Annual Report for Fiscal Year Ending 12-31, 2025 (Form 10-K)

Management's Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis together with our consolidated financial statements and the notes to our consolidated financial statements, which appear elsewhere in this report.

Special Note Regarding Forward-Looking Statements

Certain information set forth in this Annual Report on Form 10-K 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, new products, production levels and sales in 2026, and other information that is not historical information. When used in this report, the words "estimates," "expects," "anticipates," "forecasts," "plans," "intends," "believes," "predicts," "potential," "may," "continue" or "should," 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 caution readers that these forward-looking statements speak only as of the date hereof. The Company hereby expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any such statements to reflect any change in the Company's expectations or any change in events, conditions or circumstances on which such statements are based. All forward-looking statements, whether written or oral and whether made by us or on our behalf, are expressly qualified by this special note.

Any expectations based on these forward-looking statements are subject to risks and uncertainties. These risks and other factors include, but are not limited to, those listed below and under "Risk Factors," and elsewhere in this report. 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 Annual Report on Form 10-K as a "smaller reporting company" (as defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended) based on our public float (the aggregate market value of our common equity held by non-affiliates of the Company) as of the last business day of our second fiscal quarter of 2025. 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 and necessary to aid in an understanding of the current consolidated financial position, changes in financial position and results of operations of the Company.

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 to our consolidated financial statements. 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 allowance for credit losses is the Company's best estimate of the amount of expected 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 pools accounts receivable based on risk characteristics, which include type of customer and age of open receivable balance. The allowance for credit losses pool is estimated based on historical write-off experience and known conditions, adjusted for management's reasonable and supportable expectations of future conditions. Account balances are charged against the allowance when management determines that the probability for collection of an account balance is remote. As of December 31, 2025 and 2024, the Company had accounts receivable totaling $8,138,000 and $4,894,000, respectively. As of December 31, 2025 and 2024, the Company had recorded an allowance for credit losses on accounts receivable of $46,000 and $35,000 respectively.

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. In 2025 and 2024, we recorded approximately $384,000 and $416,000, respectively, in write-downs of inventory.

Foreign currency translation: Our unconsolidated affiliate operations are in India, so U.S. GAAP requires the Company to adjust the value of its investment for changes in foreign currency exchange rates. We determine the functional currency of our joint venture based upon the primary currency used to generate and expend cash, which is the currency of the country in which the joint venture is located. For joint ventures with functional currencies other than the U.S. dollar, our investment in that joint venture is translated into U.S. dollars using period-end exchange rates. The resulting foreign currency translation gains or losses are deferred as AOCL and reclassified to earnings only upon sale or liquidation of that business.

Leases: We determine if an arrangement is a lease at its inception. Operating leases are included as right-of-use ("ROU") assets and lease liabilities on our 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 interest rate, and, therefore, we estimate our collateralized borrowing rate under similar terms 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 consolidated balance sheet with a term of one year or less. We elected a package of transition practical expedients permitted under the standards of the Financial Accounting Standards Board ("FASB"), 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. As of December 31, 2025, we had $7.8 million in ROU assets and $7.9 million in lease liabilities.

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 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 products are delivered to the 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 December 31, 2025, it had no material contract assets, and concluded that its contract liabilities (primarily rebates) had the right of offset against customer receivables.

Sales Returns, Rebates and Allowances: Sales revenues are reduced for any anticipated sales returns, rebates and allowances based on historical experience. Since our return policy is only 90 days and our products are not generally susceptible to external factors such as technological obsolescence or significant changes in demand, we are able to make a reasonable estimate for returns. We offer end-user product specific and sales volume rebates to select distributors. Our rebates are based on actual sales and are accrued monthly.

Stock-Based Compensation: The Company accounts for stock-based awards using FASB Accounting Standards Codification ("ASC") 718, Stock Compensation. ASC 718 requires companies to record compensation expense for the value of all outstanding and unvested share-based payments, including employee stock options and similar awards.

The fair values of stock option grants are determined using the Black-Scholes option-pricing model and are based on the following assumptions: expected stock price volatility based on historical data and management'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. In 2025 and 2024, we recorded $540,000 and $463,000, respectively, in compensation expense for share-based awards.

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 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. Following the inauguration of the second Trump administration, there have been numerous announcements made and actions taken related to tariff increases and other trade restrictions regarding imports into the U.S. Given that we currently source very little from China, this may be a benefit in regards to our competition that does import from China, but 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. 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 sales for the years indicated:

		2025				2024
Net sales			100.0	%			100.0	%
Gross profit			38.1	%			39.6	%
Selling, general and administrative expenses			30.1	%			32.2	%
Income from operations			6.5	%			6.0	%
Income before provision for income taxes			7.9	%			8.7	%
Net income			6.0	%			6.8	%

Year ended December 31, 2025 compared to year ended December 31, 2024

Sales. Consolidated sales for the year ended December 31, 2025, increased to $59,142,000, from $57,840,000 for the year ended December 31, 2024, representing an increase of $1,302,000, or 2.3%. This increase consisted of increased sales in the Building Supply segment of $66,000 and increased sales in the Disposable Protective Apparel segment of $1,236,000.

Building Supply Segment

Building Supply segment sales for the year ended December 31, 2025, increased by $66,000, or 0.2%, to $36,031,000 compared to $35,965,000 for the year ended December 31, 2024.

The Building Supply segment increase during the year ended December 31, 2025, was primarily due to a 2.3% increase in sales of housewrap and a 28.9% increase in sales of other woven material, partially offset by a 10.6% decrease in sales of synthetic roof underlayment as compared to the same period of 2024.

The sales mix of the Building Supply segment for the year ended December 31, 2025, was approximately 38% for synthetic roof underlayment, 51% for housewrap and 11% for other woven material. This compared to approximately 42% for synthetic roof underlayment, 49% for housewrap and 9% for other woven material for the year ended December 31, 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 in 2025 proved to be a year of sustained challenges for single-family housing starts, which were down by 7.0% through October 2025 (the latest data available). Demand for new homes has dropped due to economic volatility, high interest rates, and uncertainty surrounding housing starts. Increased 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. With that said, in 2025 we outperformed the market as our core building products (housewrap and synthetic roof underlayment) were down 3.7%, as compared to the 7.0% decrease in single-family housing starts.

Housewrap sales in 2025 outperformed the broader market by nearly 10%, with an increase of 2.3% despite a 7.0% decline in single-family housing starts. In 2025, due to the economic climate in the building industry, there was pricing pressure on this product line, which affected overall sales. This performance was driven by our reputation for product quality, breadth of offerings, and system warranty programs, which delivered market share improvement among existing customers and facilitated expansion into developing geographic regions and end-market applications. Management expects continued growth in the housewrap category in the coming year, especially if uncertainty in the economy and housing market abates.

Sales of synthetic roof underlayment were up 6.7% through the first nine months of 2025 but ended the year down 10.6%. This can be attributable primarily to two issues. First, the Asphalt Roofing Manufacturers Association reported a steep decline in shipments of 27.9% in the fourth quarter of 2025 compared to the same period of 2024. In addition, the association reported a 10.3% decline during 2025 compared to the prior year. Secondly, a stronger than normal hurricane season in the fourth quarter of 2024 caused the results to be lower for this segment in the fourth quarter of 2025 and for the year. After hurricanes Helene and Milton in late 2024, we experienced a surge in synthetic roof underlayment orders in the fourth quarter of 2024. In addition, sales of our roof underlayment line continue to be affected by a push in the market to reduce product selling prices and more offshore competition. Despite all these factors, we maintained market share within the roofing product line in 2025. Our domestic inventory position, customer expansion efforts, and continued investment in builder and contractor relationships mitigated the impact of market contraction, allowing us to meet customer demand while maintaining competitive positioning. We are exploring additional products in the roofing market and expect growth in 2026 in the synthetic roof underlayment category.

Sales of other woven material sales increased by $976,000, or 28.9% in 2025 compared to 2024, primarily due to increased sales to our largest customer for this product line. The Company is pursuing new opportunities for other woven material in 2026 that could improve sales.

The building industry forecasts for 2026 remain somewhat conflicted with many being cautiously optimistic. This optimism is fueled by hopes of further interest rate reductions coupled with builder incentives such as price concessions or mortgage rate buydown assistance that would result in improved home affordability. Management remains committed to production and development of industry leading products and expects growth in the Building Supply segment in the coming year, however uncertainty in housing starts, tariffs, interest rates and the economy in general could negatively affect this segment.

Disposable Protective Apparel Segment

Sales for the Disposable Protective Apparel segment for the year ended December 31, 2025, increased by $1,236,000, or 5.7%, to $23,111,000, compared to $21,875,000 for 2024. This segment increase was due to a 12.2% increase in sales of disposable protective garments, partially offset by a 13.8% decrease in sales of face shields and a 38.3% decrease in sales of face masks.

The sales mix of the Disposable Protective Apparel segment for the year ended December 31, 2025, was approximately 90% for disposable protective garments, 6% for face masks and 4% for face shields. This sales mix is compared to approximately 85% for disposable protective garments, 11% for face masks and 4% for face shields for the year ended December 31, 2024.

Sales of disposable protective garments, which comprise approximately 90% of the segment, were up 12.2% in 2025. Sales started gaining significant momentum in the third quarter and continued very strong in the fourth quarter of 2025. Sales of shoe covers, lab coats, frocks, gowns and caps all grew in 2025 compared to 2024. Tariffs in 2025 created uncertainty and volatility in the marketplace, but we remained resilient and steadfast and exceeded our forecast. We plan to continue to deliver our high-quality products and remain agile to maintain our leadership position and to differentiate Alpha Pro Tech in the disposable protective garments marketplace. Management anticipates the growth trend will continue and we will work to uncover new growth opportunities in 2026.

Sales of our face mask and face shield products in 2025 were below management's expectations. Our inventory position and manufacturing capacity is on solid ground and a sizable percentage of our products in this category are not burdened by tariffs. We will continue our efforts to improve sales of our face mask and face shields products, including by use of promotions and pricing incentives.

Gross Profit. Gross profit decreased by $396,000, or 1.7%, to $22,537,000 for the year ended December 31, 2025, from $22,933,000 for the year ended December 31, 2024. The gross profit margin was 38.1% for the year ended December 31, 2025, compared to 39.6% for the year ended December 31, 2024. The gross profit margin in 2025 was negatively affected by a margin decrease primarily in the Disposable Protective Apparel segment and to a lesser degree in the Building Supply segment due to increased U.S. tariffs and higher sales rebates. In 2025, we experienced three tariff increases on most of our products due to the implementation of the Trump administration's tariff policies and reciprocal tariffs. Management increased selling prices in July and November 2025 in order to partially mitigate the impact of the first two tariffs increases, but many of the higher tariffed products remain in inventory, which we expect will have a negative effect on gross margin in the first half of 2026. Effective February 7, 2026, the Trump administration announced that tariffs on goods from India would be reduced to 18% down from 50%. These U.S. tariffs were implemented under the International Emergency Economic Powers Act ("IEEPA") and were rescinded on February 24, 2026, following a Supreme Court decision invalidating the use of IEEPA to authorize these tariffs, but the U.S. government subsequently announced plans to implement a new "temporary import surcharge" of 15% on many of the same imports beginning February 24, 2026, under authorities provided for in Section 122 of the Trade Act of 1974. These or other tariffs, actual or proposed legislation, or similar laws and regulations in the future, including changes to implemented bilateral trade deals between the U.S. and India, could adversely impact our current or future third-party arrangements with certain companies, including those in India, which could impact our products and supply chain. As we progress into next year, gross margin should improve as we deplete our higher tariffed inventory.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $838,000, or 4.5%, to $17,773,000 for the year ended December 31, 2025, from $18,611,000 for the year ended December 31, 2024. As a percentage of net sales, selling, general and administrative expenses decreased to 30.1% for the year ended December 31, 2025, from 32.2% for 2024.

The change in expenses by segment for the year ended December 31, 2025, was as follows: Building Supply expenses were down by $361,000, or 5.0%; Disposable Protective Apparel expenses were up by $47,000, or 0.9%; and corporate unallocated expenses were down by $524,000, or 8.6%.

The decrease in the Building Supply segment expenses was primarily related to decreased employee compensation, commission, general factory and office expenses, and insurance expenses. The increase in the Disposable Protective Apparel segment expenses was primarily related to increased employee compensation, marketing, and sales travel expenses, partially offset by lower rent and utilities and general office and factory expenses. The decrease in corporate unallocated expenses was primarily due to decreased professional fees, public company expenses, insurance expenses, employee compensation, general office expenses and reorganization. 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 $246,000 was accrued for the year ended December 31, 2025, compared to $264,000 for the year ended December 31, 2024.

Depreciation and Amortization. Depreciation and amortization expense increased by $52,000, or 6.0%, to $925,000 for the year ended December 31, 2025, from $873,000 for the year ended December 31, 2024. The increase was primarily due to an increase in depreciation in the Building Supply segment.

Income from Operations. Income from operations increased by $390,000, or 11.3%, to $3,839,000 for the year ended December 31, 2025, compared to $3,449,000 for the year ended December 31, 2024. The increased income from operations was primarily due to a decrease in selling, general and administrative expenses of $838,000, partially offset by a decrease in gross profit of $396,000 and an increase in depreciation and amortization expenses of $52,000. Gross profit margin was adversely affected in 2025 because of U.S. tariffs on products primarily from our joint venture partner in India. Income from operations as a percentage of net sales for the year ended December 31, 2025, was 6.5%, compared to 6.0% for 2024.

Other Income. Other income decreased by $741,000 to income of $830,000 for the year ended December 31, 2025, compared to $1,571,000 for 2024. The decrease was primarily due to a decrease in equity in income of unconsolidated affiliate of $447,000, a decrease in interest income of $264,000 and a decrease in gain on sale of assets of $30,000. Equity in income of unconsolidated affiliate was down primarily due to lower sales as a result of the impact of U.S. tariffs. We expect this to improve going forward, as U.S. tariffs on goods from India are expected to decrease to 15% from 50%. The decrease in interest income was primarily due to lower interest rates.

Income before Provision for Income Taxes. Income before provision for income taxes for the year ended December 31, 2025, was $4,669,000, compared to income before provision for income taxes of $5,020,000 for 2024, representing a decrease of $351,000, or 7.0%. This decrease in income before provision for income taxes was due to a decrease in other income of $741,000, partially offset by an increase in income from operations of $390,000.

Provision for Income Taxes. The provision for income taxes for the year ended December 31, 2025, was $1,138,000, compared to $1,091,000 for 2024. The estimated effective tax rate was 24.4% for the year ended December 31, 2025, compared to 21.8% for the year ended December 31, 2024. The effective tax rate increase between 2025 and 2024, of 2.6 percentage points, was primarily due to lower equity in income of unconsolidated affiliate in 2025. The Company does not record a tax provision on equity in income of unconsolidated affiliate, which reduces the effective tax rate. 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.

Net Income. Net income for the year ended December 31, 2025, was $3,531,000 compared to net income of $3,929,000 for 2024, representing a decrease of $398,000, or 10.1%. The net income decrease between 2025 and 2024 was primarily due to a decrease in other income of $741,000 and an increase in provision for income taxes of $47,000, partially offset by an increase in income from operations of $390,000. The other income decrease of $741,000, the majority of which is not taxable, negatively impacted our net income in 2025. In addition, gross profit was adversely affected in 2025 as a result of U.S. tariffs. Net income as a percentage of net sales was 6.0% for the year ended December 31, 2025, compared to 6.8% for 2024. Basic earnings per common share for the years ended December 31, 2025 and 2024, were $0.34 and $0.35, respectively. Diluted earnings per common share for the years ended December 31, 2025 and 2024, were $0.33 and $0.35, respectively.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2025, the Company had cash and cash equivalents ("cash") of $16,988,000 and working capital of $48,462,000. As of December 31, 2025, the Company's current ratio (current assets/current liabilities) was 13:1, compared to a current ratio of 16:1 as of December 31, 2024. Cash decreased by 8.8%, or $1,648,000, to $16,988,000 as of December 31, 2025, compared to $18,636,000 as of December 31, 2024, and working capital increased by $946,000, to $48,462,000 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 $639,000 and cash used in financing activities of $3,379,000, partially offset by cash provided by operating activities of $2,370,000.

Net cash provided by operating activities of $2,370,000 for the year ended December 31, 2025 was due to net income of $3,531,000, as adjusted primarily by the following: stock-based compensation expense of $540,000, depreciation and amortization expense of $925,000, equity in income of unconsolidated affiliate of $182,000, operating lease asset amortization of $939,000, an increase in deferred income taxes of $176,000, an increase in accounts receivable of $3,244,000, a decrease in prepaid expenses of $580,000, an increase in inventory of $865,000, an increase in accounts payable and accrued liabilities of $863,000, and a decrease in lease liabilities of $893,000, all compared to December 31, 2024.

Accounts receivable increased by $3,244,000, or 66.3%, to $8,138,000 as of December 31, 2025, from $4,894,000 as of December 31, 2024. The increase in accounts receivable was primarily related to increased disposable garment and other woven material sales in the fourth quarter of 2025 compared to the same period of 2024. The number of days that sales remained outstanding as of December 31, 2025, calculated by using an average of accounts receivable outstanding and annual revenue, was 40 days, compared to 36 days as of December 31, 2024.

Inventory increased by $865,000, or 3.8%, to $23,598,000 as of December 31, 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 1,898,000, or 17.4%, to $12,829,000, partially offset by a decrease in inventory for the Disposable Protective Apparel segment of $1,033,000, or 8.8%, to $10,769,000.

Prepaid expenses decreased by $580,000, or 13.3%, to $3,796,000 as of December 31, 2025, from $4,376,000 as of December 31, 2024. The decrease was primarily due to decreased prepayments for inventory and prepaid tax payments partially offset by increased prepaid insurance payments.

Right-of-use assets as of December 31, 2025, decreased by $939,000 to $7,775,000 from $8,714,000 as of December 31, 2024, as a result of amortization of the right of use asset.

Lease liabilities as of December 31, 2025, decreased by $893,000 to $7,882,000 from $8,775,000 as of December 31, 2024. The decrease in the lease liabilities was the result of lease payments made during the period.

Accounts payable and accrued liabilities as of December 31, 2025 increased by $863,000, or 38.7%, to $3,093,000, from $2,230,000 as of December 31, 2024. The increase was primarily due to an increase in trade payables of $722,000.

Net cash used in investing activities was $639,000 for the year ended December 31, 2025, compared to net cash used in investing activities of $3,776,000 for 2024. Investing activities for the years ended December 31, 2025 and 2024 consisted primarily of the purchase of property and equipment.

Net cash used in financing activities was $3,379,000 for the year ended December 31, 2025, compared to net cash used in financing activities of $3,664,000 for 2024. Net cash used in financing activities for the year ended December 31, 2025, resulted from the payment of $3,345,000 for the repurchase of common stock and $34,000 for treasury stock excise tax. Net cash used in financing activities for the year ended December 31, 2024, resulted from the payment of $4,452,000 for the repurchase of common stock and $44,000 for treasury stock excise tax, partially offset by $832,000 in proceeds from the exercise of stock options.

As of December 31, 2025, we had $1,397,000 available for stock purchases under our stock repurchase program. During the year ended December 31, 2025, we repurchased 685,313 shares of common stock at a cost of $3,345,000. As of December 31, 2025, we had repurchased a total of 21,927,940 shares of common stock at a cost of approximately $58,123,000 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.

Related Parties

During 2025 and 2024, the Company had no related party transactions, other than the Company's transactions with its non-consolidated affiliate, Harmony. See Note 6 to our consolidated financial statements for more information on our relationship with our non-consolidated affiliate Harmony Plastics Private Limited.

New Accounting Standards

In December 2023, the FASB issued ASU 2023-09, Income Taxes ("Topic 740"): Improvements to Income Tax Disclosures to expand the disclosure requirements for income taxes, specifically related to the rate reconciliation and income taxes paid. ASU 2023-09 was effective for annual periods beginning after December 15, 2024. The Company adopted this pronouncement and the related disclosure for the year ended December 31, 2025, and revised its income tax disclosures in Note 14 - "Income Taxes" on a retrospective basis.

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 evaluating the impact of this pronouncement on its related disclosures.

In July 2025, the FASB issued ASU 2025-05, Financial Instruments-Credit Losses ("Topic 326"): Measurement of Credit Losses for Accounts Receivable and Contract Assets, which provides a practical expedient to assume that conditions as of the balance sheet date remain unchanged over the life of the asset when estimating expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under Topic 606. The amendment is effective for fiscal years beginning after December 15, 2025. Early adoption is permitted. The amendments in this update should be applied on a prospective basis. The Company is evaluating the impact the adoption of this guidance will have 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.