Alpha Pro Tech Ltd: Form 10-Q for the period ended Jun 30, 2023

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, 2022, filed with the Securities and Exchange Commission (the “SEC”) on March 16, 2023 (the “2022 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 2023 and 2024, 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:

• We are exposed to foreign currency exchange risks related to our unconsolidated affiliate operations in India.
• Failure to remediate the material weakness in our internal control over financial reporting could result in us being unable to accurately and timely report our financial results or comply with the requirements of being a public company, which would adversely affect us.
• We are subject to risks associated with our joint venture.
• The effects of the COVID-19 pandemic, including effects on the business and operations of those within our supply chain and on global economic conditions generally, which have had, and could continue to have, a material adverse effect on our business, financial results and results of operations.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• 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.
• The Company’s future results may be affected by various legal and regulatory proceedings and legal compliance risks.
• 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 2022 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 2022 Form 10-K. Since December 31, 2022, there have been no material changes to our critical accounting policies and estimates as described in the 2022 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 and housewrap accessories and synthetic roof underlayment 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 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 Six months ended June 30, 2023 compared to Three and Six months ended June 30, 2022

Sales. Consolidated sales for the quarter ended June 30, 2023 decreased to $16,115,000, from $17,373,000 for the quarter ended June 30, 2022, representing a decrease of $1,258,000, or 7.2%. This decrease consisted of decreased sales in both the Building Supply segment of $280,000 and the Disposable Protective Apparel segment of $978,000.

Building Supply segment sales for the quarter ended June 30, 2023 decreased by $280,000, or 2.6%, to $10,537,000, compared to $10,817,000 for the quarter ended June 30, 2022. The Building Supply segment had a record sales quarter in our core building products (house wrap and synthetic roof underlayment, excluding other woven material), including an increase in sales of housewrap of 17.6% and an increase in sales of synthetic roof underlayment of 0.9%, for an overall increase of 8.6%. Sales of other woven material decreased by 45.5% compared to the same period of 2022. The sales mix of the Building Supply segment for the quarter ended June 30, 2023 was approximately 40% for synthetic roof underlayment, 50% for housewrap and 10% for other woven material. That is compared to approximately 40% for synthetic roof underlayment, 42% for housewrap and 18% for other woven material for the quarter ended June 30, 2022. Our synthetic roof underlayment product line primarily includes REX SynFelt®, REX TECHNOply® and 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.

The housewrap market continues to be soft, due to a continued decrease in demand for new home starts as a result of interest rate hikes and economic uncertainty. In the second quarter of 2023, single family housing starts in the United States decreased by 14.5% compared to the same period a year ago. Our sales of housewrap and accessories, which increased by 17.6% in the second quarter of 2023 over the prior-year quarter, continue to significantly outperform the market through market diversification, product development and sales team expansion. Sales of our REX Wrap® and REX Wrap Plus®, our entry-level housewrap products, were up 11.6% over the prior-year quarter, despite the major decrease in housing starts, as we have continued to form relationships with additional dealers across the country. Management is encouraged by our growth opportunities with REX™ Wrap Fortis, our premium housewrap line, as we continue to make inroads into the multi-family and commercial construction sector, evidenced by an increase of 18.9% in sales in the second quarter of 2023. We also experienced a 195% increase in sales of housewrap accessories, REXTREME Window and Door Flashing and REX™ Premium Seam Tape, in the second quarter of 2023 over the prior-year quarter. Based on the number of jobs we are specified on and the potential for additional bids taking place, management expects that we will continue to see positive trends relative to the industry for both our entry level and premium housewrap product lines.

The synthetic roof underlayment market has also been significantly affected by the continued decrease in new home starts, as well as a push in the market to reduce product selling prices. Despite these pressures, synthetic roof underlayment sales also outperformed the market and were up 0.9% in the second quarter of 2023 compared to the second quarter of 2022. Management is encouraged by the trend in synthetic roof underlayment of it outperforming the market, especially as we should see an increase in sales as inventory is alleviated at the dealer and distribution level. In addition, we will be launching a new line of self-adhered roofing products in late 2023, which we expect will bring additional revenue to our synthetic roof underlayment line of products.

Other woven material sales decreased in the second quarter of 2023 compared to the same period of 2022 by 45.5% due to decreased sales to our major customer, product overstocks and the aforementioned economic slowdown. We do not expect other woven material to be a growth driver in 2023, but these products only represent approximately 10% of the Building Supply segment sales.

Recent capital investments in our Building Supply segment are expected to increase production capacity, allowing us to react to spikes in new construction and multi-family housing starts more quickly than some competitors with multiple month lead-times due to overseas production and shipping. Continued growth in the Building Supply segment is expected through the market’s reception of our best-in-class warranties. These include the highest and strongest coverages available in synthetic roof underlayment and full system warranties that apply to single-family, commercial and multi-family properties on our weather resistive barriers.

Sales for the Disposable Protective Apparel segment for the quarter ended June 30, 2023 decreased by $978,000, or 14.9%, to $5,578,000, compared to $6,556,000 for the same period of 2022. This segment experienced an increase of 7.6% in sales of disposable protective garments, offset by a 71.6% decrease in sales of face masks and an 84.4% decrease in sales of face shields.

The sales mix of the Disposable Protective Apparel segment for the quarter ended June 30, 2023 was approximately 93% for disposable protective garments, 5% for face masks and 2% for face shields. This sales mix is compared to approximately 74% for disposable protective garments, 14% for face masks and 12% for face shields for the quarter ended June 30, 2022.

Sales of disposable protective garments in the second quarter of 2023 were up 7.6% as our channel partners and our end customers are working through their inventory and their ordering patterns return to normal. In addition, our sales have been positively affected as we can now meet face-to-face with our distribution partners and end-customers, something we have not been able to do since 2020. Face mask and face shield sales are still suffering from the COVID-19 residual excess inventories at the distributor level. Comparatively, sales of face masks and face shields were higher than normal during the second quarter of 2022 due to the ongoing demand for COVID-19 products.

Consolidated sales for the six months ended June 30, 2023 decreased to $29,914,000 from $35,034,000 for the six months ended June 30, 2022, representing a decrease of $5,120,000, or 14.6%. This decrease consisted of decreased sales in the Building Supply segment of $1,887,000 and decreased sales in the Disposable Protective Apparel Segment of $3,233,000.

Building Supply segment sales for the six months ended June 30, 2023 decreased by $1,887,000, or 9.0%, to $19,167,000, compared to $21,054,000 for the same period of 2022. Sales of our core building products were down 4.5% since December 31, 2022, as an increase in sales of housewrap of 6.0% over the prior-year period was more than offset by a decrease in sales of synthetic roof underlayment of 15.0%. This increase in sales of housewrap was despite a 21.1% decrease in single family housing starts compared to the same period a year ago. Sales of other woven material decreased by 29.8% compared to the same period of 2022.

The sales mix of the Building Supply segment for the six months ended June 30, 2023 was 41% for synthetic roof underlayment, 48% for housewrap and 11% for other woven material. This compared to 44% for synthetic roof underlayment, 41% for housewrap and 15% for other woven material for the six months ended June 30, 2022.

Sales for the Disposable Protective Apparel segment for the six months ended June 30, 2023 decreased by $3,233,000, or 23.1%, to $10,747,000, compared to $13,980,000 for the same period of 2022. This segment decrease was due to an 8.9% increase in sales of disposable protective garments, that was more than offset by a 74.2% decrease in sales of face masks, and an 82.4% decrease in sales of face shields.

Sales of disposable protective garments for the six months ended June 30, 2023 were up 8.9% for the reasons as discussed above in the three months ended June 30, 2023 section. Face mask and face shield sales continue to be affected by excess inventories at the distributor level and in the marketplace.

The sales mix of the Disposable Protective Apparel segment for the six months ended June 30, 2023 was 89% for disposable protective garments, 8% for face masks and 3% for face shields. This sales mix is compared to 63% for disposable protective garments, 23% for face masks and 14% for face shields for the six months ended June 30, 2022.

Gross Profit. Gross profit increased by $494,000, or 8.8%, to $6,106,000 for the quarter ended June 30, 2023, from $5,612,000 for the quarter ended June 30, 2022. The gross profit margin was 37.9% for the quarter ended June 30, 2023, compared to 32.3% for the quarter ended June 30, 2022.

Gross profit decreased by $966,000, or 8.0%, to $11,088,000 for the six months ended June 30, 2023, from $12,054,000 for the same period of 2022. The gross profit margin was 37.1% for the six months ended June 30, 2023, compared to 34.4% for the same period of 2022.

The gross profit margin in 2023 has been positively affected by ocean freight rates which have come down since the latter part of 2022. Management expects the gross profit margin to be in a similar range throughout the balance of 2023, although the sales mix could affect gross margin.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $510,000, or 12.5%, to $4,575,000 for the quarter ended June 30, 2023, from $4,065,000 for the quarter ended June 30, 2022. As a percentage of net sales, selling, general and administrative expenses increased to 28.4% for the quarter ended June 30, 2023, from 23.4% for the same period of 2022.

The change in expenses by segment for the quarter ended June 30, 2023 was as follows: Disposable Protective Apparel expenses were down $79,000, or 6.2%; Building Supply expenses were up $412,000, or 26.3%; and corporate unallocated expenses were up $177,000, or 14.4%. The decrease in the Disposable Protective Apparel segment expenses was primarily related to decreased employee compensation, marketing and general factory expenses, partially offset by increased commission expenses. The increase in the Building Supply segment expenses was primarily related to increased employee compensation, insurance, travel expenses, marketing, commission and general factory expenses. The increase in corporate unallocated expenses was primarily due to employee compensation and professional fees.

Selling, general and administrative expenses increased by $517,000, or 6.2%, to $8,888,000 for the six months ended June 30, 2023, from $8,371,000 for the six months ended June 30, 2022. As a percentage of net sales, selling, general and administrative expenses increased to 29.7% for the six months ended June 30, 2023, up from 23.9% for the same period of 2022.

The change in expenses by segment for the six months ended June 30, 2023 was as follows: Disposable Protective Apparel expenses were down $57,000, or 2.3%; Building Supply expenses were up $586,000, or 17.9%; and corporate unallocated expenses were down $12,000, or 0.5%. The decrease in the Disposable Protective Apparel segment expenses was primarily related to decreased employee compensation, partially offset by increased marketing expenses. The increase in the Building Supply segment expenses was related to increased employee compensation, marketing, travel, insurance and general factory expenses, partially offset by decreased commission expense. The decrease in corporate unallocated expenses was primarily due to decreased accrued bonuses, stock option and restricted stock expenses, rent expense and insurance, partially offset by increased professional fees.

In accordance with the terms of his employment agreement, the Company’s current President and Chief Executive Officer is entitled to an annual bonus equal to 5% of the pre-tax profits of the Company, excluding bonus expense, up to a maximum of $1.0 million. A bonus amount of $83,000 was accrued for the three months ended June 30, 2023, compared to $47,000 for the three months ended June 30, 2022. A total of $120,000 has been accrued for the six months ended June 30, 2023, compared to $151,000 for the same period of 2022.

Depreciation and Amortization. Depreciation and amortization expense decreased by $8,000, or 3.5%, to $219,000 for the quarter ended June 30, 2023, from $227,000 for the quarter ended June 30, 2022. Depreciation and amortization expense increased by $23,000, or 5.2%, to $462,000 for the six months ended June 30, 2023, from $439,000 for the same period of 2022. The increase was primarily attributable to increased depreciation for machinery and equipment in the Building Supply segment.

Income from Operations. Income from operations decreased by $8,000, or 0.6%, to $1,312,000 for the quarter ended June 30, 2023, compared to $1,320,000 for the quarter ended June 30, 2022. The decreased income from operations was primarily due to an increase in selling, general and administrative expenses of $510,000, partially offset by an increase in gross profit of $494,000 and a decrease in depreciation and amortization expense of $8,000. Income from operations as a percentage of net sales for the quarter ended June 30, 2023 was 8.1%, compared to 7.6% for the same period of 2022.

Income from operations decreased by $1,506,000, or 46.4%, to $1,738,000 for the six months ended June 30, 2023, compared to $3,244,000 for the same period of 2022. The decreased income from operations was primarily due to a decrease in gross profit of $966,000, an increase in selling, general and administrative expenses of $517,000 and an increase in depreciation and amortization expense of $23,000. Income from operations as a percentage of net sales for the six months ended June 30, 2023 was 5.8%, compared to 9.3% for the same period of 2022.

Other Income. Other income increased by $702,000, to $272,000 for the quarter ended June 30, 2023, from a loss of $430,000 for the same period of 2022. The increase was primarily due to an increase in equity in income of unconsolidated affiliate of $53,000 and an increase in interest income of $159,000. In addition, there was a loss on fixed assets of $490,000 during the same period of 2022 due to equipment for the Disposable Protective Apparel segment that was not delivered. The Company has filed a lawsuit in this matter (see Part II, Item 1, “Legal Proceedings,” for more information).

Other income increased by $919,000, to $539,000 for the six months ended June 30, 2023, from a loss of $380,000 for the same period of 2022. The increase was primarily due to an increase in equity in income of unconsolidated affiliate of $113,000 and an increase in interest income of $316,000. In addition, as mentioned above, there was a loss on fixed assets of $490,000 during the same period of 2022.

Income before Provision for Income Taxes. Income before provision for income taxes for the quarter ended June 30, 2023 was $1,584,000, compared to income before provision for income taxes of $890,000 for the same period of 2022, representing an increase of $694,000, or 78.0%. This increase in income before provision for income taxes was due to an increase in other income of $702,000, partially offset by a decrease in income from operations of $8,000.

Income before provision for income taxes for the six months ended June 30, 2023 was $2,277,000, compared to income before provision for income taxes of $2,864,000 for the same period of 2022, representing a decrease of $587,000, or 20.5%. This decrease in income before provision for income taxes was due to a decrease in income from operations of $1,506,000, partially offset by an increase in other income of $919,000.

Provision for Income Taxes. The provision for income taxes for the quarter ended June 30, 2023 was $438,000, compared to $197,000 for the same period of 2022. The estimated effective tax rate was 27.7% for the quarter ended June 30, 2023, compared to 22.1% for the quarter ended June 30, 2022. The Company does not record a tax provision on equity in income of unconsolidated affiliate, which reduces the effective tax rate.

The provision for income taxes for the six months ended June 30, 2023 was $579,000, compared to $649,000 for the same period of 2022. The estimated effective tax rate was 25.4% for the six months ended June 30, 2023, compared to 22.7% for the six months ended June 30, 2022. 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 quarter ended June 30, 2023 was $1,146,000, compared to net income of $693,000 for the same period of 2022, representing an increase of $453,000, or 65.4%. The net income increase comparing the second quarter of 2023 and 2022 was due to an increase in income before provision for income taxes of $694,000, partially offset by an increase in provision for income taxes of $241,000. Net income as a percentage of net sales for the quarter ended June 30, 2023 was 7.1%, and net income as a percentage of net sales for the same period of 2022 was 4.0%. Basic and diluted earnings per common share for the quarter ended June 30, 2023 and 2022 were $0.10 and $0.05, respectively.

Net income for the six months ended June 30, 2023 was $1,698,000, compared to net income of $2,215,000 for the same period of 2022, representing a decrease of $517,000, or 23.3%. The net income decrease comparing the 2023 and 2022 periods was due to a decrease in income before provision for income taxes of $587,000, partially offset by a decrease in provision for income taxes of $70,000. Net income as a percentage of net sales for the six months ended June 30, 2023 was 5.7%, and net income as a percentage of net sales for the same period of 2022 was 6.3%. Basic and diluted earnings per common share for the six months ended June 30, 2023 and 2022 were $0.14 and $0.17, respectively.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2023, the Company had cash and cash equivalents (“cash”) of $15,349,000 and working capital of $50,338,000. As of June 30, 2023, the Company’s current ratio (current assets/current liabilities) was 27:1, compared to a current ratio of 22:1 as of December 31, 2022. Cash decreased by 5.8%, or $941,000 to $15,349,000 as of June 30, 2023, compared to $16,290,000 as of December 31, 2022, and working capital increased by $182,000 from $50,156,000 as of December 31, 2022. The decrease in cash from December 31, 2022, was due to cash used in investing activities of $390,000 and cash used in financing activities of $1,538,000 partially offset by cash provided by operating activities of $987,000.

Net cash provided by operating activities of $987,000 for the six months ended June 30, 2023 was due to net income of $1,698,000, as adjusted primarily by the following: stock-based compensation expense of $44,000, depreciation and amortization expense of $462,000, equity in income of unconsolidated affiliate of $212,000, operating lease expense net of accretion of $461,000, an increase in accounts receivable of $3,213,000, a decrease in accounts receivable related party of $665,000, an increase in prepaid expenses of $519,000, a decrease in inventory of $2,426,000, a decrease in accounts payable and accrued liabilities of $360,000, and a decrease in lease liabilities of $465,000, all compared to December 31, 2022.

Accounts receivable increased by $2,548,000, or 36.5%, to $9,521,000 as of June 30, 2023, from $6,973,000 as of December 31, 2022. The increase in accounts receivable was primarily related to higher sales in June 2023 compared to December 2022. The number of days that sales remained outstanding as of June 30, 2023, calculated by using an average of accounts receivable outstanding and annual revenue, was 53 days, compared to 35 days as of December 31, 2022.

Inventory decreased by $2,426,000, or 9.9%, to $21,971,000 as of June 30, 2023, from $24,397,000 as of December 31, 2022. The decrease was due to a decrease in inventory for the Disposable Protective Apparel segment of $1,155,000, or 8.0%, to $13,230,000 and a decrease in inventory for the Building Supply segment of $1,271,000, or 12.7%, to $8,741,000.

Prepaid expenses increased by $519,000, or 10.6%, to $5,421,000 as of June 30, 2023, from $4,902,000 as of December 31, 2022. The increase was primarily due to increased prepaid inventory and increased prepayments for insurance.

Right-of-use assets as of June 30, 2023, decreased by $461,000 to $1,264,000 from $1,725,000 as of December 31, 2022, as a result of amortization of the balance.

Lease liabilities as of June 30, 2023, decreased by $465,000 to $1,309,000 from $1,774,000 as of December 31, 2022. The decrease in lease liabilities was the result of lease payments made during the six months ended June 30, 2023.

Accounts payable and accrued liabilities as of June 30, 2023, decreased by $360,000, or 23.9%, to $1,147,000, from $1,507,000 as of December 31, 2022. The decrease was primarily due to a decrease in accrued bonuses and commission.

Net cash used in investing activities was $390,000 for the six months ended June 30, 2023, compared to net cash used in investing activities of $222,000 for the same period of 2022. Investing activities for the six months ended June 30, 2023 and 2022 consisted of the purchase of property and equipment.

Net cash used in financing activities was $1,538,000 for the six months ended June 30, 2023, compared to net cash used in financing activities of $1,686,000 for the same period of 2022. Net cash used in financing activities for the six months ended June 30, 2023 resulted from the payment of $1,941,000 for the repurchase of common stock partially offset by the proceeds of $403,000 from the exercise of stock options. Net cash used in financing activities for the six months ended June 30, 2022 resulted from the payment of $1,716,000 for the repurchase of common stock partially offset by proceeds of $30,000 from the exercise of stock options.

As of June 30, 2023, we had $2,265,000 available for additional stock purchases under our stock repurchase program. During the six months ended June 30, 2023, we repurchased 475,000 shares of common stock at a cost of $1,930,000. As of June 30, 2023, we had repurchased a total of 20,135,617 shares of common stock at a cost of approximately $48,288,000 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

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

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 June 30, 2023, 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.

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 2022 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 2022 Form 10-K.