PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets (Unaudited)

(1) The condensed consolidated balance sheet as of December 31, 2023, has been prepared using information from the audited consolidated balance sheet as of that date.

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

Condensed Consolidated Statements of Income (Unaudited)

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

Condensed Consolidated Statements of Comprehensive Income (Unaudited)

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

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

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

Condensed Consolidated Statements of Cash Flows (Unaudited)

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

Notes to Condensed Consolidated Financial Statements (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 year ended December 31, 2023, filed with the SEC on March 13, 2024 (the “2023 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 2024 and 2025, 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, see the risks described in Part I, Item IA, “Risk Factors,” in the 2023 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 3 – “Summary of Significant Accounting Policies” in the notes to our consolidated financial statements in Item 8 of the 2023 Form 10-K. Since December 31, 2023, there have been no material changes to our critical accounting policies and estimates as described in the 2023 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 and infection control products for the cleanroom, industrial, pharmaceutical, medical and dental markets through our wholly-owned subsidiary, Alpha Pro Tech, Inc. We also manufacture a line of building supply construction weatherization products through our wholly-owned subsidiary, Alpha ProTech Engineered Products, Inc. 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: (1) the Building Supply segment, consisting of construction weatherization products, such as housewrap, housewrap accessories including window and door flashing, and seam tape, synthetic roof underlayment and synthetic roof underlayment accessories, as well as other woven materials; and (2) 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.

Our target markets include pharmaceutical manufacturing, bio-pharmaceutical manufacturing and 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.

RESULTS OF OPERATIONS

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

Three and Nine months ended September 30, 2024 compared to Three and Nine months ended September 30, 2023

Sales. Consolidated sales for the three months ended September 30, 2024, decreased to $14,251,000, from $16,053,000 for the three months ended September 30, 2023, representing a decrease of $1,802,000, or 11.2%. This decrease consisted of decreased sales in the Building Supply segment of $2,651,000, partially offset by increased sales in the Disposable Protective Apparel segment of $849,000.

Building Supply segment sales for the three months ended September 30, 2024 decreased by $2,651,000, or 23.2%, to $8,798,000 compared to a record sales quarter of $11,449,000, for the three months ended September 30, 2023. The Building Supply segment decrease during the three months ended September 30, 2024, was primarily due a 16.2% decrease in sales of housewrap, a 25.1% decrease in sales of synthetic roof underlayment, and a 27.2% decrease in sales of other woven material, each compared to the same period of 2023.

The sales mix of the Building Supply segment for the three months ended September 30, 2024 was approximately 46% for housewrap, 41% for synthetic roof underlayment and 13% for other woven material. This compared to approximately 43% for housewrap, 43% for synthetic roof underlayment and 14% for other woven material for the three months ended September 30, 2023. Our synthetic roof underlayment product line primarily includes REX SynFelt®, REX TECHNOply® TECHNO SB and 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 and our synthetic roof underlayment accessories consist of our new self- adhered TECHNOplus and REX Ultra HT.

The housing market continues to show weakness, with housing starts down 4.0% in the third quarter of 2024 compared to the prior year period. While sales in the third quarter of 2024 were lower than earlier quarters in the year, the performance of the core building products (housewrap and synthetic roof underlayment) for the full year of 2024 has been encouraging despite a number of headwinds. During the first six months of 2024, housing starts trailed 2023 by 2.7% while our core building product sales remained nearly flat. In the third quarter of 2024, our largest customers contributed to most of the decline but those customers, which represent a majority of our business, were up approximately 9% for the first six months of 2024. In July 2024, housing starts were down 14.3%, leading to our largest customers reducing shipments and adjusting their inventory positions, resulting in decreased sales in the third quarter of 2024. Despite the drop in housing starts in 2024, the percentage decline of sales to those large customers was lower than the percentage decline of housing starts. Presenting an additional challenge in 2024, multi-family housing starts for the first nine months were down 30.5% compared to 2023 and the lowest in ten years.

Other woven material sales decreased by 27.2% in the third quarter of 2024 compared to the same period of 2023, due to decreased sales to a customer that was acquired by another company. The Company is pursuing new opportunities for other woven material sales that may improve sales, but management does not expect other woven material sales to be a growth driver in the short term.

Management is encouraged for the remainder of 2024, as our robust inventory and plant location in Georgia will allow us to assist in the southeast rebuild after hurricanes Helene and Milton. Since the first storm, we have seen a surge in synthetic roof underlayment orders, which we expect to have a positive effect on the fourth quarter of 2024. We expect growth in the Building Supply segment when uncertainty in the housing market abates.

Disposable Protective Apparel segment sales for the three months ended September 30, 2024 increased by $849,000, or 18.4%, to $5,453,000, compared to $4,604,000 for the same period of 2023. This segment increase was due to a 6.9% increase in sales of disposable protective garments, a 124.3% increase in sales of face masks and a 204.5% increase in sales of face shields.

The sales mix of the Disposable Protective Apparel segment for the three months ended September 30, 2024, was approximately 82% for disposable protective garments, 13% for face masks and 5% for face shields. This sales mix is compared to approximately 91% for disposable protective garments, 7% for face masks and 2% for face shields for the three months ended September 30, 2023.

Sales of disposable protective garments in the third quarter of 2024 were up by 6.9%, primarily due to increased sales to our regional and national distributors. We expect continued growth for disposable protective garments in the remainder of 2024. Face mask and face shield sales in the third quarter of 2024, which were up 124.3% and 204.5%, respectively, are showing signs of improvement. The market continues to be saturated with face mask and face shield products from the post COVID-19 residual excess inventories at the distributor level, but management is cautiously optimistic that sales of these products will continue to show growth in 2024 and beyond.

Consolidated sales for the nine months ended September 30, 2024 decreased to $44,023,000 from $45,967,000 for the nine months ended September 30, 2023, representing a decrease of $1,944,000, or 4.2%. This decrease consisted of decreased sales in the Building Supply segment of $3,637,000, partially offset by increased sales in the Disposable Protective Apparel segment of $1,693,000.

Building Supply segment sales for the nine months ended September 30, 2024 decreased by $3,637,000, or 11.9%, to $26,979,000, compared to $30,616,000 for the same period of 2023. Sales of housewrap decreased by 2.6%, sales of synthetic roof underlayment decreased by 13.2% and sales of other woven material decreased by 29.9% compared to the same period of 2023.

The sales mix of the Building Supply segment for the nine months ended September 30, 2024 was 50% for housewrap, 40% for synthetic roof underlayment and 10% for other woven material. This compared to 46% for housewrap, 42% for synthetic roof underlayment and 12% for other woven material for the nine months ended September 30, 2023.

Management is encouraged by our housewrap sales, especially since the percentage decline of housing starts year to date was higher than the percentage decline of housewrap sales. The synthetic roof underlayment market has also been affected by the uncertain economic conditions, more offshore competition and a push in the market to reduce product selling prices. We launched our new line of self-adhered roofing products in late 2023 and have achieved revenue in 2024, and we expect continued revenue growth from this new product line within our current customer base and into new markets. Self-adhered roof underlayment has proven to be a good addition to our roof category. Market acceptance has been good as evidenced by our sales outpacing expectations. We are exploring additional products such as roof deck flashing. As building codes evolve, we see this as an opportunity to capture additional business, specifically in coastal and high wind markets. We expect a return to growth in the building supply segment when uncertainty in the housing market abates and flat to positive new home starts statistics become apparent.

Sales of other woven material was down compared to the prior year period primarily due to one of our customers being acquired. The Company is pursuing new opportunities for other woven materials sales that may improve sales, but management does not expect other woven material sales to be a growth driver in the short term.

Management expects growth in the Building Supply segment in the coming year, as the projected number of housing starts in 2025 is estimated to increase. However, there continues to be uncertainty in housing starts and the economy in general that could affect this segment.

Disposable Protective Apparel segment sales for the nine months ended September 30, 2024 increased by $1,693,000, or 11.0%, to $17,044,000, compared to $15,351,000 for the same period of 2023. This segment increase was due to a 5.7% increase in sales of disposable protective garments, a 55.3% increase in sales of face masks, a 63.6% increase in sales of face shields.

The sales mix of the Disposable Protective Apparel segment for the nine months ended September 30, 2024 was 86% for disposable protective garments, 10% for face masks and 4% for face shields. This sales mix is compared to 90% for disposable protective garments, 7% for face masks and 3% for face shields for the nine months ended September 30, 2023.

Sales of disposable protective garments for the nine months ended September 30, 2024 increased by 5.7%, for the reasons discussed above in the three months ended September 30, 2024 section. Face mask and face shield sales, although up 55.3% and 63.6% compared to 2023, continue to be affected by excess inventories at the distributor level and in the marketplace.

Gross Profit. Gross profit decreased by $551,000, or 9.1%, to $5,484,000 for the three months ended September 30, 2024, from $6,035,000 for the three months ended September 30, 2023. The gross profit margin was 38.5% for the three months ended September 30, 2024, compared to 37.6% for the three months ended September 30, 2023.

Gross profit increased by $620,000, or 3.6%, to $17,743,000 for the nine months ended September 30, 2024, from $17,123,000 for the nine months ended September 30, 2023. The gross profit margin was 40.3% for the nine months ended September 30, 2024, compared to 37.3% for the nine months ended September 30, 2023.

The gross profit margin in 2024 was positively affected by a margin increase in both the Disposable Protective Apparel and Building Supply segments. However, management expects that the gross profit margin could be negatively affected by recent significant increases in ocean freight rates.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $115,000, or 2.6%, to $4,502,000 for the three months ended September 30, 2024, from $4,387,000 for the three months ended September 30, 2023. As a percentage of net sales, selling, general and administrative expenses increased to 31.6% for the three months ended September 30, 2024, from 27.3% for 2023.

The change in expenses by segment for the three months ended September 30, 2024, was as follows: Disposable Protective Apparel expenses were up by $200,000, or 17.9%; Building Supply expenses were down by $198,000, or 10.3%; and corporate unallocated expenses were up by $113,000, or 8.5%. The increase in the Disposable Protective Apparel segment expenses was primarily related to increased employee compensation, rent and marketing expenses. The decrease in the Building Supply segment expenses was related to decreased employee compensation, commission, travel expenses and insurance. The increase in corporate unallocated expenses was primarily due to increased employee compensation, stock option and restricted stock expenses and professional fees.

Selling, general and administrative expenses increased by $959,000, or 7.2%, to $14,234,000 for the nine months ended September 30, 2024, from $13,275,000 for the nine months ended September 30, 2023. As a percentage of net sales, selling, general and administrative expenses increased to 32.3% for the nine months ended September 30, 2024, from 28.9% for 2023.

The change in expenses by segment for the nine months ended September 30, 2024, was as follows: Disposable Protective Apparel expenses were up by $506,000, or 14.2%; Building Supply expenses were down by $306,000, or 5.3%; and corporate unallocated expenses were up by $759,000, or 19.4%. The increase in the Disposable Protective Apparel segment expenses was primarily related to increased employee compensation, marketing and rent expenses. The decrease in the Building Supply segment expenses was related to decreased employee compensation, travel and insurance expenses. The increase in corporate unallocated expenses was primarily due to increased employee compensation, stock option and restricted stock expenses, reorganization costs, professional fees, and general office expenses. The reorganization costs were incurred in connection with moving our face mask manufacturing facility from Utah to Arizona. As of the third quarter of 2024, manufacturing for the Disposable Protective Apparel segment, which includes disposable protective garments, face masks and face shields, will all be in Arizona. This relocation of our face mask manufacturing facility is expected to result in lower expenses on this product line.

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 $58,000 was accrued for the three months ended September 30, 2024, compared to $96,000 for the three months ended September 30, 2023. A bonus amount of $207,000 was accrued for the nine months ended September 30, 2024, compared to $216,000 for the nine months ended September 30, 2023.

Depreciation and Amortization. Depreciation and amortization expenses increased by $20,000, or 8.9%, to $245,000 for the three months ended September 30, 2024, from $225,000 for the three months ended September 30, 2023.

Depreciation and amortization expenses increased by $47,000, or 6.8%, to $734,000 for the nine months ended September 30, 2024, from $687,000 for the nine months ended September 30, 2023.

The increase in depreciation and amortization for the three and nine months ended September 30, 2024 was primarily due to an increase in depreciation on the Building Supply segment.

Income from Operations. Income from operations decreased by $686,000, or 48.2%, to $737,000 for the three months ended September 30, 2024, compared to $1,423,000 for the three months ended September 30, 2023. The decreased income from operations was primarily due to a decrease in gross profit of $551,000 and an increase in selling, general and administrative expenses of $115,000 and an increase in depreciation and amortization expenses of $20,000. Income from operations as a percentage of net sales for the three months ended September 30, 2024, was 5.2%, compared to 8.9% for the same period of 2023.

Income from operations decreased by $386,000, or 12.2%, to $2,775,000 for the nine months ended September 30, 2024, compared to $3,161,000 for the nine months ended September 30, 2023. The decreased income from operations was primarily due to an increase in selling, general and administrative expenses of $959,000 and an increase in depreciation and amortization expenses of $47,000, partially offset by an increase in gross profit of $620,000. Income from operations as a percentage of net sales for the nine months ended September 30, 2024, was 6.3%, compared to 6.9% for the same period of 2023.

Other Income. Other income decreased by $40,000 to income of $362,000 for the three months ended September 30, 2024, compared to $402,000 for the same period of 2023. The decrease was primarily due to a decrease in equity in income of unconsolidated affiliate of $83,000, partially offset by an increase in interest income of $13,000 and a gain on sale of assets of $30,000.

Other income increased by $224,000 to income of $1,165,000 for the nine months ended September 30, 2024, compared to $941,000 for the same period of 2023. The increase was primarily due to an increase in equity in income of unconsolidated affiliate of $43,000, an increase in interest income of $151,000 and a 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, 2024, was $1,099,000, compared to income before provision for income taxes of $1,825,000 for the same period of 2023, representing a decrease of $726,000, or 39.8%. This decrease in income before provision for income taxes was due to a decrease in income from operations of $686,000 and a decrease in other income of $40,000.

Income before provision for income taxes for the nine months ended September 30, 2024, was $3,940,000, compared to income before provision for income taxes of $4,102,000 for the same period of 2023, representing a decrease of $162,000, or 3.9%. This decrease in income before provision for income taxes was due to a decrease in income from operations of $386,000, partially offset by an increase in other income of $224,000.

Provision for Income Taxes. The provision for income taxes for the three months ended September 30, 2024, was $237,000, compared to $395,000 for the same period of 2023. The estimated effective tax rate was 21.6% for the three months ended September 30, 2024, compared to the same 21.6% for the three months ended September 30, 2023.

The provision for income taxes for the nine months ended September 30, 2024, was $858,000, compared to $974,000 for the same period of 2023. The estimated effective tax rate was 21.8% for the nine months ended September 30, 2024, compared to 23.7% for the nine months ended September 30, 2023.

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, 2024, was $862,000 compared to net income of $1,430,000 for the same period of 2023, representing a decrease of $568,000, or 39.7%. The net income decrease between 2024 and 2023 was due to a decrease in income before provision for income taxes of $726,000, partially offset by a decrease in provision for income taxes of $158,000. Net income as a percentage of net sales for the three months ended September 30, 2024, was 6.0%, and net income as a percentage of net sales for the same period of 2023 was 8.9%. Basic and diluted earnings per common share for each of the three months ended September 30, 2024 and 2023, was $0.08 and $0.12, respectively.

Net income for the nine months ended September 30, 2024, was $3,082,000 compared to net income of $3,128,000 for the same period of 2023, representing a decrease of $46,000, or 1.5%. The net income decrease between 2024 and 2023 was due to a decrease in income before provision for income taxes of $162,000, partially offset by a decrease in provision for income taxes of $116,000. Net income as a percentage of net sales for the nine months ended September 30, 2024, was 7.0%, and net income as a percentage of net sales for the same period of 2023 was 6.8%. Basic and diluted earnings per common share for each of the nine months ended September 30, 2024 and 2023, was $0.28 and $0.26, respectively

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2024, the Company had cash and cash equivalents (“cash”) of $18,394,000 and working capital of $48,704,000. As of September 30, 2024, the Company’s current ratio (current assets/current liabilities) was 19:1, compared to a current ratio of 21:1 as of December 31, 2023. Cash decreased by 9.7%, or $1,984,000, to $18,394,000 as of September 30, 2024, compared to $20,378,000 as of December 31, 2023, and working capital decreased by $1,794,000, to $48,704,000, from $50,498,000 as of December 31, 2023. The decrease in cash from December 31, 2023, was due to cash used in investing activities of $2,333,000 and cash used in financing activities of $2,936,000, partially offset by cash provided by operating activities of $3,285,000.

Net cash provided by operating activities of $3,285,000 for the nine months ended September 30, 2024, was due to net income of $3,082,000, as adjusted primarily by the following: stock-based compensation expense of $327,000, depreciation and amortization expense of $734,000, equity in income of unconsolidated affiliate of $435,000, gain on sales of assets of $30,000, operating lease asset amortization of $674,000, an increase in accounts receivable of $274,000, a decrease in prepaid expenses of $342,000, an increase in inventory of $946,000, a decrease in accounts payable and accrued liabilities of $70,000, and a decrease in lease liabilities of $667,000, all compared to December 31, 2023.

Accounts receivable decreased by $274,000, or 4.2%, to $6,271,000 as of September 30, 2024, from $6,545,000 as of December 31, 2023. The decrease in accounts receivable was primarily related to lower sales in the third quarter of 2024. The number of days that sales remained outstanding as of September 30, 2024, calculated by using an average of accounts receivable outstanding and annual revenue, was 41 days, compared to 40 days as of December 31, 2023.

Inventory increased by $946,000, or 4.7%, to $21,077,000 as of September 30, 2024, from $20,131,000 as of December 31, 2023. The increase was due to an increase in inventory for the Building Supply segment of $2,343,000, or 33.6%, to $9,313,000, partially offset by a decrease in inventory for the Disposable Protective Apparel segment of $1,397,000, or 10.6%, to $11,764,000.

Prepaid expenses decreased by $342,000, or 5.7%, to $5,668,000 as of September 30, 2024, from $6,010,000 as of December 31, 2023. The decrease was primarily due to a decrease in prepaid equipment.

Right-of-use assets as of September 30, 2024, increased by $4,129,000 to $8,939,000 from $4,810,000 as of December 31, 2023, primarily as a result of our new Nogales, Arizona lease, partially offset by amortization of the right of use asset.

Lease liabilities as of September 30, 2024, increased by $4,136,000 to $8,984,000 from $4,848,000 as of December 31, 2023. The increase in the lease liabilities was primarily the result of our new Nogales, Arizona lease in March 2024 and the assumption we will lease that facility for at least 5 years, partially offset by lease payments made during the period.

Accounts payable and accrued liabilities as of September 30, 2024, decreased by $70,000, or 3.7%, to $1,835,000, from $1,905,000 as of December 31, 2023. The decrease was primarily due to a decrease in accrued bonuses.

Net cash used in investing activities was $2,333,000 for the nine months ended September 30, 2024, compared to net cash used in investing activities of $487,000 for the same period of 2023. Investing activities for the nine months ended September 30, 2024 and 2023, consisted of the purchase of property and equipment primarily for our Building Supply segment partially offset by the sale of assets.

Net cash used in financing activities was $2,936,000 for the nine months ended September 30, 2024, compared to net cash used in financing activities of $2,569,000 for the same period of 2023. 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. Net cash used in financing activities for the nine months ended September 30, 2023, resulted from the payment of $2,979,000 for the repurchase of common stock and $30,000 for treasury stock excise tax, partially offset by $440,000 in proceeds from the exercise of stock options.

As of September 30, 2024, we had $1,463,000 available for stock purchases under our stock repurchase program. During the nine months ended September 30, 2024, we repurchased 695,000 shares of common stock at a cost of $3,731,000. As of September 30, 2024, we had repurchased a total of 21,106,627 shares of common stock at a cost of approximately $54,057,000 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 is effective for fiscal years beginning after December 15, 2024. The Company is evaluating the impact the adoption of this guidance will have on its consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses, and is effective for fiscal years beginning after December 31, 2023 and for interim periods within fiscal years beginning after December 15, 2024 on a retrospective basis. The Company is currently evaluating the impact of this standard on the consolidated financial statements.

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

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide the information otherwise required by this Item.

ITEM 4.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

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 September 30, 2024, 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.

Changes in Internal Control Over Financial Reporting

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.

PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

On June 7, 2022, the Company filed a lawsuit (the “Lawsuit”) in Utah naming as defendants the vendors from which the Company ordered equipment for its facility in Utah (collectively the “Defendants”). The Lawsuit relates to certain equipment ordered from Defendants and paid for by the Company, which Defendants never delivered. In the Lawsuit the Company is seeking the following relief: compensatory damages in the amount $490,000, representing the money the Company paid for the machines it never received, lost profits in the form of mask sales it could have made if Defendants had delivered the machines on the promised date, and other monetary and equitable relief. In 2022, the Company wrote off the $490,000 balance of the deposit paid for the equipment, pending any recovery in the Lawsuit. As of the date hereof, no counterclaims have been asserted against the Company. The Company believes there would not be any meritorious claims against the Company in the Lawsuit. The final outcome of the Lawsuit, including the potential amount of any recovery for the Company’s claims, is uncertain. Any potential recovery represents a gain contingency in accordance with ASC 450, Contingencies, that has not been recorded as the matter was not resolved as of September 30, 2024. Any recovery will be recorded when received. 

The Company is subject to various pending and threatened litigation actions in the ordinary course of business. Although it is not possible to determine with certainty at this point in time what liability, if any, the Company will have as a result of such litigation, based on consultation with legal counsel, management does not anticipate that the ultimate liability, if any, resulting from such litigation will have a material effect on the Company’s financial condition and results of operations.

ITEM 1A.  RISK FACTORS

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 2023 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 2023 Form 10-K.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES

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:

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

We did not sell any unregistered equity securities during the periods covered by this Quarterly Report on Form 10-Q.

ITEM 6.  EXHIBITS

SIGNATURES

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.