales incentives. Our customer contracts have a single performance ~~obligation-transfer~~obligation: transfer control of products to customers. Revenue is measured as the amount of consideration that we expect to receive in exchange for transferring control of products. All revenue is recognized when we satisfy our performance obligations under the applicable contract. We recognize revenue in connection with transferring control of 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 to a third party carrier for FOB shipping point arrangements and to the customer for FOB destination arrangements, at which time a receivable is created for the invoice sent to the customer. Shipping and handling activities are performed prior to the customer obtaining control of the goods, and are accounted for as fulfillment activities and are not a promised good or service. Shipping and handling charges billed to customers are included in revenue. Shipping and handling costs, associated with the distribution of the Company’s product to the customers, are recorded in cost of goods sold and are recognized when control of the product is transferred to the customer, which is at the time ~~the~~ products are delivered to ~~or picked up by~~ the ~~customer.~~third party carrier for FOB shipping point arrangements and to the customer for FOB destination arrangements. 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. 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. The Company has determined that, as of September 30, 2020, it had no material contract assets, and concluded that its contract liabilities (primarily rebates) had the right of offset against customer receivables. As of ~~March 31,~~September 30, 2020, wethe Company had contract liabilities of ~~$7,161,000~~$3,218,000 as a result of customer advance payments of orders connected to the COVID-19 ~~pandemic.~~pandemic (see “Impact of the Novel Coronavirus (COVID-19)” below). No such contract liabilities existed as of December 31, ~~2019.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.~~2019.

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~~product-specific and sales volume rebates to select distributors. Our rebates are based on actual sales and are accrued monthly.

Stock-Based Compensation: The Company accounts for stock-based awards ~~using Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)~~in accordance with ASC 718, Stock Compensation. ASC 718 requires companies to ~~record~~estimate the fair value of equity-based awards on the date of grant with the related compensation expense ~~for~~recognized ratably over the ~~value of all outstanding and unvested share-based payments, including employee stock options and similar awards.~~requisite service period, which generally matches the vesting term.

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

Alpha Pro Tech is in the business of protecting people, products and environments. We accomplish this by developing, manufacturing and marketing a line of high-value, disposable protective apparel products for the cleanroom, industrial, pharmaceutical, medical and dental markets. We also manufacture a line of building supply construction weatherization products. Our products are sold under the "Alpha Pro Tech" brand name, as well as under private label.

Our products are grouped into two business segments: the Building Supply segment, consisting of construction weatherization products, such as housewrap and synthetic roof underlayment as well as other woven material; and the Disposable Protective Apparel segment, consisting of disposable protective garments (including shoecovers, bouffant caps, coveralls, gowns, frocks and lab coats), face masks and face shields. All financial information presented in this report reflects the current segmentation.

Previously, face masks and face shields were included in a separate business segment called Infection Control. All of our disposable protective apparel, including face masks (including the Company’s proprietary N-95 Particulate Respiratory face mask) 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~~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.

In March 2020, the World Health Organization declared the outbreak of COVID-19 a pandemic, which continues to spread throughout the U.S. and the world and has resulted in authorities implementing numerous measures to contain the virus, including travel bans and restrictions, quarantines, shelter-in-place orders, and business limitations and shutdowns. COVID-19 has had, and we expect the virus to continue to have, a number of effects, both positive and negative, on our business operations and financial condition.

We have experienced a significant surge in customer demand for our proprietary N-95 Particulate Respirator face mask product ~~face shield products~~ and other personal protective equipment (“PPE”) products as a result of COVID-19. We experienced a dramatic increase in revenue from sales of ~~these~~PPE products during the first ~~quarter~~nine months of the year and expect additional increases for the remainder of 2020, and even ~~beyond.~~beyond, especially with respect to face masks and disposable protective garments, including coveralls, gowns, lab coats and bouffant caps. We have seen significant increases not only in near-term demand, but also in longer-term ongoing purchase orders that have request dates that extend into 2021. Although orders of the ~~first~~Company’s face shield products are expected to remain above historic levels through the fourth quarter of 2020, management now believes that, due to increased competition resulting from relatively low barriers to entry in the face shield market and a surplus of face shields now available to consumers, face shield sales during the fourth quarter will be down from the unprecedented levels experienced in the second and third quarters of 2020, and face shield sales for the second half of ~~2021.~~the year will be less than the approximately $6.0 million previously expected.

In an effort to meet the unprecedented demand, and to aid communities around the world in responding to the ongoing healthcare crisis, wethe Company began ramping up production during the first quarter of 2020 of our PPE products, in particular our N-95 face mask, which is manufactured by the Company in the United ~~States~~States. We have addressed the growing customer demand for PPE products by increasing and improving the human, mechanical and supply chain components behind production. Even with ~~material sourced domestically. As~~these increases and improvements, customer demand for PPE products, face masks in particular, continues to exceed industry supply in many instances, and we believe that this may continue for some time. Due to this customer demand and the current state of ~~May 1, 2020,~~ the ~~Company has booked approximately $46.8 million in orders for the Company’s N-95~~industry, we expect continued face mask ~~since January 27, 2020. We fulfilled approximately $3.7 million of~~sales growth during the ~~orders in the first~~fourth quarter of 2020, which was slightly below the previously estimated forecast of $4.0 million, primarily as a result of delays at our manufacturing facility in Utah following an earthquake in March. The Utah facility has returned to normal operations. At this time, we expect the remaining backlog of N-95 face mask orders with request dates in 2020 to be fulfilled by the end of the year. Approximately 8% of booked orders have request dates in 2021.

~~We are nearing completion~~and into 2021, but much of our ~~phase 1 ramp up plan on N-95 face mask~~ production will be presold. Industry-wide reports also appear to indicate that, even with the significant increase in supply, demand will continue to outpace capacity for immediate utilization, with longer-term stockpiling not realistic until late 2021 and we are in the process of preparing for a phase 2 expansion that will involve building additional proprietary N-95 Particulate Respiratory face mask production lines to further increase capacity. The phase 2 expansion is expected to be operational by late summer 2020. The fulfillment forecast described above does not take into ~~account increased production capacity from the phase 2 ramp up plan.~~ 2022.

We have ~~also seen a significant increase in orders of~~encountered over the Company’s face shield products since January 27, 2020, with orders totaling over $13.3 million as of May 1, 2020. Approximately $1.3 million of face shield orders (net of rebates) were fulfilled in the first quarter of 2020. At this time, we expect the remaining backlog of face shield orders with request dates in 2020 to be fulfilled by the end of the year. Approximately 14% of booked orders have request dates in 2021.

Our other PPE product lines, which include coveralls, gowns, lab coats, shoecovers and bouffant caps, have also seen a significant increase in demand, which primarily began in early March and has continued into May. We expect increased demand for these products to continue.

~~With the increase in demand has come~~last several months a number of ~~challenges.~~constraints within our supply chain due to government-mandated shutdowns, raw materials shortages and shipping delays. Although we ~~remain committed~~continue to ~~allocating the necessary resources and procuring the necessary raw materials in an effort~~work to ~~meet the unprecedented demand for our PPE products, we have experienced issues with raw material shortages and~~alleviate these supply chain issues (which have improved since the second quarter) by securing additional supply sources, in the event of subsequent shutdowns, shortages or delays, ~~due, in large part, to government regulation~~our production and mandated closures around the world. For example, our joint venture in India that manufacturers the Company’s PPE lines that include coveralls, gowns, lab coats, shoecovers and bouffant caps remains under a country-wide, government mandated closure that started in late March and has now been extended through May 18, 2020. Although we believe that we have back-up options for raw material sourcing and manufacturing, those may be limited, and we expect some continued supply chain disruptions to impact sales in these and other product lines. Additionally, as we experience shortages of some PPE, or as we satisfy requests for products from government entities under the U.S. Defense Production Act (the “DPA”) and otherwise, our traditional customer base may seek to fill orders with our competitors, which could adversely affect our relationships with these customers. Likewise, suppliers of our raw materials who are subject to requests under the DPA may be unable to fulfill our orders for those raw materials, or such fulfillment could be ~~delayed. Government regulation may also impact our ability to supply and ship our products to certain customers, which could lead to cancellation of some orders.~~further impacted. Further, we expect ~~the~~that prices of raw materials tomay rise more rapidly in the current environment than our sales prices, ~~therefore decreasing the net revenue per item that we expect to receive.~~

~~The majority of the products that we manufacture are deemed essential by the various jurisdictions in~~ which ~~we operate. We have implemented significant protective measures throughout~~could decrease our facilities, including travel and visitor restrictions, work from home policies, employee screenings, social distancing and use of face coverings as we continue to service our customers. While this remains a fluid situation, all of our U.S. manufacturing sites are currently operating, with the majority of them at or above normal production rates. profits.

We are continuing to serve our customers while taking every precaution to provide a safe work environment for our employees. We have enacted enhanced operating protocols to assure the safety and well-being of our employees, placed restrictions on non-essential travel and otherwise adjusted work schedules to maximize our capacity while adhering to recommended precautions such as social ~~distancing and complying with shelter-in-place orders.~~distancing. We believe that we may have to take further actions that we determine are in the best interests of our employees or as required by federal, state or local authorities. Although we will continue to adhere to restrictions imposed by local governments in the jurisdictions in which we operate, government regulations have impacted workforce availability and expense in certain of the Company’s manufacturing facilities, and we expect this to continue for some time. While this remains a fluid situation, all of our U.S. manufacturing sites are currently operating at or above normal production rates.

COVID-19 has resulted in a downturn in the global financial markets and a slowdown in the global economy. This economic environment may impact some of our customers’ ability to pay or lead them to request extended payment terms, and we ~~may experience~~have experienced cost increases from some of our suppliers. And, despite the tremendous surge in demand for our PPE products in recent months, we expect that demand for our Building Supply segment products could be negatively impacted by decreased housing starts and increased uncertainty in the housing market and the economy in ~~general.~~general, although to date we have not experienced any material negative impact in our Building Supply segment.

The impact of the COVID-19 pandemic continues to unfold. ~~The~~Overall, the increase in sales of our PPE products resulting from the pandemic has had a positive impact on our ~~first quarter~~year-to-date results. The extent of the pandemic’s effect on our future operational and financial performance will depend in large part on future developments, which cannot be predicted with confidence at this time. Future developments include the duration, scope and severity of the pandemic, the actions taken to contain or mitigate its impact, the impact on governmental programs and budgets, the development of treatments or vaccines, and the resumption of widespread economic ~~activity.~~activity in certain sectors. Due to the inherent uncertainty of the unprecedented and rapidly evolving situation, we are unable to predict with any ~~confidence~~certainty the likely impact of the COVID-19 pandemic on our future operations.

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

~~For the~~Three months ended September 30, 2020, compared to three months ended ~~March 31, 2020, compared to the three months ended March 31, 2019~~September 30, 2019

Sales. Consolidated sales for the three months ended ~~March 31,~~September 30, 2020 increased to ~~$18,154,000,~~$30,027,000, from ~~$12,304,000~~$12,027,000 for the ~~quarter~~three months ended ~~March 31,~~September 30, 2019, representing an increase of ~~$5,850,000,~~$18,000,000, or ~~47.5%~~149.7%. This increase consisted of increased sales in the ~~Building Supply segment of $1,059,000 and by increased sales in the~~ Disposable Protective Apparel segment of ~~$4,791,000.~~$17,547,000 and increased sales in the Building Supply segment of $453,000.

Building Supply segment sales for the three months ended ~~March 31,~~September 30, 2020 increased by ~~$1,059,000,~~$453,000, or ~~16.3%~~6.3%, to ~~$7,557,000,~~$7,668,000, compared to ~~$6,498,000~~$7,215,000 for the three months ended ~~March 31,~~September 30, 2019. The Building Supply segment increase was primarily due to ~~a 14.4% increase in our core building products, including~~ an increase in sales of synthetic roof underlayment of ~~12.1% and~~6.7%, an increase in sales of housewrap of ~~20.0%. Sales~~2.1% and an increase of other woven material ~~increased by 26.4%~~of 27.8% compared to the same period of 2019.

The sales mix of the Building Supply segment for the three months ended ~~March 31,~~September 30, 2020 was approximately ~~45%~~49% for synthetic roof underlayment, 44% for housewrap and 7% for other woven material. This compared to approximately 48% for synthetic roof underlayment, 46% for housewrap and 6% for other woven material for the three months ended September 30, 2019. Our synthetic roof underlayment product line includes REX SynFelt®, REX TECHNOply® and TECHNO SB®, and our housewrap product line consists of REX Wrap®, REX Wrap® Plus and REX Wrap Fortis®.

The increase in our synthetic underlayment sales was a result of damage stemming from multiple storms in the southeast as well as demand associated with re-roofing and remodeling growth that has been on the rise this year. We have also expanded our distribution network with new dealers for our line of synthetic roof underlayment. The third quarter of 2020 was a record quarter for housewrap sales, and, even though sales in the third quarter were only slightly higher than in the comparative quarter of 2019, sales in the third quarter of 2019 were a record up to that point. The housewrap sales increase was aided by a strong inventory position in the Company’s manufacturing facility in the United States. Sales of both synthetic roof underlayment and housewrap have benefitted from an increase in new home construction during 2020 and management’s determination to expand the Company’s distribution reach to cover the new home growth.

At the end of the third quarter of 2020, our backlog of open orders for both the synthetic roof underlayment and housewrap product lines was at higher than historical levels. As a result of the backlog, we anticipate continued growth for the fourth quarter and for 2021 as the industry is forecasting growth of new home construction, along with demand for re-roofing in 2021. Although we expect continued long-term growth in this market segment, given the uncertainty of the economy as a result of the COVID-19 pandemic, short-term growth could be affected.

Sales for the Disposable Protective Apparel segment for the three months ended September 30, 2020 increased by $17,547,000, or 364.7%, to $22,359,000, compared to $4,812,000 for the same period of 2019. This segment increase was due to a 1,627.9% increase in sales of face masks, a 1,024.1% increase in face shields and a 23.8% increase in sales of disposable protective garments.

The increase in face mask sales was primarily attributable to increased sales of our proprietary N-95 Particulate Respirator face mask resulting from increased customer demand associated with the COVID-19 pandemic. Face mask sales have grown during each quarter of 2020. Third quarter 2020 face mask sales were $13.4 million, compared to $8.5 million in the second quarter of 2020 and $4.5 million in the first quarter of 2020. Management anticipates significant continued quarterly growth of face masks in the fourth quarter of 2020 and into 2021.

The increase in face shield sales was also attributable to the pandemic and further benefited from the Company’s strong inventory position. Due to the surplus of face shields in the market discussed above, the Company expects sales of face shields to decrease significantly in the coming quarters but still to remain above historical levels as the pandemic persists.

Disposable protective garment sales experienced a 23.8% increase in the quarter, largely as a result of the pandemic. The Company’s joint venture in India, which is the primary supply source for these products, was under a government-mandated closure that ended in late May 2020, and the manufacturing facilities did not immediately resume full operation, as many employees did not return after the mandate was lifted and new employees had to be trained. This supply chain disruption negatively affected availability and, therefore, sales of the Company’s disposable protective garments in the third quarter of 2020. Conditions at the current time have improved, so similar constraints are not expected to have a material impact on sales in the fourth quarter of 2020.

The sales mix of the Disposable Protective Apparel segment for the three months ended September 30, 2020 was approximately 20% for disposable protective garments, 60% for face masks and 20% for face shields. This compared to approximately 76% for disposable protective garments, 16% for face masks and 8% for face shields for the three months ended September 30, 2019.

Nine months ended September 30, 2020 Compared to nine months ended September 30, 2019

Consolidated sales for the nine months ended September 30, 2020 increased to $73,681,000 from $35,745,000 for the nine months ended September 30, 2019, representing an increase of $37,936,000, or 106.1%. This increase consisted of increased sales in the Disposable Protective Apparel Segment of $35,682,000 and increased sales in the Building Supply segment of $2,254,000.

Building Supply segment sales for the nine months ended September 30, 2020 increased by $2,254,000, or 11.0%, to $22,677,000, compared to $20,423,000 for the same period of 2019. The Building Supply segment increase was primarily due to an increase in sales of housewrap of 11.2%, an increase in sales of synthetic roof underlayment of 9.4% and an increase in sales of other woven material of 19.6% compared to the same period of 2019. Synthetic roof underlayment sales increased as a result of increased sales of the Company’s TECHNO family of products. Synthetic roof underlayment and housewrap sales were positively affected by improved U.S. housing starts. Other woven material sales were up as a result of our largest customer in this category increasing its order volume. The sales mix of the Building Supply segment for the nine months ended September 30, 2020 was 46% for synthetic roof underlayment, 45% for housewrap and 9% for other woven material. This compared to ~~approximately 46%~~47% for synthetic roof underlayment, ~~44%~~45% for housewrap and ~~10%~~8% for other woven material for the ~~three~~nine months ended ~~March 31,~~September 30, 2019. ~~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 increase in our synthetic roof underlayment sales were attributable to~~As the expansion of program purchases on our expanded line of products, particularly on our TECHNO family of spunbond based (SB) products, with the one step roofing market. We have experienced an overall increase in market share due to our ability of supporting shortened lead times with our U.S. based manufacturing and our vertical integration as a result of our joint venture. The housewrap side of our business has also experienced an increase as we expand our distribution reach with the additional accessory items we have added to the system sell. Our full line of wraps, seam tape and window flashings has given us an additional reach to new distribution outlets. Sales of other woven material increased as a result of our largest customer in this category increasing its order volume with us.

~~We expect continued growth in this market segment longer term but do anticipate a softer market short term as a result~~impact of the COVID-19 ~~pandemic.~~pandemic continues to unfold, there could be a negative impact in our Building Supply segment, as there could be increased uncertainty with the economy in general. However, to date, we have not experienced any material negative impact in our Building Supply segment.

Sales for the Disposable Protective Apparel segment for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 increased by ~~$4,791,000,~~$35,682,000, or ~~82.5%~~232.9%, to ~~$10,597,000,~~$51,004,000, compared to ~~$5,806,000~~$15,322,000 for the same period of 2019. This segment increase was due to a ~~$3,673,000 or 419.3%~~989.6% increase in sales of face masks, a ~~235.3%~~755.6% increase in face shields and a ~~5.1%~~22.1% increase in sales of disposable protective ~~garments. The increase in face mask sales can be attributed~~garments, all primarily due to increased ~~sales of our N-95 Particulate Respirator due to the COVID-19 pandemic. The increase in face shield sales was also due to~~customer demand associated with the pandemic. On a comparative basis, the first quarter of 2019 was also strong, being the second best quarter in the same number of years. Disposable protective apparel sales in the first quarter of 2020 was 23.0% higher than the average quarter of the past two years. The company’s joint venture in India that manufacturers the disposable protective garment lines, which has historically been the primary supply sourceOpen purchase orders for ~~these products, remains under a country-wide, government mandated closure that started in late March~~face masks and ~~has now been extended through May 18, 2020. Customer demand for~~ disposable protective garments ~~remains strong, but the Company does expect some short term impact on sales as a result of the India mandated closure, which could impact order fulfillment and top line growth.~~remain very strong. The sales mix of the Disposable Protective Apparel segment for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 was ~~approximately 45%~~28% for disposable protective garments, ~~43%~~52% for ~~face~~ masks and ~~12%~~20% for ~~face~~ shields. This sales mix is compared to ~~approximately 78%~~76% for disposable protective garments, ~~15%~~16% for ~~face~~ masks and 7%8% for ~~face~~ shields for the ~~three~~nine months ended ~~March 31,~~September 30, 2019.

Gross Profit. Gross profit increased by ~~$3,750,000,~~$10,916,000, or ~~78.1%~~258.7%, to ~~$8,554,000~~$15,136,000 for the three months ended ~~March 31,~~September 30, 2020, from ~~$4,804,000~~$4,220,000 for the same period of 2019. The gross profit margin was ~~47.1%~~50.4% for the three months ended ~~March 31,~~September 30, 2020, compared to ~~39.0%~~35.1% for the three months ended ~~March 31,~~September 30, 2019. ~~Gross~~The gross profit margin was positively affected by the significant change in product mix, ~~with~~which was altered due to a surge in customer demand ~~in light~~as a result of the COVID-19 pandemic for face masks, in particular ~~the~~our N-95 Particulate Respirator face mask, and face shields, which generally have a higher gross profit margin than our other products.

Gross profit increased by $23,174,000, or 176.5%, to $36,303,000 for the nine months ended September 30, 2020, from $13,129,000 for the same period of 2019. The ~~Company~~gross profit margin was 49.3% for the nine months ended September 30, 2020, compared to 36.7% for the same period of 2019.

The gross profit margin could be slightly affected in the fourth quarter of 2020 as a result of increases in the prices of some raw materials. However, management expects ~~these~~continued higher gross profit margin ~~products to be in high demand~~ for ~~at least~~ the rest of ~~2020.~~2020 and into 2021 due to sales associated with the pandemic.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by ~~$427,000,~~$1,408,000, or ~~11.6%~~44.4%, to ~~$4,102,000~~$4,580,000 for the three months ended ~~March 31,~~September 30, 2020, from ~~$3,675,000~~$3,172,000 for the three months ended ~~March 31,~~September 30, 2019. AsHowever, as a percentage of net sales, selling, general and administrative expenses decreased to ~~22.6%~~15.3% for the three months ended ~~March 31,~~September 30, 2020, from ~~29.9%~~26.4% for the same period of ~~2019.~~2019, primarily as a result of the growth in net sales. The increase in selling, general and administrative expenses was primarily the result of increased employee compensation, ~~for both the Building and Disposable Protective Apparel segments,~~ increased ~~professional fees,~~sales commissions, increased accrued bonuses, increased insurance costs, increased general office expenses and increased ~~payroll taxes, partially offset by decreased trade show expenses.~~factory-related expenses, largely associated with the pandemic.

The change in expenses by segment comparing the three months ended ~~March 31, 2019~~September 30, 2020 to the three months ended ~~March 31, 2020,~~September 30, 2019 was as follows: Disposable Protective Apparel increased by ~~$60,000,~~$665,000, or ~~5.0%~~65.6%; corporate unallocated expenses increased by ~~$446,000,~~$625,000, or ~~42.9%~~67.9%; and Building Supply ~~decreased~~increased by ~~$79,000,~~$118,000, or ~~5.5%~~9.6%. The increase in the Disposable Protective Apparel segment expenses was related to increased employee compensation, increased insurance costs, increased factory expenses, increased general office expenses and ~~higher testing costs for the manufacture~~increased commissions as a result of ~~face masks.~~increased sales. The increase in corporate unallocated expenses was as a result of ~~increased professional fees,~~ increased accrued bonuses as well as increased ~~payroll taxes.~~public company expenses, general office expenses and professional fees primarily due to the pandemic. The ~~decrease~~increase in the Building Supply segment expenses was related to increased employee compensation and increased insurance costs.

Selling, general and administrative expenses increased by $3,128,000, or 30.9%, to $13,236,000 for the nine months ended September 30, 2020, from $10,108,000 for the nine months ended September 30, 2019. However, as a percentage of net sales, selling, general and administrative expenses decreased to 18.0% for the nine months ended September 30, 2020, down from 28.3% for the same period of 2019, primarily as a result ~~decreased trade show~~of the growth in net sales.

The change in expenses ~~partially offset~~ by segment for the nine months ended September 30, 2020 was as follows: Disposable Protective Apparel was up $1,285,000, or 40.1%; Building Supply was up $65,000, or 1.6%; and corporate unallocated expenses were up $1,778,000, or 60.5%. The increase in the Disposable Protective Apparel segment expenses was related to increased employee ~~compensation.~~compensation, increased factory expenses and increased commissions as a result of increased sales. The increase in the Building Supply segment expenses was related to increased employee compensation and increased insurance costs. The increase in corporate unallocated expenses was primarily due to increased accrued bonuses, increased public company expenses and increased professional fees.

In accordance with the terms of his employment agreement, the Company’s current President and Chief Executive Officer is entitled to an annual bonus equal to 5% of the pre-tax profits of the Company, excluding bonus ~~expense.~~expense, up to a maximum of $1.0 million. A bonus amount of ~~$227,000~~$350,000 was accrued for the three months ended ~~March 31,~~September 30, 2020, compared to ~~$77,000~~$36,000 for the three months ended ~~March 31,~~September 30, 2019. A bonus amount of $1,000,000 was accrued for the nine months ended September 30, 2020, as compared to $171,000 for the same period of 2019.

Depreciation and ~~Amortization.~~Amortization. Depreciation and amortization expense increased by ~~$55,000,~~$44,000, or ~~43.3%~~31.0%, to ~~$182,000~~$186,000 for the three months ended ~~March 31,~~September 30, 2020, from ~~$127,000~~$142,000 for the three months ended ~~March 31,~~September 30, 2019. Depreciation and amortization expense increased by $136,000, or 33.2%, to $546,000 for the nine months ended September 30, 2020, from $410,000 for the same period of 2019. The increase for the quarter and nine month period was primarily attributable to increased depreciation for machinery and equipment in the Building Supply ~~segment.~~segment and increased corporate depreciation related to computer technology.

Income from Operations. Income from operations increased by ~~$3,268,000,~~$9,464,000, or ~~326.1%~~1044.6%, to ~~$4,270,000~~$10,370,000 for the three months ended ~~March 31,~~September 30, 2020, compared to ~~$1,002,000~~$906,000 for the same period of 2019. The increased income from operations was primarily due to an increase in gross profit of ~~$3,750,000,~~$10,916,000, partially offset by an increase in selling, general and administrative expenses of ~~$427,000,~~$1,408,000 and an increase in depreciation and amortization expense of ~~$55,000.~~$44,000. Income from operations as a percentage of net sales for the three months ended ~~March 31,~~September 30, 2020 was ~~23.5%~~34.5%, compared to ~~8.1%~~7.5% for the same period of 2019.

Income from operations increased by $19,910,000, or 762.5%, to $22,521,000 for the nine months ended September 30, 2020, compared to $2,611,000 for the nine months ended September 30, 2019. The increased income from operations was primarily due to an increase in gross profit of $23,174,000, partially offset by an increase in selling, general and administrative expenses of $3,128,000 and an increase in depreciation and amortization expense of $136,000. Income from operations as a percentage of net sales for the nine months ended September 30, 2020 was 30.6%, compared to 7.3% for the same period of 2019.

Other Income. Other income ~~decreased~~increased by ~~$415,000, or 109.4%,~~$586,000 to ~~$44,000~~$227,000 for the three months ended ~~March 31,~~September 30, 2020, from ~~$459,000~~a loss of $359,000 for the same period of 2019. The increase was primarily due to an increase in equity in income of unconsolidated affiliate of $240,000 and a net increase of $363,000 on a loss on marketable securities resulting in a gain of $24,000 for the three months ended September 30, 2020 compared to a loss on marketable securities of $387,000 and a decrease in interest income of $17,000 during the same period of 2019.

Other income consisted of equity in income of unconsolidated affiliate of $250,000 and interest income of $1,000, partially offset by a loss on marketable securities of $24,000 for the three months ended September 30, 2020. 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 decreased by $215,000 to $431,000 for the nine months ended September 30, 2020, from $646,000 for the same period of 2019. The decrease was primarily due to a loss on marketable securities ~~for the three months ended March 31,~~in 2020 compared to a gain on marketable securities during the same period of ~~2018,~~2019, for a net ~~change~~decrease of ~~$229,000,~~$265,000, and a decrease in interest income of $35,000, partially offset by an increase in equity in income of unconsolidated affiliate of ~~$190,000, partially offset by an increase in interest income of $4,000.~~$85,000.

The fluctuations in the Company’s marketable securities were primarily attributable to changes in the fair value of the securities recognized during the period. For the three months ended March 31, 2020, the Company’s investments were negatively impacted by the COVID-19 pandemic, which resulted in a sharp downturn in the markets during the quarter. Management expects that any future market volatility, whether from COVID-19 or other factors, will result in continued volatility in the investment portfolio.

~~Other income consisted of equity in income of unconsolidated affiliate of $87,000, a loss on marketable securities of $59,000 and interest income of $16,000 for the three months ended March 31, 2020.~~ Other income consisted primarily of equity in income of unconsolidated affiliate of ~~$277,000,~~$456,000, a loss on marketable securities of $42,000 and interest income of $17,000 for the nine months ended September 30, 2020. Other income consisted of equity in income of unconsolidated affiliate of $371,000, a gain on marketable securities of ~~$170,000~~$223,000 and interest income of ~~$12,000~~$52,000 for the ~~three~~nine months ended ~~March 31,~~September 30, 2019.

Income before Provision ~~(Benefit)~~ for Income Taxes. Income before provision ~~(benefit)~~ for income taxes for the three months ended ~~March 31,~~September 30, 2020 was ~~$4,314,000,~~$10,597,000, compared to income before provision for income taxes of ~~$1,461,000~~$547,000 for the same period of 2019, representing an increase of ~~$2,853,000~~$10,050,000, or ~~195.3%~~1,837.3%. This increase in income before provision for income taxes was primarily due to an increase in income from operations of ~~$3,268,000,~~$9,464,000 and an increase in other income of $586,000.

Income before provision for income taxes for the nine months ended September 30, 2020 was $22,952,000, compared to income before provision for income taxes of $3,257,000 for the nine months ended September 30, 2019, representing an increase of $19,695,000, or 604.7%. This increase in income before provision for income taxes was due to an increase in income from operations of $19,910,000, partially offset by a decrease in other income of ~~$415,000.~~$215,000.

Provision ~~(Benefit)~~ for Income ~~Taxes.~~Taxes. The provision ~~(benefit)~~ for income taxes for the three months ended ~~March 31,~~September 30, 2020 was a$2,490,000, compared to $110,000 for the same period of 2019. The effective tax ~~benefit~~rate was 23.5% for the three months ended September 30, 2020, compared to 20.1% for the same period of ~~$1,028,000, compared to~~2019. The Company does not record a tax provision on equity in income of ~~$243,000~~unconsolidated affiliate.

The provision for income taxes for the nine months ended September 30, 2020 was $3,284,000, compared to $592,000 for the same period of 2019. The provision for income taxes consisted of an estimated nonrecurring tax benefit of $2.0 million in the first quarter of 2020 as a result of the exercise of disqualified Incentive Stock Options ~~(“ISOs”)~~ and the exercise of Non-Qualified Stock ~~Options (“NQSOs”), partially offset by tax expense of an estimated $1.0 million.~~Options. The estimated effective tax rate was ~~negative 23.8%~~14.3% for the ~~three~~nine months ended ~~March 31,~~September 30, 2020, compared to ~~16.6%~~18.2% for the ~~three~~nine months ended ~~March 31,~~September 30, 2019. Excluding the estimated nonrecurring tax benefit of $2.0 million, the estimated effective tax rate was ~~22.5%~~23.0% for the ~~three~~nine months ended ~~March 31,~~September 30, 2020. The Company does not record a tax provision on equity in income of unconsolidated affiliate, which reduces the effective tax rate.

Net Income. Net income for the three months ended ~~March 31,~~September 30, 2020 was ~~$5,342,000,~~$8,107,000, compared to net income of ~~$1,218,000~~$437,000 for the same period of 2019, representing an increase of ~~$4,124,000,~~$7,670,000, or ~~338.6%~~1,755.1%. The net income increase was due to an increase in income before ~~benefit~~provison for income taxes of ~~$2,853,000 and~~$10,050,000, partially offset by ~~a decrease~~an increase in provision for income taxes of ~~$1,271,000.~~$2,380,000. Net income as a percentage of net sales for the three months ended September 30, 2020 was 27.0%, and net income as a percentage of net sales for the three months ended September 30, 2019 was 3.6%. Basic earnings per common share for the three months ended September 30, 2020 and 2019 were $0.60 and $0.03, respectively. Diluted earnings per common share for the three months ended September 30, 2020 and 2019 were $0.58 and $0.03, respectively.

Net income for the nine months ended September 30, 2020 was $19,668,000, compared to net income of $2,665,000 for the same period of 2019, representing an increase of $17,003,000, or 638.0%. Net income for the nine-month period significantly exceeded the Company’s previous net income record for a full annual period – $9.0 million for the year ended December 31, 2009, which resulted primarily from increased sales due to the H1N1 pandemic. The net income increase comparing the 2020 and 2019 periods was due to an increase in income before provision for income taxes of $19,695,000, partially offset by an increase in provision for income taxes of $2,692,000. As mentioned above, a tax benefit from stock options exercised ~~has~~ positively impacted net income in the first quarter of 2020. Net income as a percentage of net sales for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 was ~~29.4%~~26.7%, and net income as a percentage of net sales for the ~~three months ended March 31,~~same period of 2019 was ~~9.9%~~7.5%. Basic earnings per common share for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019 were ~~$0.41~~$1.46 and ~~$0.09,~~$0.20, respectively. Diluted earnings per common share for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 and 2019 were ~~$0.39~~$1.41 and ~~$0.09,~~$0.20, respectively.

As of ~~December 31, 2019,~~September 30, 2020, the Company had cash of ~~$17,365,000~~$24,583,000 and working capital of ~~$31,624,000,~~$44,668,000, representing an increase in working capital of ~~$6,964,000~~$20,906,000 from ~~$24,660,000~~$23,762,000 as of December 31, 2019. As of ~~March 31,~~September 30, 2020, the Company’s current ratio (current assets/current liabilities) was 4:7:1, compared to a ~~12:1~~ current ratio of 11:1 as of December 31, 2019. The change in current ratio ~~is as~~was primarily a result of customer advance payments for future dated PPE ~~orders.~~orders, which totaled $3.2 million at the end of the third quarter of 2020. Cash increased by ~~165.2%~~275.4%, or ~~$10,817,000~~$18,035,000, to ~~$17,365,000~~$24,583,000 as of ~~March 31,~~September 30, 2020, compared to $6,548,000 as of December 31, 2019. Approximately ~~$7.2~~$3.2 million of the increase in cash ~~can be~~was attributable to ~~prepayments on~~customer advance payments for future dated PPE ~~sales.~~orders. The increase in cash from December 31, 2019 was due to cash provided by operating activities of ~~$9,342,000,~~$17,038,000 and cash provided by financing activities of ~~$1,716,000 and~~$1,564,000, partially offset by cash used in investing activities of ~~$241,000.~~$567,000.

We ~~have~~previously had 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 March 31, 2020, the prime interest rate was 3.25%.~~ This credit line ~~will expire~~expired in May 2020, and ~~we do expect~~the Company decided not to ~~renew it.~~renew. The ~~available line~~Company has continued its relationship with Wells Fargo, with the exception of ~~credit is based on a formula of eligible accounts receivable and inventories. Our borrowing capacity on~~ the line of credit. The Company determined that the credit ~~was $3,500,000~~line is not necessary at this time, as ~~of March 31, 2020. As of March 31, 2020, we did~~it had not ~~have any borrowings under this credit facility~~been used in several years, and ~~do not anticipate using it in~~ the ~~near future. The credit facility includes customary financial and non-financial debt covenants. As of March 31, 2020 we believe that we are in compliance with all such covenants.~~Company currently has sufficient funding from operations.

Net cash provided by operating activities of ~~$9,342,000~~$17,038,000 for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 was due to net income of ~~$5,342,000,~~$19,668,000, impacted primarily by the following: stock-based compensation expense of ~~$91,000,~~$274,000, depreciation and amortization expense of ~~$182,000,~~$546,000, loss on marketable securities of ~~$59,000,~~$42,000, equity in income of unconsolidated affiliate of ~~$87,000,~~$456,000, operating lease expense net of accretion of ~~$224,000,~~$677,000, an increase in accounts receivable of ~~$3,986,000,~~$5,678,000, an increase in prepaid expenses of ~~$650,000, a decrease~~$1,272,000, an increase in inventory of ~~$155,000,~~$1,852,000, an increase in accounts payable and accrued liabilities of ~~$8,233,000~~$5,758,000 and a decrease in lease liabilities of ~~$221,000.~~$669,000.

Accounts receivable increased by ~~$3,986,000,~~$5,678,000, or ~~92.0%~~132.3%, to ~~$8,278,000~~$9,970,000 as of ~~March 31,~~September 30, 2020, from $4,292,000 as of December 31, 2019. The increase in accounts receivable was ~~primarily~~ related to increased sales in the first quarter of 2020 and to extended payment terms that we offer on many Building Supply segment sales through the end of the first quarter of 2020 to remain competitive, as our competition also offers these extended payment terms.sales. The number of days that sales remained outstanding as of ~~March 31,~~September 30, 2020, calculated by using an average of accounts receivable outstanding and annual revenue, was 3335 days, compared to 34 days as of December 31, 2019.

Inventory decreased by $155,000, or 1.4%, to $11,148,000 as of March 31, 2020, from $11,303,000 as of December 31, 2019. The decrease was primarily due to a decrease in inventory for the Disposable Protective Apparel segment of $269,000, or 4.8%, to $5,339,000, partially offset by an increase in inventory for the Building Supply segment of $114,000, or 2.0%, to $5,809,000.

Inventory increased by $1,852,000, or 16.4%, to $13,155,000 as of September 30, 2020, from $11,303,000 as of December 31, 2019. The increase was primarily due to an increase in inventory for the Disposable Protective Apparel segment of $2,964,000, or 52.9%, to $8,572,000, partially offset by a decrease in inventory for the Building Supply segment of $1,112,000, or 19.5%, to $4,583,000.

Prepaid expenses increased by ~~$650,000,~~$1,272,000, or ~~18.1%~~35.5%, to ~~$4,237,000~~$4,859,000 as of ~~March 31,~~September 30, 2020, from $3,587,000 as of December 31, 2019. The increase was primarily due to ~~a tax benefit, partially offset by decreases in deposits~~prepayments for ~~the purchase of~~machinery and equipment, as well as inventory.

Right-of-use assets as of ~~March 31,~~September 30, 2020 decreased by ~~$224,000~~$677,000 to ~~$2,954,000~~$2,501,000 from $3,178,000 as of December 31, 2019 as a result of amortization of the balance.

Lease liabilities as of ~~March 31,~~September 30, 2020 decreased by ~~$220,000~~$669,000 to ~~$2,999,000~~$2,550,000 from $3,219,000 as of December 31, 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 lease payments made during the ~~quarter.~~year.

Accounts payable and accrued liabilities as of ~~March 31,~~September 30, 2020 increased by ~~$1,070,000,~~$2,540,000, or ~~75.3%~~178.8%, to ~~$2,491,000,~~$3,961,000, from $1,421,000 as of December 31, 2019. The increase was primarily due to an increase in accounts payable as a result of increased raw material ~~purchases.~~purchases, an increased in accrued liabilities, an increase in accrued bonuses and an increase in accrued taxes.

Customer advance payment of orders as of ~~March 31,~~September 30, 2020 was ~~$7,161,000,~~$3,218,000, which ~~is a~~was the result of customer deposits for ~~future-dated~~future dated PPE orders in response to the COVID-19 pandemic. There were no advance payments of this nature as of December ~~31.~~31, 2019.

Net cash used in investing activities was ~~$241,000~~$567,000 for the ~~three~~nine months ended ~~March 31,~~September 30, 2020, compared to net cash used in investing activities of ~~$142,000~~$1,031,000 for the same period of 2019. Investing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 consisted of the purchase of property and equipment of ~~$288,000 primarily~~$687,000 for both the Building Supply segment and the Disposable Protective Apparel segment and proceeds from the sale of marketable securities of ~~$47,000.~~$120,000. Investing activities for the ~~quarter~~nine months ended ~~March 31,~~September 30, 2019 consisted of the purchase of property and equipment of ~~$152,000~~$1,164,000 for both the Building Supply segment and the Disposable Protective Apparel segment and proceeds from the sale of marketable securities of ~~$10,000.~~$133,000.

Net cash provided by financing activities was ~~$1,716,000~~$1,564,000 for the ~~three~~nine months ended ~~March 31,~~September 30, 2020, compared to net cash used in financing activities of ~~$948,000~~$1,969,000 for the same period of 2019. Net cash provided by financing activities for the ~~three~~nine months ended ~~March 31,~~September 30, 2020 resulted from proceeds of ~~$1,841,000~~$1,970,000 from the exercise of stock options, partially offset by the payment of ~~$125,000~~$406,000 for the repurchase of common stock. Net cash used in financing activities for the ~~quarter~~nine months ended ~~March 31,~~September 30, 2019 resulted from the payment of ~~$1,008,000~~$2,064,000 for the repurchase of common stock, partially offset by proceeds of ~~$60,000~~$95,000 from the exercise of stock options.

As of ~~March 31,~~September 30, 2020, we had ~~$2,027,000~~$6,745,000 available for additional stock purchases under our stock repurchase program. For the ~~three~~nine months ended ~~March 31,~~September 30, 2020, we repurchased ~~35,100~~55,100 shares of common stock at a cost of ~~$125,000.~~$406,000. As of ~~March 31,~~September 30, 2020, we had repurchased a total of ~~17,922,917~~17,942,917 shares of common stock at a cost of ~~$35,493,000~~$35,774,000 through our repurchase program. We retire all stock upon repurchase. Future repurchases are expected to be funded from cash on hand and cash flows from operating activities.

We believe that our current cash balance ~~and the funds available under our credit facility~~ will be sufficient to satisfy our projected working capital and planned capital expenditures for the foreseeable future.

In February 2016, the FASB issued ASU 2016-02, Leases, which introduces the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The update is effective for annual reporting periods beginning after December 15, 2018, including interim periods within those reporting periods, with early adoption permitted. The original guidance required application on a modified retrospective basis with the earliest period presented. In August 2018, the FASB issued ASU 2018-11, Targeted Improvements to ASC 842, which includes an option to not restate comparative periods in transition and elect to use the effective date of ASC 842, Leases, as the date of initial application of transition. Based on the effective date, we adopted this ASU beginning on January 1, 2019 and elected the transition option provided under ASU 2018-11. This standard had a material effect on our consolidated balance sheet with the recognition of new right-of-use assets and lease liabilities for all operating leases, as these leases typically have a non-cancelable lease term of greater than one year. Upon adoption, both assets and liabilities on our consolidated balance sheet increased by approximately $3,455,000. We have elected a package of transition practical expedients, which include not reassessing whether any expired or existing contracts are or contain leases, not reassessing the lease classification of expired or existing leases, and not reassessing initial direct costs for existing leases. We have also elected a practical expedient to not separate lease and non-lease components. We did not elect the practical expedient to use hindsight in determining the lease terms or assessing impairment of the ROU assets. See also Note 13 of the Notes to ~~the~~Condensed Consolidated Financial Statements (Unaudited), which appear elsewhere in this ~~report.~~report, for more information.

Management periodically reviews new accounting standards that are issued. Management has not identified any other new standards that it believes merit further discussion at this time.

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 Chief Executive Officer (principal executive officer) and our Chief Financial Officer (principal financial officer), we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), as of ~~March 31,~~September 30, 2020, 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, and such controls include, without limitation, controls and procedures designed to ensure that information required to be disclosed is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.

In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and that we are required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level 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.

A list of factors that could materially affect our business, financial condition or operating results is described in Part I, Item 1A, “Risk Factors” in the 2019 Form 10-K. There have been no material changes to our risk factors from those disclosed in Part I, Item 1A, “Risk Factors” in the 2019 Form 10-K, other than as described in the risk factor below.

The effects of the COVID-19 pandemic could have a material adverse effect on our business, financial results and results of operations.

In December 2019, COVID-19 surfaced in Wuhan, China, and over the course of the first quarter of 2020, the World Health Organization escalated its assessment of the COVID-19 threat, finally characterizing it as a pandemic on March 11, 2020. The situation relating to the COVID-19 pandemic is complex and ~~rapidly~~still evolving, with a broad number of governmental and commercial efforts to contain the spread of the virus globally. The duration and extent of the impact of the COVID-19 pandemic on our business, operations and financial results depends on factors that cannot be accurately predicted at this time, such as the severity and transmission rate of the virus, the extent and effectiveness of containment actions, and the impact of these and other factors on our employees, customers, industry partners, suppliers and third-party dealers and distributors.

Federal, state and local governments, as well as foreign governments, have imposed numerous protocols and regulations ~~restricting the physical movement of individuals~~ in an effort to limit the spread of the COVID-19. We have implemented a number of measures in an effort to protect our employees’ health and well-being, including having certain office workers work remotely and suspending employee travel. The potential negative effects to our operations, including reductions in production levels, research and development activities and increased costs resulting from our efforts to mitigate the impact of COVID-19, may adversely affect our ability to provide our products. Conversely, the implications of unsuccessfully implementing health and well-being measures, which could, for example, result in workers at our manufacturing facilities testing positive for COVID-19, would also adversely affect our business, including resulting in a product recall. Although we will continue to adhere to restrictions imposed by local governments in the jurisdictions in which we operate, government regulations have impacted workforce availability and expense in certain of the Company’s manufacturing facilities, and we expect this to continue for some time.

Although we have experienced increased sales and significantly increased demand for our PPE products, the global COVID-19 pandemic has and may continue to have an adverse impact on our manufacturing and distribution capabilities. Disruptions relating to the COVID-19 pandemic, including ~~current~~ shelter-in-place orders in the U.S., Mexico, India and other countries, have prevented and could continue to prevent employees, suppliers, distributors and others from accessing manufacturing facilities and from transporting our products or the components required to manufacture our products. ~~In particular, any further extension of~~For example, the ~~government mandated~~government-mandated closure in India, which started in late March and ~~has been extended through~~ended in May ~~18, would impact~~2020, impacted our order fulfillment and revenue growth related to our disposable protective garments. ~~Government~~Any government regulation may also impact our ability to supply and ship our products to certain customers, which could lead to cancellation of some orders. Further, worldwide supply chain disruption relating to the COVID-19 pandemic has resulted in product shortages that have impacted and may continue to impact our ability to manufacture our products. We currently utilize third parties to, among other things, manufacture certain components and materials for our products, and to provide services such as sterilization services, and we purchase these materials and services from numerous suppliers worldwide. If either we or any third parties in the supply chain for materials used in the production of our products are adversely impacted by the COVID-19 pandemic, including the restrictions resulting from the COVID-19 pandemic, our supply chain may continue to be disrupted, limiting our ability to manufacture our products. These disruptions may, among other things, continue to impact our ability to produce and supply products in quantities necessary to meet market demand.

Further, in connection with the COVID-19 pandemic and in an effort to increase the wider availability of needed medical and other supplies and products, we may elect to, or governments may require us to, allocate our products (for example, pursuant to the U.S. Defense Production Act (the “DPA”)) in a way that adversely affects our regular operations and financial results, results in differential treatment of customers and/or adversely affects our reputation and customer relationships. Likewise, suppliers of our raw materials who are subject to requests under the DPA may be unable to fulfill our orders for those raw materials, or such fulfillment could be delayed. In addition, unpredictable increases in demand for certain of our products could, or in some cases may continue to, exceed our capacity to meet such demand, ~~even following our phase 1 and phase 2 ramp up initiatives,~~ which could adversely affect our financial results and customer relationships and result in negative publicity.

As a result of the COVID-19 pandemic, we have experienced a significant increase in orders of our PPE products from both legacy and new customers. Because of the uncertainty associated with the pandemic, we may experience a decrease in sales from certain of these customers at the point at which conditions related to the virus change or improve and demand for these products subsides, which could impact our expectations of future orders and sales.

COVID-19 has resulted in a downturn in the global financial markets and a slowdown in the global economy, which has, in turn, negatively impacted interest rates and foreign currency exchange rates. This economic environment may impact some of our customers’ ability to pay or lead them to request extended payment terms, and we have experienced and may continue to experience cost increases from some of our suppliers. Additionally, decreased housing starts and increased uncertainty in the housing market could negatively impact demand for our Building Supply segment products.

Moreover, the impacts of the COVID-19 pandemic may exacerbate other pre-existing risks, such as political, regulatory, social, financial, operational and cybersecurity risks, and those associated with global economic conditions, any of which could have a material adverse effect on our business.

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) Pursuant to the Company’s share repurchase program, on ~~December 11, 2019,~~September 22, 2020, the Company announced that the Board of Directors had authorized a ~~$2,000,000~~$5,000,000 expansion of the Company’s existing share repurchase program. All of the shares included in this table were purchased pursuant to this 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.

PART I.	FINANCIAL INFORMATION

ITEM 1.	Financial Statements	page

	Condensed Consolidated Balance Sheets (Unaudited)	1

	Condensed Consolidated Statements of Income (Unaudited)	2

	Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)	3

	Condensed Consolidated Statements of Cash Flows (Unaudited)	4

	Notes to Condensed Consolidated Financial Statements (Unaudited)	5

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1415

ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	2326

ITEM 4.	Controls and Procedures	2326

PART II.	OTHER INFORMATION	27

ITEM IA.	Risk Factors	2427

ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2529

ITEM 6.	Exhibits	2630

SIGNATURES	27	31

EXHIBITS

For the Nine Months Ended September 30, 2019															For the Nine Months Ended September 30, 2019

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

	March 31,		December 31,		September 30,		December 31,
	2020		2019		2020		2019

Building Supply	$	1,966,000	$	1,867,000	$	1,913,000	$	1,867,000
Disposable Protective Apparel		1,088,000		1,087,000		1,193,000		1,087,000
Total segment assets		3,054,000		2,954,000		3,106,000		2,954,000

Unallocated corporate assets		1,061,000		1,055,000		1,044,000		1,055,000
Total consolidated assets	$	4,115,000	$	4,009,000	$	4,150,000	$	4,009,000

	Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased		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)
January 1 - 31, 2020		35,100	$	3.52		35,100	$	2,027,000
February 1 - 29, 2020		0		0.00		0		2,027,000
March 1 - 31, 2020		0		0.00		0		2,027,000
		35,100		3.52		35,100

	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, 2020		-		-		-	$	2,027,000
August 1 - 31, 2020		-		-		-		2,027,000
September 1 - 30, 2020		20,000	$	13.96		20,000		6,745,000
		20,000				20,000

	For the Three Months Ended March 31,
	2020			2019
Net sales		100.0	%		100.0	%
Gross profit		47.1	%		39.0	%
Selling, general and administrative expenses		22.6	%		29.9	%
Income from operations		23.5	%		8.1	%
Income before provision for income taxes		23.8	%		11.9	%
Net income		29.4	%		9.9	%

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2020			2019			2020			2019
Net sales		100.0	%		100.0	%		100.0	%		100.0	%
Gross profit		50.4	%		35.1	%		49.3	%		36.7	%
Selling, general and administrative expenses		15.3	%		26.4	%		18.0	%		28.3	%
Income from operations		34.5	%		7.5	%		30.6	%		7.3	%
Income before provision for income taxes		35.3	%		4.5	%		31.2	%		9.1	%
Net income		27.0	%		3.6	%		26.7	%		7.5	%

3.1.1(P)	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(P)	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(P)	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(P)	Bylaws of Alpha Pro Tech, Ltd., incorporated by reference to Exhibit 3(g) to Form 10-K for the year ended December 31, 1994, filed on March 31, 1995 (File No. 000-19893).
31.1	Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – President and Chief Executive Officer.
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – Chief Financial Officer.
101	Interactive Data Files for Alpha Pro Tech, Ltd’s Form 10-Q for the period ended ~~March 31,~~September 30, 2020.
	~~(P) Indicates a paper filing with the SEC.~~

		ALPHA PRO TECH, LTD.

DATE:	~~May 7,~~November 6, 2020	BY:	/s/ Lloyd Hoffman
			Lloyd Hoffman
			President and Chief Executive Officer


DATE:	~~May 7,~~November 6, 2020	BY:	/s/Colleen McDonald
			Colleen McDonald
			Chief Financial Officer