Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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, 2024, filed with the SEC on March 12, 2025 (the "2024 Form 10-K").

Special Note Regarding Forward-Looking Statements

Certain information set forth in this Quarterly Report on Form 10-Q contains "forward-looking statements" within the meaning of federal securities laws. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs, plans or intentions, including, without limitation, our expected orders, production levels and sales in 2025 and 2026, 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:

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We are exposed to foreign currency exchange risks related to our unconsolidated affiliate operations in India.

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We are subject to risks associated with our joint venture.

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The loss of any large customer or a reduction in orders from any large customer could reduce our net sales and harm our operating results.

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We rely on suppliers and contractors, and our business could be seriously harmed if these suppliers and contractors are not able to meet our requirements.

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Risks associated with international manufacturing could have a significant effect on our business.

	●	Our success depends in part on protection of our intellectual property, and our failure to protect our intellectual property could adversely affect our competitive advantage, our brand recognition and our business.
	●	Tariff policies and potential countermeasures could increase our costs and disrupt our global supply chain, which could negatively impact the results of our operations.

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Our industry is highly competitive, which may negatively affect our ability to grow our customer base and generate sales.

	●	The Company's results are affected by competitive conditions and customer preferences.
	●	Environmental laws and regulations may subject us to significant liabilities.

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The Company's growth objectives are largely dependent on the timing and market acceptance of our new product offerings, including our ability to continually renew our pipeline of new products and to bring those products to market.

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Global economic conditions could adversely affect the Company's business and financial results.

	●	We are subject to risks related to climate change and natural disasters or other events beyond our control.
	●	Uncertainties with respect to the development, deployment, and use of artificial intelligence.

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Security breaches and other disruptions to the Company's information technology infrastructure could interfere with the Company's operations, compromise information belonging to the Company and our customers and suppliers and expose the Company to liability, which could adversely impact the Company's business and reputation.

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The Company's future results may be affected by various legal and regulatory proceedings and legal compliance risks.

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Our common stock price is volatile, which could result in substantial losses for individual shareholders.

The foregoing list of risks is not exclusive. For a more detailed discussion of the risk factors associated with our business, see the risks described in Part I, Item IA, "Risk Factors," in the 2024 Form 10-K. These and many other factors could affect the Company's future operating results and financial condition and could cause actual results to differ materially from expectations based on forward-looking statements made in this document or elsewhere by the Company or on its behalf.

Special Note Regarding Smaller Reporting Company Status

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

Where to find more information about us. We make available, free of charge, on our website (http://www.alphaprotech.com) our most recent Annual Report on Form 10-K, 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 paper copies of our filings free of charge upon request.

Critical Accounting Policies and Estimates

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 consolidated financial statements in Item 8 of the 2024 Form 10-K. Since December 31, 2024, there have been no material changes to our critical accounting policies and estimates as described in the 2024 Form 10-K.

OVERVIEW

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

Our products are grouped into two business segments: (i) the Building Supply segment, consisting of construction weatherization products, such as housewrap, housewrap accessories, synthetic roof underlayment and synthetic roof underlayment accessories, as well as other woven material; and (ii) 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.

Our target markets include construction companies and building supply and roofing distributors; companies in pharmaceutical manufacturing, bio-pharmaceutical manufacturing, medical device manufacturing, lab animal research, and high technology electronics manufacturing (which includes the semi-conductor market); and medical and dental 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.

Recent developments in U.S. trade policy have introduced uncertainty regarding the future of global trade relations. On February 1, 2025, President Trump announced the imposition of additional substantial tariffs on imports from various countries, including China, Canada and Mexico, and the subject countries indicated their intention to impose counter measures. Under the announced measures, tariffs will be applied to certain products from Mexico, Vietnam, India, Canada, Sri Lanka, and China, among other countries. The current tariffs, especially those imposed on imports from India and Sri Lanka, have increased the costs of certain products sourced from non-U.S. countries. Sales of certain of our products, for example, disposable protective garments, have experienced volatility in demand related to customers securing high order rates in prior periods, only to enter a period of destocking in more recent periods. This significant level of volatility in demand levels, input and transportation costs, and material and labor availability, have pressured our ability to operate efficiently in recent periods. We will continue to take actions to mitigate such impacts, including implementing commercial pricing adjustments, holding extra inventory, resourcing to alternate suppliers and insourcing of previously sourced products. Although we believe we generally may be able to mitigate the impact of higher commodity costs over time, we may experience additional material costs and disruptions in supply in the future and may not be able to pass along higher costs to our customers in the form of price increases or otherwise mitigate the impacts to our operating results.

In August 2025, the U.S. government imposed a 25% tariff on India in response to its continued importation of Russian oil, which is in addition to the pre-existing 25% individualized reciprocal tariff on India. Increased tariffs by the United States have led, and may continue to lead, to the imposition of retaliatory tariffs or other measures taken by foreign jurisdictions, which may in turn lead to additional tariffs imposed or measures taken by the United States. In August 2025, however, the U.S. Court of Appeals for the Federal Circuit ruled that many of the tariffs imposed under the Trump Administration exceed presidential authority and therefore are invalid, though the decision has been stayed pending U.S. Supreme Court review. This ruling introduces additional uncertainty as to the scope and durability of existing and future tariff measures. While the U.S. government has announced various trade deals, many such agreements are preliminary and may be subject to change.

Any new or increased tariffs, quotas, embargoes, or other trade barriers affecting other countries from which we do source supplies or our global network of third-party suppliers could impact our supply chain and cost structure. Additionally, retaliatory measures by affected countries could further disrupt our operations or reduce our competitiveness in international markets. An escalation in trade tensions or the implementation of broader tariffs, trade restrictions or retaliatory measures on our products or components originating from countries outside the U.S. could adversely impact our ability to source necessary components, manufacture products at competitive cost, or sell our products at prices customers are willing to pay. Any such developments could materially and adversely affect our business operations, results of operations and cash flows. We continue to monitor these changing tariffs and trade restrictions. If new tariffs or trade restrictions are imposed, we may need to adjust our pricing, increase inventory levels, or seek alternative suppliers, any of which could materially affect our revenue, gross margins, and overall financial performance.

RESULTS OF OPERATIONS

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

		For the Three Months Ended September 30,								For the Nine Months Ended September 30,
		2025				2024				2025				2024
Net sales			100.0	%			100.0	%			100.0	%			100.0	%
Gross profit			39.7	%			38.5	%			38.4	%			40.3	%
Selling, general and administrative expenses			30.9	%			31.6	%			30.5	%			32.3	%
Income from operations			7.4	%			5.2	%			6.4	%			6.3	%
Income before provision for income taxes			8.7	%			7.7	%			8.1	%			8.9	%
Net income			6.6	%			6.0	%			6.3	%			7.0	%

Three and Nine months ended September 30, 2025, compared to Three and Nine months ended September 30, 2024

Sales. Consolidated sales for the three months ended September 30, 2025, increased to $14,785,000, from $14,251,000 for the three months ended September 30, 2024, representing an increase of $534,000, or 3.7%. This increase consisted of increased sales in the Building Supply segment of $476,000 and increased sales in the Disposable Protective Apparel segment of $58,000.

Building Supply segment sales for the three months ended September 30, 2025, increased by $476,000, or 5.4%, to $9,274,000 compared to $8,798,000 for the three months ended September 30, 2024.

The Building Supply segment increase during the three months ended September 30, 2025, was primarily due to a 12.7% increase in sales of housewrap, a 17.4% increase in sales of other woven material, partially offset by a 11.0% decrease in sales of synthetic roof underlayment as compared to the same period of 2024.

Sales of other woven material increased by $214,000, or 17.4%, to $1,446,000 compared to $1,232,000 for the three months ended September 30, 2025 compared to the same period of 2024. The Company is continuing pursuing new opportunities for other woven material that could improve sales.

The sales mix of the Building Supply segment for the three months ended September 30, 2025, was approximately 35% for synthetic roof underlayment, 51% for housewrap and 14% for other woven material. This compared to approximately 41% for synthetic roof underlayment, 46% for housewrap and 13% for other woven material for the three months ended September 30, 2024. Our synthetic roof underlayment product line primarily includes REX SynFelt®, REX TECHNOply® and TECHNO SB and our synthetic roof underlayment accessories consist of our new self-adhered TECHNOplus Ice & Water and REX Hi Temp. Our housewrap product line primarily consists of REX Wrap®, REX Wrap Plus® and REX™ Wrap Fortis. Housewrap accessories consist of REXTREME Window and Door Flashing and REX™ Premium Seam Tape.

The housing market continued to show weakness in the third quarter of 2025 with single-family housing starts down 2.6% compared to the same quarter in 2024. These figures only include July and August, as the census bureau did not publish a report for September 2025 due to the US government shutdown. During the third quarter of 2025, we again outperformed the market, as our core building products (housewrap and synthetic roof underlayment) were up 3.5%, driven primarily by housewrap sales, compared to the same period of 2024. Although synthetic roof underlayment sales were down in the third quarter of 2025, our decrease in the shipments was lower than the Asphalt Roofing Manufacturers Association ("ARMA") decline in shipments for the third quarter 2025, compared to the same period of 2024.

There continues to be uncertainty in housing starts, volatility and uncertainty in the economy as well as a stronger than normal hurricane season in the latter part of 2024 which could affect this segment in the coming quarter. The increase in tariffs have created notable pricing and supply volatility within the market. In addition, declining builder confidence and ongoing price volatility have resulted in reduced inventory positions among our primary customers.

Management attributes its success in a down market to our national builder partnerships. While the building sector is currently experiencing a significant downturn, we recognize that substantial opportunities for continued expansion still exist. Looking ahead to 2026, we anticipate new product introductions as we continue to expand our self-adhered roofing and flashing categories.

Disposable Protective Apparel segment sales for the three months ended September 30, 2025, increased by $58,000, or 1.1%, to $5,511,000, compared to $5,453,000 for the three months ended September 30, 2024. This increase was due to a 10.4% increase in sales of disposable protective garments, partially offset by a 46.5% decrease in sales of face masks and a 33.6% decrease in sales of face shields.

The sales mix of the Disposable Protective Apparel segment for the three months ended September 30, 2025, was approximately 90% for disposable protective garments, 7% for face masks and 3% for face shields. This sales mix is compared to approximately 82% for disposable protective garments, 13% for face masks and 5% for face shields for the three months ended September 30, 2024.

Sales of disposable protective garments in the three months ended September 30, 2025, were up 10.4%, rebounding nicely across all product categories. Sales of shoe covers, coveralls, lab coats, caps and gowns all grew in the third quarter of 2025 compared to the same quarter of 2024. Moreover, our third quarter results pushed our year-to-date performance into positive territory. Management anticipates and is working to uncover new growth opportunities with our customers and to continue this current trend into the fourth quarter. Tariffs have added uncertainty and volatility to the marketplace, but we remain hopeful that tariffs will be significantly reduced soon. We currently are not making any changes to form, fit, function, or material basis weight of our products in an effort to mitigate these tariff challenges. We plan to continue to deliver our high-quality products and remain agile in our pricing strategies to maintain our leadership position and to differentiate Alpha Pro Tech in the disposable protective garments marketplace.

Sales of our face mask and face shield products in the third quarter of 2025 continue to lag behind prior year. We have promotions and pricing incentives for our customers to attempt to turn the tide and will continue to seek out and close new sales opportunities. Our inventory position is strong and much of this segment is not burdened by tariffs. We will continue our efforts to move the trend lines in a positive direction for both face masks and face shields.

Consolidated sales for the nine months ended September 30, 2025 increased to $45,279,000 from $44,023,000 for the nine months ended September 30, 2024, representing an increase of $1,256,000, or 2.9%. This increase consisted of increased sales in the Building Supply segment of $1,750,000, partially offset by decreased sales in the Disposable Protective Apparel segment of $494,000.

Building Supply segment sales for the nine months ended September 30, 2025 increased by $1,750,000, or 6.5%, to $28,729,000, compared to $26,979,000 for the same period of 2024.

The Building Supply segment sales increase during the nine months ended September 30, 2025, was primarily due to a 6.7% increase in sales of synthetic roof underlayment, a 2.6% increase in sales of housewrap and a 18.8% increase in sales of other woven material compared to the same period of 2024.

The sales mix of the Building Supply segment for the nine months ended September 30, 2025 was 49% for housewrap, 40% for synthetic roof underlayment and 11% for other woven material. This compared to 50% for housewrap, 40% for synthetic roof underlayment and 10% for other woven material for the nine months ended September 30, 2024.

We continue to be encouraged by our year-to-date increase in core building product sales of 3.5%, especially since single-family housing starts were down 4.9% during year-to-date through August 2025. As stated above, the census bureau did not publish a report for September 2025 due to the US government shutdown. Additionally, we have achieved the highest year-to-date sales on seam tape, flashing and lumber wrap. Sales of other woven material were up 18.8% year-to-date, primarily due to increased sales to our largest customer for this product line.

Management expects growth in the Building Supply segment, however continued uncertainty in housing starts, tariffs and the economy in general could negatively affect this segment.

Disposable Protective Apparel segment sales for the nine months ended September 30, 2025 decreased by $494,000, or 2.9%, to $16,550,000, compared to $17,044,000 for the same period of 2024. This segment decrease was due to a 2.5% increase in sales of disposable protective garments, offset by a 43.1% decrease in sales of face masks, and a 13.2% decrease in sales of face shields.

The sales mix of the Disposable Protective Apparel segment for the nine months ended September 30, 2025 was 90% for disposable protective garments, 6% for face masks and 4% for face shields. This sales mix is compared to 86% for disposable protective garments, 10% for face masks and 4% for face shields for the nine months ended September 30, 2024.

Gross Profit. Gross profit increased by $384,000, or 7.0%, to $5,868,000 for the three months ended September 30, 2025, from $5,484,000 for the three months ended September 30, 2024. The gross profit margin was 39.7% for the three months ended September 30, 2025, compared to 38.5% for the three months ended September 30, 2024.

Gross profit decreased by $352,000, or 2.0%, to $17,391,000 for the nine months ended September 30, 2025, from $17,743,000 for the nine months ended September 30, 2024. The gross profit margin was 38.4% for the nine months ended September 30, 2025, compared to 40.3% for the nine months ended September 30, 2024.

The gross profit margin in the nine months ended September 30, 2025 was negatively affected by a margin decrease primarily in the Disposable Protective Apparel segment and lesser degree in the Building Supply segment. Gross profit margin has been negatively affected in 2025, primarily by increased US tariffs, higher sales rebates and ocean freight rates.

Management expects that tariffs will have a negative effect on gross profit in the fourth quarter of 2025, as we have experienced three tariff increases on many of our products. There was a 10% baseline tariff on goods shipped from our joint venture partner after April 5th, a reciprocal tariff of an additional 15% on goods shipped after August 1st and an additional 25% on goods shipped after August 27. Management has increased selling prices in July 2025 and is expected to do so again in November, to partially mitigate the impact of the first two tariffs increases. There have been some positive developments of late regarding tariffs and management is hopeful that some of the tariff increases may be rolled back.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $66,000, or 1.5%, to $4,568,000 for the three months ended September 30, 2025, from $4,502,000 for the three months ended September 30, 2024. As a percentage of net sales, selling, general and administrative expenses decreased to 30.9% for the three months ended September 30, 2025, from 31.6% for the same period of 2024.

The change in expenses by segment for the three months ended September 30, 2025, was as follows: Building Supply expenses were up by $59,000, or 3.4%; Disposable Protective Apparel expenses were up by $45,000, or 3.4%; and corporate unallocated expenses were down by $38,000, or 2.6%.

The increase in the Building Supply segment expenses was primarily related to increased employee compensation, marketing, insurance and sales travel expenses, partially offset by decreased general factory expenses. The increase in the Disposable Protective Apparel segment expenses was primarily related to increased general office expenses, partially offset by decreased rent and marketing. The decrease in corporate unallocated expenses was primarily due to decreased professional fees, partially offset by increased employee compensation and general office expenses in the three months ended September 30, 2025 compared to the same period of 2024.

Selling, general and administrative expenses decreased by $416,000, or 2.9%, to $13,818,000 for the nine months ended September 30, 2025, from $14,234,000 for the nine months ended September 30, 2024. As a percentage of net sales, selling, general and administrative expenses decreased to 30.5% for the nine months ended September 30, 2025, from 32.3% for the same period of 2024.

The change in expenses by segment for the nine months ended September 30, 2025, was as follows: Building Supply expenses were down by $69,000, or 1.3%; Disposable Protective Apparel expenses were up by $47,000, or 1.2%; and corporate unallocated expenses were down by $394,000, or 8.4%.

The decrease in the Building Supply segment expenses was primarily related to decreased employee compensation and general factory expenses, partially offset by increased insurance expenses. The increase in the Disposable Protective Apparel segment expenses was primarily related to increased employee compensation, marketing, sales travel expenses, partially offset by lower rent and utilities, general office and factory expenses. The decrease in corporate unallocated expenses was primarily due to decreased professional fees, insurance expenses, and reorganization costs in the nine months ended September 30, 2025 compared to the same period of 2024. The reorganization costs in 2024 were incurred in connection with moving our face mask manufacturing facility from Utah to Arizona.

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, up to a maximum of $1.0 million. A bonus amount of $69,000 was accrued for the three months ended September 30, 2025, compared to $58,000 for the three months ended September 30, 2024. A bonus amount of $194,000 was accrued for the nine months ended September 30, 2025, compared to $207,000 for the nine months ended September 30, 2024.

Depreciation and Amortization. Depreciation and amortization expense decreased by $42,000, or 17.1%, to $203,000 for the three months ended September 30, 2025, from $245,000 for the three months ended September 30, 2024. Depreciation and amortization expense decreased by $48,000, or 6.5%, to $686,000 for the nine months ended September 30, 2025, from $734,000 for the nine months ended September 30, 2024.

Income from Operations. Income from operations increased by $360,000, or 48.8%, to $1,097,000 for the three months ended September 30, 2025, compared to $737,000 for the three months ended September 30, 2024. The increased income from operations was primarily due to an increase in gross profit of $384,000 and a decrease in depreciation and amortization expenses of $42,000, partially offset by an increase in selling, general and administrative expenses of $66,000. Income from operations as a percentage of net sales for the three months ended September 30, 2025, was 7.4%, compared to 5.2% for the three months ended September 30, 2024.

Income from operations increased by $112,000, or 4.0%, to $2,887,000 for the nine months ended September 30, 2025, compared to $2,775,000 for the nine months ended September 30, 2024. The increased income from operations was primarily due to a decrease in selling, general and administrative expenses of $416,000 and a decrease in depreciation and amortization expenses of $48,000, partially offset by a decrease in gross profit of $352,000. Income from operations as a percentage of net sales for the nine months ended September 30, 2025, was 6.4%, compared to 6.3% for the nine months ended September 30, 2024.

Other Income. Other income decreased by $166,000 to income of $196,000 for the three months ended September 30, 2025, compared to $362,000 for the same period of 2024. The decrease was primarily due to a decrease in interest income of $66,000, a decrease in equity in income of unconsolidated affiliate of $70,000 and a decrease in gain on sale of assets of $30,000.

Other income decreased by $376,000 to income of $789,000 for the nine months ended September 30, 2025, compared to $1,165,000 for the same period of 2024. The decrease was primarily due to a decrease in interest income of $216,000, a decrease in equity in income of unconsolidated affiliate of $130,000 and a decrease in gain on sale of assets of $30,000.

Income before Provision for Income Taxes. Income before provision for income taxes for the three months ended September 30, 2025, was $1,293,000, compared to income before provision for income taxes of $1,099,000 for the same period of 2024, representing an increase of $194,000, or 17.7%. This increase in income before provision for income taxes was due to an increase in income from operations of $360,000, partially offset by a decrease in other income of $166,000.

Income before provision for income taxes for the nine months ended September 30, 2025, was $3,676,000, compared to income before provision for income taxes of $3,940,000 for the same period of 2024, representing a decrease of $264,000, or 6.7%. This decrease in income before provision for income taxes was due to a decrease in other income of $376,000, partially offset by an increase in income from operations of $112,000.

Provision for Income Taxes. The provision for income taxes for the three months ended September 30, 2025, was $317,000, compared to $237,000 for the same period of 2024. The estimated effective tax rate was 24.5% for the three months ended September 30, 2025, compared to 21.6% for the three months ended September 30, 2024.

The provision for income taxes for the nine months ended September 30, 2025, was $843,000, compared to $858,000 for the same period of 2024. The estimated effective tax rate was 22.9% for the nine months ended September 30, 2025, compared to 21.8% for the nine months ended September 30, 2024.

On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted, which includes permanent extensions of most expiring Tax Cuts and Jobs Act provisions and international tax changes. The Company is still evaluating the potential impacts of the OBBBA; however, the Company does not anticipate it will have a material impact on the Company's financial statements.

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 September 30, 2025, was $976,000 compared to net income of $862,000 for the same period of 2024, representing an increase of $114,000, or 13.2%. The net income increase between the three months ended September 30, 2025 and the same period of 2024 was due to an increase in income before provision for income taxes of $194,000, partially offset by an increase in provision for income taxes of $80,000. Net income as a percentage of net sales was 6.6% for the three months ended September 30, 2025, compared to 6.0% for the same period of 2024. Basic and diluted earnings per common share for each of the three months ended September 30, 2025 and 2024, was $0.09 and $0.08, respectively.

Net income for the nine months ended September 30, 2025, was $2,833,000 compared to net income of $3,082,000 for the same period of 2024, representing a decrease of $249,000, or 8.1%. The net income decrease between the nine months ended September 30, 2025 and the same period of 2024 was due to a decrease in income before provision for income taxes of $264,000, partially offset by a decrease in provision for income taxes of $15,000. Net income as a percentage of net sales was 6.3% for the nine months ended September 30, 2025, compared to 7.0% for the same period of 2024. Basic and diluted earnings per common share for each of the nine months ended September 30, 2025 and 2024, was $0.27 and $0.28, respectively.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2025, the Company had cash and cash equivalents ("cash") of $17,658,000 and working capital of $48,078,000. As of September 30, 2025, the Company's current ratio (current assets/current liabilities) was 14:1. Cash decreased by 5.2%, or $978,000, to $17,658,000 as of September 30, 2025, compared to $18,636,000 as of December 31, 2024, and working capital increased by $562,000, to $48,078,000 from $47,516,000 as of December 31, 2024. The decrease in cash from December 31, 2024, was due to cash used in investing activities of $372,000 and cash used in financing activities of $2,658,000 offset by cash provided by operating activities of $2,052,000.

Net cash provided by operating activities of $2,052,000 for the nine months ended September 30, 2025 was due to net income of $2,833,000, as adjusted primarily by the following: stock-based compensation expense of $408,000, depreciation and amortization expense of $686,000, equity in income of unconsolidated affiliate of $305,000, operating lease asset amortization of $698,000, an increase in accounts receivable of $2,235,000, a decrease in prepaid expenses of $894,000, an increase in inventory of $746,000, an increase in accounts payable and accrued liabilities of $489,000, and a decrease in lease liabilities of $670,000, all compared to December 31, 2024.

Accounts receivable increased by $2,235,000, or 45.7%, to $7,129,000 as of September 30, 2025, from $4,894,000 as of December 31, 2024. The increase in accounts receivable was primarily related to increased sales in the third quarter of 2025 compared to the latter part of 2024 and due to a higher percentage of receivables with extended terms. The number of days that sales remained outstanding as of September 30, 2025, calculated by using an average of accounts receivable outstanding and annual revenue, was 37 days, compared to 36 days as of December 31, 2024.

Inventory increased by $746,000, or 3.3%, to $23,479,000 as of September 30, 2025, from $22,733,000 as of December 31, 2024. The increase was due to an increase in inventory for the Building Supply segment of $969,000, or 8.9%, to $11,900,000, partially offset by a decrease in inventory for the Disposable Protective Apparel Building Supply segment of $223,000, or 1.9%, to $11,579,000.

Prepaid expenses decreased by $894,000, or 20.4%, to $3,482,000 as of September 30, 2025, from $4,376,000 as of December 31, 2024. The decrease was primarily due to a decrease in prepaid insurance and prepaid taxes partially offset by increase in prepaid inventory for Building Supply segment.

Right-of-use-assets as of September 30, 2025, decreased by $698,000 to $8,016,000 from $8,714,000 as of December 31, 2024, as a result of amortization of the right-of- use-assets.

Lease liabilities as of September 30, 2025, decreased by $670,000 to $8,105,000 from $8,775,000 as of December 31, 2024. The decrease in lease liabilities was the result of lease payments made during the period.

Accounts payable and accrued liabilities as of September 30, 2025, increased by $489,000, or 21.9%, to $2,719,000, from $2,230,000 as of December 31, 2024. The increase was primarily due to increases in trade payables, partially offset by decreases in accrued bonuses.

Net cash used in investing activities was $372,000 for the nine months ended September 30, 2025, compared to net cash used in investing activities of $2,333,000 for the same period of 2024. Investing activities for the nine months ended September 30, 2025 and 2024 consisted primarily of the purchase of equipment.

Net cash used in financing activities was $2,658,000 for the nine months ended September 30, 2025, compared to net cash used in financing activities of $2,936,000 for the same period of 2024. Net cash used in financing activities for the nine months ended September 30, 2025 resulted from the payment of $2,632,000 for the repurchase of common stock and $26,000 for treasury stock excise tax. Net cash used in financing activities for the nine months ended September 30, 2024 resulted from the payment of $3,731,000 for the repurchase of common stock and $37,000 for treasury stock excise tax, partially offset by $832,000 in proceeds from the exercise of stock options.

As of September 30, 2025, we had $2,111,000 available for stock purchases under our stock repurchase program. During the nine months ended September 30, 2025, we repurchased 532,313 shares of common stock at a cost of $2,632,000. As of September 30, 2025, we had repurchased a total of 21,774,940 shares of common stock at a cost of approximately $57,410,000 through our repurchase program which commenced in 1999. 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 expected cash flow from operations will be sufficient to satisfy our projected working capital and planned capital expenditures for the foreseeable future.

Recent Accounting Pronouncements

In December 2023, the FASB issued ASU 2023-09, Income Taxes ("Topic 740"): Improvements to Income Tax Disclosures. These amendments address investor requests for enhanced transparency regarding income tax information. Specifically, they improve income tax disclosures related to rate reconciliation and income taxes paid. ASU 2023-09 became effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

In November 2024, the FASB issued ASU 2024-03, Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures ("Subtopic 220-40"): Disaggregation of Income Statement Expenses ("ASU 2024-03"), which requires disclosure about the types of costs and expenses included in certain expense captions presented on the income statement. The new disclosure requirements are effective for the Company's annual periods beginning after December 15, 2026, and interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently in the process of evaluating the impact of this pronouncement on its 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.