You should read the following discussion and analysis together with our condensed consolidated financial statements (unaudited) and the notes to our condensed consolidated financial statements (unaudited), which are included elsewhere in this report, and our audited financial statements and the notes thereto, which appear in our Form 10-K for the year ended December 31, 2011.

Special Note Regarding Forward-Looking Statements

Certain information set forth in this 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 relating to potential acquisitions, 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. All forward-looking statements, whether written or oral and whether made by us or on our behalf, also are expressly qualified by this special note.

Our forward-looking statements are based upon our current expectations and various assumptions. Our expectations, beliefs and projections are expressed in good faith, and we believe that there is a reasonable basis for them, including, without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties. However, we cannot assure you that management's expectations, beliefs and projections will result or be achieved or accomplished. Our forward-looking statements apply only as of the date made. Except as required by law, we undertake no obligation to publicly update or revise forward-looking statements that may be made to reflect events or circumstances after the date made or to reflect the occurrence of unanticipated events.

Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors. These and many other factors could affect Alpha Pro Tech, Ltd.'s ("Alpha Pro Tech" or the "Company") 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 Alpha Pro Tech, or on its behalf.

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

Critical Accounting Policies

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 reported periods. 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 critical accounting polices include the following:

Accounts Receivable: Accounts receivable is recorded at the invoice amount and do not bear interest. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable; however, changes in circumstances relating to accounts receivable may result in a requirement for additional allowances in the future. The Company determines the allowance based upon historical write-off experience and known conditions about customers' current ability to pay. Account balances are charged against the allowance after all collection efforts have been exhausted and the potential for recovery is considered remote.

Alpha Pro Tech, Ltd.

Inventories: Inventories include freight-in, materials, labor and overhead costs and are stated at the lower of cost (computed on a standard cost basis, which approximates average cost) or market. 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 market 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.

Revenue Recognition: For sales transactions, we comply with the provisions of the Securities and Exchange Commission ("SEC") Staff Accounting Bulletin No. 104, Revenue Recognition, which states that revenue should be recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) title transfers and the customer assumes the risk of loss; (3) the selling price is fixed or determinable; and (4) collection of the resulting receivable is reasonably assured. These criteria are satisfied upon shipment of product, and revenues are recognized accordingly.

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

Stock Based Compensation: Alpha Pro Tech accounts for stock based awards using FASB Accounting Standards Codification ("ASC") 718, Stock Compensation ("ASC 718"). 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-Merton 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 of the U.S. Treasury yield curve in effect at the time of grant, years to maturity based on historical data and no dividend yield, as management currently does not expect the Company to pay dividends in the near future. The Black-Scholes-Merton 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 their fair value.

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 building supply construction weatherization products, as well as a line of high-value, disposable protective apparel and infection control products for the cleanroom, industrial, pharmaceutical, medical and dental markets. Our products are sold under the "Alpha Pro Tech" brand name, as well as under private label.

Our products are grouped into three business segments: the Building Supply segment, consisting of construction weatherization products, such as housewrap and synthetic roof underlayment; the Disposable Protective Apparel segment, consisting of disposable protective apparel such as shoecovers, bouffant caps, gowns, coveralls, lab coats, frocks and other miscellaneous products; and the Infection Control segment, consisting of face masks and eye shields. All financial information presented herein reflects the current segmentation.

Alpha Pro Tech, Ltd.

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 sales
for the periods indicated:

                                                              For the Three Months Ended March 31,
                                                                 2012                       2011
Net sales                                                             100.0 %                    100.0 %
Gross profit                                                           35.6 %                     36.6 %
Selling, general and administrative expenses                           33.8 %                     37.8 %
Loss from operations                                                   (0.4 )%                    (3.9 )%
Income (loss) before provision for (benefit from) income
taxes                                                                   1.2 %                     (2.0 )%
Net income (loss)                                                       0.7 %                     (1.3 )%

Three Months ended March 31, 2012 compared to Three Months ended March 31, 2011

Sales. Consolidated sales for the three months ended March 31, 2012 increased to $9,619,000 from $8,945,000 for the three months ended March 31, 2011, representing an increase of $674,000, or 7.5%. This increase consisted of increased sales in the Building Supply segment of $844,000 and increased sales in the Disposable Protective Apparel segment of $7,000, partially offset by decreased sales in the Infection Control segment of $177,000.

Building Supply segment sales for the three months ended March 31, 2012 increased by $844,000, or 17.8%, to $5,591,000, as compared to $4,747,000 for the same period of 2011. The segment increase of 17.8% was primarily due to a 22.2% increase in sales of REX™ SynFelt synthetic roof underlayment and a 6.3% increase in sales of REX™ Wrap housewrap. The sales mix of the Building Supply segment for the three months ended March 31, 2012 was 69% for synthetic roof underlayment and 31% for housewrap. This compared to 66% for synthetic roof underlayment and 34% for housewrap for the three months ended March 31, 2011.

We continue to innovate our Building Supply segment product line and in the first quarter we launched TECHNOply™, an economy version of our synthetic roof underlayment, to capture market share in the lower end of the market. This product is expected to start contributing to the top line in the second quarter of 2012. In addition, sales of our REX™ Wrap Fortis non-perforated breathable housewrap, introduced in 2011, have been slower than anticipated, but the product is expected to start contributing more significantly to the sales line during 2012, as this product category accounts for the majority of the housewrap market.

We continue to be optimistic about the future of the Building Supply segment as our distribution channel strategy continues to broaden, and we continue to grow year over year even during these difficult economic times and weak building market. We feel that we are in a good position to capitalize on growth opportunities for our REX™ SynFelt synthetic roof underlayment as the market continues to evolve from felt paper to synthetic roof underlayment. In addition, we believe that our REX™ Wrap housewrap, a high-quality, multi-color and custom printed housewrap, gives us a distinct competitive advantage in the marketplace. When the economy and housing market recovers, we believe, that we will be in a position to benefit from the significant growth opportunities.

Alpha Pro Tech, Ltd.

Sales for the Disposable Protective Apparel segment for the three months ended March 31, 2012 increased slightly by $7,000, or 0.2%, to $2,914,000, compared to $2,907,000 for the same period of 2011. The increase was primarily due to a 22.0% increase in sales of disposable protective apparel to our major international supply chain partner, partially offset by a significant decline in sales to our former largest distributor. Sales to this distributor, who launched its own competing line of products, were significant until the beginning of the second quarter of 2011. With management's emphasis on developing a more diversified and broader distribution strategy for our Critical Cover® protective apparel product line, we believe that we will grow our market share and are encouraged by growth opportunities that we are pursuing.

Infection Control segment sales for the three months ended March 31, 2012 decreased by $177,000, or 13.7%, to $1,114,000, compared to $1,291,000 for the same period of 2011. Mask sales were down by 11.0%, or $92,000, to $746,000, and medical bed pad and pet bed sales were down by $102,000, to $0, as this product line was sold in the first quarter of 2011, partially offset by an increase in shield sales of 4.8%, or $17,000, to $368,000. The overall mask sales decrease for the first quarter of 2012 was primarily due to a decline in industrial mask sales as a result of our previous largest industrial distributor launching its own line of masks.

Gross Profit. Gross profit increased by $152,000, or 4.6%, to $3,425,000 for the three months ended March 31, 2012 from $3,273,000 for the same period of 2011. The gross profit margin was 35.6% for the three months ended March 31, 2012, compared to 36.6% for the same period of 2011.

Gross profit margin for the first quarter of 2012 was affected by the change in product mix in which Building Supply segment sales, which have lower margins, increased as a percentage of total sales. Building Supply segment sales comprised 58.1% of total sales for the three months ended March 31, 2012, compared to 53.1% for the same period of 2011. In addition, Building Supply segment gross profit has declined due to increased raw material costs and competitive pricing pressures.

Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased by $132,000, or 3.9%, to $3,250,000 for the three months ended March 31, 2012 from $3,382,000 for the three months ended March 31, 2011. As a percentage of net sales, selling, general and administrative expenses decreased to 33.8% for the three months ended March 31, 2012 from 37.8% for the same period in 2011.

The change in expense by segment was as follows: Building Supply was down $97,000, or 8.0% and Infection Control was down $91,000, or 33.2%. Disposable Protective Apparel was up $97,000, or 12.6%. The remaining change primarily consisted of a $41,000 decrease in corporate unallocated expenses.

The Company's Chief Executive Officer and President are each entitled to a bonus equal to 5% of the pre-tax profits of the Company, excluding bonus expense. Bonuses of $13,000 were accrued for the three months ended March 31, 2012, as compared to no bonuses in the same period of 2011.

Depreciation and Amortization. Depreciation and amortization expense decreased by $27,000, or 11.1%, to $216,000 for the three months ended March 31, 2012 from $243,000 for the same period in 2011. The decrease for the quarter was primarily attributable to decreased depreciation expense related to the Building Supply segment.

Loss from Operations. Loss from operations was reduced by $311,000, or 88.4%, to a loss from operations of $41,000 for the three months ended March 31, 2012, as compared to a loss from operations of $352,000 for the three months ended March 31, 2011. The reduction was due to an increase in gross profit of $152,000, a decrease in selling, general and administrative expenses of $132,000 and a decrease in depreciation and amortization of $27,000.

Equity in Income of Unconsolidated Affiliate. For the three months ended March 31, 2012, we recorded equity in income of unconsolidated affiliate of $147,000, as compared to $127,000 for the same period of 2011.

Net Gain on Sales of Assets. On February 8, 2011, we entered into an asset purchase agreement to sell our line of pet beds and, on March 30, 2011, entered into a second asset purchase agreement, with the same principal purchaser, to sell our line of medical bed pads. As consideration for the acquired assets, we received $235,000, which was comprised of $181,000 of inventory sold at cost, plus an additional $54,000 in compensation for non-inventory assets and goodwill. The net gain from these two transactions was $41,000. In addition, we signed a three year non-compete agreement that covers these product lines.

Alpha Pro Tech, Ltd.

Income (Loss) before Provision for (Benefit from) Income Taxes. Income before provision for income taxes for the three months ended March 31, 2012 was $112,000, compared to a loss before benefit from income taxes of $178,000 for the three months ended March 31, 2011, representing an increase of $290,000, or 162.9%. The increase in income before provision for income taxes was due primarily to an increase in income from operations of $311,000 and an increase of $20,000 in equity in income of unconsolidated affiliate, partially offset by a decrease of $41,000 due to the net gain on sales of assets last year.

Provision for (Benefit from) Income Taxes. The provision for income taxes for the three months ended March 31, 2012 was $42,000, compared to a benefit from income taxes of $66,000 for the same period of 2011. The estimated effective tax rate was 37.5% for the three months ended March 31, 2012, compared to 37.0% for the same period in 2011.

Net Income (Loss). Net income for the three months ended March 31, 2012 was $70,000, compared to a net loss of $112,000 for the three months ended March 31, 2011, an increase of $182,000, or 162.5%. The increase was primarily due to an increase in income before provision for income taxes of $290,000, partially offset by an increase in income taxes of $108,000. Net income as a percentage of sales for the three months ended March 31, 2012 was 0.7%, and net loss as a percentage of sales for the same period of 2011 was 1.3%. Basic and diluted net income (loss) per common share for the three months ended March 31, 2012 was $0.00, and basic and diluted loss per common share for the same period of 2011 was $(0.00).

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2012, we had cash and cash equivalents of $5,462,000 and working capital of $29,361,000, representing a decrease in working capital of 1.3%, or $377,000, since December 31, 2011. As of March 31, 2012, our current ratio was 25:1, compared to 35:1 as of December 31, 2011. Cash and cash equivalents decreased by 27.2%, or $2,041,000, to $5,462,000 as of March 31, 2012, compared to $7,503,000 as of December 31, 2011. The decrease in cash and cash equivalents was due to cash used in operating activities of $1,468,000, cash used in financing activities of $368,000 and cash used in investing activities of $205,000.

We have a $3,500,000 credit facility with Wells Fargo Bank, consisting of a line of credit with interest at prime plus 0.5%. As of March 31, 2012, the prime interest rate was 3.25%. This credit line expires in May 2012 and is expected to be renewed. Our borrowing capacity on the line of credit was $3,500,000 as of March 31, 2012. The available line of credit is based on a formula of eligible accounts receivable and inventories. As of March 31, 2012, we did not have any borrowings under this credit facility.

Net cash used in operating activities was $1,468,000 for the three months ended March 31, 2012, compared to net cash used in operating activities of $2,704,000 for the three months ended March 31, 2011. The net cash used in operating activities of $1,468,000 for the three months ended March 31, 2012 was due to net income of $70,000, adjusted by the following: amortization of share-based compensation expense of $57,000, depreciation and amortization of $216,000, equity in income of unconsolidated affiliate of $147,000, an increase in accounts receivable of $1,706,000, a decrease in inventory of $708,000, an increase in prepaid expenses of $1,017,000 and an increase in accounts payable and accrued liabilities of $351,000.

Accounts receivable increased by $1,706,000, or 36.1%, to $6,431,000 as of March 31, 2012 from $4,725,000 as of December 31, 2011. The number of days of sales outstanding as of March 31, 2012 was 53 days, compared to 41 days as of December 31, 2011. The increase in accounts receivable, as well as the days sales outstanding, was primarily a result of increased sales in the latter part of the first quarter of 2012, as compared to the latter part of the fourth quarter of 2011. Also, extended payment terms were given to certain Building Supply segment customers for us to remain competitive, as our competition offers these extended payment terms as well.

Inventory decreased by $708,000, or 4.5%, to $14,858,000 as of March 31, 2012 from $15,566,000 as of December 31, 2011. The decrease was primarily due to a decrease in inventory for the Disposable Protective Apparel segment of $651,000, or 14.2%, to $3,959,000 as of March 31, 2012. Inventory for the Infection Control segment decreased by $162,000, or 4.2%, to $3,657,000 as of March 31, 2012. In addition, inventory for the Building Supply segment increased by $105,000, or 1.5%, to $7,242,000 as of March 31, 2012.

Prepaid expenses increased by $1,017,000, or 45.3%, to $3,260,000 as of March 31, 2012 from $2,243,000 as of December 31, 2011. The increase was primarily due to an increase in prepaid deposits on inventory from Asia.

Alpha Pro Tech, Ltd.

Accounts payable and accrued liabilities as of March 31, 2012 increased by $351,000, or 40.3%, to $1,222,000 from $871,000 as of December 31, 2011. The change was primarily due to an increase in trade payables of $263,000 and an increase in accrued liabilities of $88,000.

Net cash used in investing activities was $368,000 for the three months ended March 31, 2012, compared to net cash provided by investing activities of $189,000 for the same period of 2011. Our investing activities for the three months ended March 31, 2012 consisted primarily of the purchase of property and equipment of $366,000 and the purchase of intangible assets of $2,000. Our investing activities for the three months ended March 31, 2011 consisted primarily of the cash proceeds from the sale of the pet bed and medical bed pad lines of $235,000, offset by the purchase of property and equipment of $45,000 and intangible assets of $1,000.

Net cash used in financing activities was $205,000 for the three months ended March 31, 2012, compared to net cash provided by financing activities of $16,000 for the same period of 2011. Our net cash used in financing activities for the three months ended March 31, 2012 was due to the payment of $205,000 for the repurchase of common stock, compared to the proceeds of $16,000 from the exercise of stock options for the same period of 2011.

As of March 31, 2012, we had $1,104,000 available for additional stock purchases under our stock repurchase program. For the three months ended March 31, 2012, we repurchased 151,350 shares of common stock at a cost of $205,000. As of March 31, 2012, we had repurchased a total of 7,659,928 shares of common stock at a cost of $9,416,000 through our repurchase program. We retire all stock upon its repurchase. Future repurchases are expected to be funded from cash on hand and cash flows from operating activities.

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

New Accounting Standards

In December 2010, the FASB issued Accounting Standards Update No. 2010-28 ("ASU No. 2010-28"), Intangibles-Goodwill and Other (Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts, which modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The amendments in ASU No. 2010-28 are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. As a result of the adoption of the amendments, any resulting goodwill impairment should be recorded as a cumulative-effect adjustment to beginning retained earnings in the period of adoption. Any goodwill impairments occurring after the initial adoption of the amendments should be included in earnings. The adoption of this guidance did not have a significant impact on the Company's consolidated results of operations or its consolidated financial position.

In September 2011, the FASB issued Accounting Standards Update No. 2011-08 ("ASU No. 2011-08"), Intangibles - Goodwill and Other (Topic 350),Testing Goodwill for Impairment. The amendments in ASU No. 2011-08 provide guidance on testing goodwill for impairment. The new guidance provides an entity the option to first perform a qualitative assessment to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If an entity determines that this is the case, it is required to perform the currently prescribed two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized for that reporting unit, if any. If an entity determines that the carrying amount of a reporting unit is less than its fair value amount, the two-step goodwill impairment test is not required. This guidance is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011 with early adoption permitted. The adoption of this guidance did not have a significant impact on the Company's consolidated results of operations or its consolidated financial position.

Management periodically reviews new accounting standards that are issued. Although some of these accounting standards may be applicable to the . . .